High-Margin Ancillary Services Will Transform Long-Term Earnings Power

Catalysts

About Real Brokerage

Real Brokerage is a technology driven real estate platform that combines a virtual brokerage model with software, financial products and ancillary services for agents and their clients.

What are the underlying business or industry changes driving this perspective?

• Rapidly scaling, highly productive agent network, now exceeding 30,000 agents with nearly 50% transaction growth, positions Real to keep taking share from traditional brokerages and to drive sustained double digit revenue growth as industry volume normalizes.
• Expansion of high margin ancillary services such as One Real Mortgage, One Real Title and Real Wallet, supported by rising attach rates and state based JVs, creates a growing mix shift toward 5 to 8 times higher gross margin revenue streams that can materially lift overall gross margin and earnings.
• Embedded financial ecosystem for agents, including Real Wallet business banking, rewards and Real Wallet Capital, deepens platform stickiness and share of wallet, which should support lower churn, higher lifetime revenue per agent and structurally stronger net margins.
• Persistent investment in AI and automation through Leo CoPilot and workflow tools is already removing tens of thousands of hours of manual work, enabling Real to process more transactions with minimal head count growth and driving ongoing operating expense leverage and EBITDA margin improvement.
• Large and underpenetrated North American opportunity, including continued geographic expansion in Canada and deeper penetration in existing U.S. states, supports a long runway for organic agent and transaction growth that can compound revenue while fixed costs grow at a slower pace, expanding operating income over time.

Assumptions

This narrative explores a more optimistic perspective on Real Brokerage compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Real Brokerage's revenue will grow by 25.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.6% today to 1.2% in 3 years time.
• The bullish analysts expect earnings to reach $41.9 million (and earnings per share of $0.18) by about December 2028, up from $-10.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $36.8 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 57.0x on those 2028 earnings, up from -84.6x today. This future PE is greater than the current PE for the US Real Estate industry at 30.2x.
• The bullish analysts expect the number of shares outstanding to grow by 3.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.63%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Real remains heavily tied to the cyclical North American housing market, and management already expects a seasonal revenue decline and lower gross margin in the fourth quarter. A prolonged period of weak transaction volumes or home price stagnation could slow agent productivity gains and materially constrain revenue growth.
• The strategy depends on rapidly scaling high margin ancillary services such as Title, Mortgage and Real Wallet, yet these collectively generated only $3.2 million of revenue and a $1.3 million operating loss in the quarter. Slower than expected adoption or execution missteps in state based JVs and new fintech products could delay the anticipated gross margin uplift and weigh on earnings.
• As more agents hit their commission cap, the share of lower fee post cap transactions already rose roughly 500 basis points year over year to an estimated 45 percent of volume. If this mix shift does not normalize as management expects, structurally lower take rates could offset transaction growth and pressure long term gross margins and operating income.
• The model relies on generous revenue share and substantial stock based compensation, with revenue share expense up 35 percent to $15.6 million and total stock based compensation of $19.9 million. Rising incentive costs or future dilution needed to retain and attract agents could erode net margins and reduce the per share benefit of earnings growth.
• Real is making large ongoing investments in AI, automation and R&D, including head count additions and acquired Flyhomes talent, and management expects non variable operating expenses to increase. If these technology bets fail to deliver the planned efficiency and retention gains, operating leverage could stall and keep net income near breakeven despite strong top line growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Real Brokerage is $8.0, which represents up to two standard deviations above the consensus price target of $6.33. This valuation is based on what can be assumed as the expectations of Real Brokerage's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $5.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $41.9 million, and it would be trading on a PE ratio of 57.0x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $4.23, the analyst price target of $8.0 is 47.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.