If you can Fathom it, FTHM can do it.
Fathom Holdings Inc (Ticker: FTHM), $703M Market Cap
The Real Estate Reckoning
The real estate boom is here… and I believe will be here for a while.
The average age of a Millennial is lining up perfectly with the average age of a home buyer… 32 years old.
The pandemic created work-from-home norms that won’t ever change.
Interest rates hit all time lows, and don’t look like they will be budging for a couple years.
And the current housing shortage will extend the timeline of people looking for homes (with some experts anticipating 4-5 years of a housing boom).
According to 2018 federal statistics, the real estate industry contributed 13% of the US economy’s GDP, or $2.7 trillion. Real estate is currently a hug market, continues to expand, and is ripe for disruption. The iBuying movement has just begun. Contracts are being streamlined and completed electronically. And real estate agent’s fees are steadily decreasing.
Redfin’s CEO Glenn Kelmen said “there’s such a large audience on Zillow.com, realtor.com, redfin.com, it’s increasingly become possible for consumers to access properties on their own and make offers on those properties on their own.”
My wife and I used a real estate agent to purchase our home two years ago, but we largely completed the search ourselves through Zillow and Redfin, and then visited open houses on our own over the weekends. Only after we found our home did we then truly engage with the agent to put in the offer and close on the house.
Different people need different types of assistance. So a company needs to have the technology in place to assist these varying customer relationships. That’s where Fathom Holdings comes in.
Fathom: (verb) to understand a difficult problem after much thought.
Fathom Holdings Inc (Ticker: FTHM) is finding itself in the midst of these real estate tailwinds, operating (per their website) a “national, virtual, full-service real estate brokerage that leverages proprietary cloud based software for the residential real estate industry.” They work to streamline the process for the client, while also offering “real estate professionals 100% commission, small flat-fee transaction costs, support, technology, and training.”
Chairman, CEO, and co-founder Joshua Harley has led the company since 2009, having prior and extensive experience in internet sales and training. He also served for 8 years with the US Marine Corps. Glassdoor has a 98% approval rating for Mr. Harley and a 4.8 out of 5 overall rating for the business, stemming from 152 ratings. Reviews discuss the amazing tools, support, and commissions received from the company, while the lack of a physical office was the main negative. They have also been named a top place to work 4 years running by the Dallas Morning News.
Two recent press releases highlight FTHM’s focus on supporting both the real estate agent and the client. FTHM’s subsidiary intelliAgent closed on the acquisition of Naberly Solutions, a software-as-a-service company providing a suite of tools on lead generation/conversion and a consumer home search experience (per the press release). FTHM will also be working with zavvie to create Fathom Offers, where “agents will have access to additional home selling alternatives, including attracting iBuyers and providing “buy before you sell” solutions” (per the press release). I picture an eBay-like service here where you can finally have price transparency and potentially increase your return on the sale of your home.
For the third quarter of 2020, FTHM reported revenue growth of 74% to $55.8 million, along with an increase in their real estate agent network of 38% to 5K+ agents. They had a narrow quarterly loss of ($184K). For the 9 months of 2020, they reported total revenue of $123 million, a 57% YoY increase. As of 9/30/20, cash and equivalents were $30.99 million, more than 6x their total liabilities and highlighting their financial strength. With their current market capitalization of $703 million, as of 2/19/21, their price-to-sales ratio was 4.8. This compares favorably to their competitors like eXp Holdings (Ticker: EXPI) with a 7.6 price-to-sales ratio, Zillow (Ticker: Z) with a 13.3 price-to-sales ratio, and Redfin (Ticker: RDFN) with a 9.9 price-to-sales ratio.
Institutional buying is also a strong factor in owning a position in a company. The due diligence that funds complete prior to owning a company is immense, so this offers extra protection from potential fraud and support through the ups and downs. As of 9/30/20, FTHM has 39 funds owning the company, a huge increase from the 1 that held the prior quarter. These funds accounted for 15% ownership of the entire company. I suspect that these will continue to increase as the company’s market capitalization increases (check this out at whalewisdom.com).
There is a lot to like about FTHM. And there is a lot to like about the total addressable market of real estate. It will always be around, and it will be the companies at the crossroads of technology and relationship-building that will survive. I believe FTHM is uniquely positioned to be one of those companies.
Building a Real Estate Basket
Due to the small market capitalization of FTHM, sometimes a basket of stocks might be best. Below are some of my favorites in the real estate market today:
Home repairs and contractors -> *Home Depot (HD), Lowe’s (LOW), and *Porch (PRCH)
Real estate services -> *Redfin (RDFN), eXp World Holdings (EXPI), *Fathom Holdings (FTHM), and Zillow (Z)
iBuying -> *Redfin (RDFN), Opendoor (OPEN), Zillow (Z)
Smart homes/buildings -> Latch (TSIA), Matterport (GHVI)
Contracts and notary -> *DocuSign (DOCU)
*Companies I currently have a position in.
So my real estate basket is currently:
$HD
$RDFN
$PRCH
$FTHM
$DOCU
Checking in on Previous Picks…
Information as of the close of the market on Friday, February 19, 2021.
5 Stocks to Bridge the Pandemic
11/15/20 - $ULTA, $SQ, $TTWO, $DKNG, and $FVRR
Total Return of 46.5%
S&P 500 Return of 8.1%
Beating the Market by 38.4%
4 Stocks Working to Improve Healthcare
12/15/20 - $TDOC, $GDRX, $CDNA, and $PGNY
Total Return of 31.2%
S&P 500 Return of 5.5%
Beating the Market by 25.7%
12 for 2021
1/1/21 - $TDOC, $NNOX, $RDFN, $SPOT, $CELH, $GIK, $DOCU, $SE, $ULTA, $NET, $U, $APPS
Total Return of 20.3%
S&P 500 Return of 3.9%
Beating the Market by 16.4%
3 Companies that Look to Change the World
1/15/21 - $GIK, $XL, $BFLY
Total Return of 0.0%
S&P 500 Return of 3.8%
Losing to the Market by -3.8%
My Newest SPAC:
2/14/21 - $LUXA
Total Return of 2.1%
S&P 500 Return of -1.0%
Beating the Market by 3.1%
Thank You!
If you’ve made it this far, then you are an amazing human. Let me know what you think by leaving a comment. Or drop me a question. Share it with others who you think might appreciate the information. Looking forward to sending out the next issue!
**I am not a financial advisor, so please don't buy/sell anything based solely on what you read here and do your own due diligence.