eXp world holdings isn't a household name but this small real estate company is up more than
40x in value since coming public a few years ago but what on earth did this company do
we'll tell you everything you need to know in about five minutes my name is Brian Feroldi and my
name is Brian Stoffel Brian despite those enormous returns this is still just a $4 billion company
trading under the symbol EXPI EXPI's mission is to deliver maximum value to our shareholders agents
brokers and staff while building an international brand as the leading cloud-based brokerage
this is an awful mission statement i personally hate anything that mentions shareholder value
brian i agree with you but let's look at what this business is because almost a hundred percent of
the revenue comes from exp realty this is a real estate brokerage firm with no brick and mortar
presence it is 100% cloud-based and it has agents spread out throughout the world exp has acquired
a handful of other businesses the most notable of which is Virbela is a metaverse-like platform
that allows agents and customers to interact and engage with each other in virtual rooms as
we already said this is a global business and exp is functioning in a number of different countries
the key is winning over agents real estate agents are the key customers and as you can see
exp has had no problem winning those agents over one big reason why exp has been winning over so
many agents away from the traditional brokerage model is because of its commissions this company
allows the agents to keep 80% of their commissions by contrast traditional brokers only keep about
50% and it's worth mentioning that exp caps how much money it can take from its agents
at sixteen thousand dollars once you've paid the exp $16 grand you keep a hundred percent of your
commissions on top of the commission exp also charges its agent subscriptions and transaction
fees now because this arrangement is so wildly popular with agents the customer acquisition
costs the customers being the agents are very low while demand for this company's products
have been up and to the right for years over time this is a brokerage business which means demand
is going to be cyclical along with the overall real estate market but because homes are always
going to be for sale and because there are monthly subscription fees from the agents we consider this
revenue to be recurring the biggest moat that exp has going for it is switching costs once an age
it makes a decision to sign up with them they'll have a hard time switching over to a different
broker and while people that are going out to buy a home might not be familiar with exp agents
surely are and that gives it brand value one of the biggest moats that we think exp actually has
is its counter positioning a traditional broker would have to blow up its commission structure
in order to compete with exp we don't see them doing that anytime soon you add all those factors
together and we think exp has a moat that's getting wider by the minute exp has been in
hyper growth mode over the last couple years this company's top line has grown at a 59% rate
over the last three years now the gross margin only comes in at eight percent which might be
surprising but that has to do with the arrangement that they have with their agents because it's an
80/20 split and because those contributions are capped we don't think this gross margin is gonna
grow in the real estate business anytime soon and yet even with that very low gross margin exp is
already profitable producing positive net income and free cash flow and the company has a stellar
balance sheet with nearly $100 million in cash no debt and all in all very high returns on their
capital exp was founded by glenn sanford who is still the ceo today employees give exp very high
ratings with 4.8 stars out of 5 on glassdoor.com and it's worth noting that sanford's name is
not there because he is the ceo of the umbrella company while guessing is the ceo of the realty
division we were pleasantly surprised to see that glenn stanford owns a huge amount of stock
and insiders in general owned 36% percent of this business which is more than $1.4 billion dollars
now exp has a lot of potential optionality they've developed a lot of tools for their agents to use
and then roll that out for other customers to use however none of that optionality has been tested
by rapid market adoption yet and because this company is already profitable and free cash flow
positive we don't see a ton of operating leverage ahead that's particularly true when you consider
that the gross margin here is eight percent and is unlikely to go higher over time the potential
market is obviously enormous the company believes that it has a $70 billion dollar opportunity in
front of it of which it's captured just under 5% and while the company's revenue growth so far has
been from organic sources Virbela and success have been acquisitions which is something for investors
to keep an eye on now since coming public this stock has absolutely spanked the market becoming
an almost 50 bagger and even over the last five years it is more than 10xed in value it has a
mixed record recently when it comes to wall street expectations beating it two out of four times
and much to our surprise while this company still is in high growth mode it is actually
returning capital to shareholders in the form of a dividend and stock buybacks when it comes to risk
competition is obviously a very high one while exp is global there is competition both in the u.s and
north america from names like keller williams and redfin exp's dilution rate is also worth watching
that's because the company gives its agents a lot of its own stock it's also worth noting that the
company is sensitive to outside forces that's because the real estate market can be cyclical
and affected by interest rates and it's also worth noting that the stock is not terribly expensive
trading at under 20 times free cash flow so what investors you to watch moving forward
first and foremost keep an eye on the number of agents that are working for this business
we want to see agents continue to flock to its services instead of traditional brokers
second watch transaction volume you want to see that those agents who've signed on are actually
selling more and more houses every year and third keep an eye on the company's acquisitions
specifically Virbela we want to see that the company's metaverse opportunity is actually
taking off have this company score on our investing checklist the answer is pretty good
for me it got a rating of 74 which is in my investable category and my score of an eight
and a half was almost identical i think this is a very interesting idea that i'm going to be keeping
my eye on overall both of us think that exp is an interesting high growth company that is profitable
and growing fast if it can continue to do so we think it could be a market beater brian's out