Compass Inc (COMP) 2021 Q1 法說會逐字稿

Good day, and welcome to the Compass First Quarter 2021 Earnings Conference Call. My name is Samidra, and I will be your conference operator today. (Operator Instructions) Ben Barrett, Vice President of Investor Relations for Compass, you may begin your conference.

Good afternoon, and thank you to everyone for joining Compass' first-ever earnings call. Today's review of actual financials will address the continuing operations of Compass, and certain items are presented on a non-GAAP basis. The reconciliations between GAAP and non-GAAP measures for both our Q1 financials as well as our guidance are included at the back of the earnings release and shareholder letter.

Please also see our disclosure on forward-looking statements, which reflects Compass' current view of future financial performance, which may be materially different from our actual performance for reasons that we cite in our Form 10-Q and other SEC filings, including uncertainties posed by the COVID-19 pandemic and the difficulty in predicting its future course and impact on the housing market and the global economy.

Joining us today will be Robert Reffkin, Compass' Founder, Chairman and Chief Executive Officer; and Kristen Ankerbrandt, Compass' Chief Financial Officer. Robert will provide a brief introduction to Compass and discussion of our strategy. And then Kristen will cover the financial results and outlook in more detail. With that, I'd like to turn the call over to Robert.

Thank you, Ben, and thanks to everyone for joining the call. We're excited to be here today to share more Compass and our outstanding first quarter results. But first, I wanted to provide some context on the housing market.

Overall, the housing market is strong today, and we expect it to remain strong for some time. Consumer demand among homebuyers remains high, while interest rates remain at historic lows. After the experience of the last year, everyone wants more space that is better suited to their needs. People are looking for more indoor space, more outdoor space, more home office space and the desire for second home has never been stronger.

In addition, more people are looking to buy as millennials are just now entering their home-buying years. This has created a permanent shift in the demand curve that will take years to meet. At the same time, COVID has accelerated trends towards digital adoption that we had previously thought would take a decade to play out, creating an opportunity for technology-powered real estate agents to distinguish themselves and win share in this high-demand environment. In the midst of these long-term fundamental shifts, we are focused on providing our nearly 21,000 agents with the tools they need to deliver best-in-class service to their clients.

Our first quarter results were strong, both in terms of revenue and adjusted EBITDA. Revenue was $1.1 billion, up 80% from the prior year, and adjusted EBITDA improved by 70%. We grew our principal agent count by 20% compared to last year, and we now have nearly 10,000 principal agents, operating their businesses on Compass. These agents closed over 40,000 transactions in the first quarter, up 67% from last year. This was the best first quarter for transactions in our history, and our third largest quarter ever. These agents closed nearly $44 billion in gross transaction value, up 75%, and another record for our first quarter, and we see this momentum continuing into the second quarter.

Our platform is driving these outsized results and helps our agents to grow their business. This can be seen in our results as we grew faster than the market. While the real estate market grew transactions just 14% in Q1 year-over-year, we grew our transactions per principal agent by 39%, with our total transactions growing 67%. And this is supported by our increased platform usage, the ratio of daily active users to weekly active users was 69%, up 7 percentage points from the prior year period. And total sessions were also up 120%.

Compass provides an end-to-end platform that empowers agents to deliver exceptional outcomes to their clients. It is an integrated suite of cloud-based software for CRM, marketing, client communications and other critical functionality, all custom built for the real estate industry. It also uses proprietary data and analytics to deliver high-value recommendations and outcomes for Compass agents.

Agents are essential to the real estate transaction but they have never had a seamless, fully integrated end-to-end technology platform to help them serve more clients, grow their business and save time. The average agent logs into 13 different systems every day to do their job, and the average number of engineers employed by traditional brokerage firms is 0, even though this is one of the largest asset classes in the world. By combining the platform with our agents, we are seeing some amazing results: a 19% increase in transaction growth in year 2 compared to year 1 for our agents; and home selling quicker, with 21% fewer days on market versus the peers. These results drive agent satisfaction with industry-leading agent retention rates of over 90%.

We operate in 47 markets in the U.S. In Q1, we launched 3 new major markets and expanded into new cities within our existing markets. Some markets, which are extensions of our existing markets, allow us to expand efficiently by leveraging our existing infrastructure and agent network. Our share of the U.S. market is only 5%, so we have plenty of runway left to grow. In our 3 largest MLS markets, where we have operated the longest, we have 26% share. So we know how to grow share, and we're confident that we can continue to grow share cost efficiently by simply replicating our expansion playbook, including through our Compass Anywhere program. Our 850-plus person product and engineering team is constantly introducing new and updated products and features that drive agent productivity and efficiency.

For example, in Q1, we launched Business Tracker, which allows agents to visualize their entire pipeline, leads, buyers, sellers, renters, landlords, all from one place. Prior to Business Tracker, most agents manage their pipeline on a piece of paper or on a whiteboard, but now can do it within the platform. They can now view details about each transaction from listing, to contract to close. This saves agent's time and reduces the reliance on staff or other third-party software.

Another great example is our AI-powered Likely to Sell recommendation engine, which predicts which properties are most likely to sell. It incorporates data like property details, pricing history and mortgage status, to rate how likely a property is to sell in the next 12 months. Agents are then alerted to reach out to these contacts, helping them to win the listing before competing agents, even though the property is in play. Likely to Sell recommendations result in a 61% higher win rate for our agents comparing to properties we did not like to sell -- we did not rate likely to sell.

Our platform is proprietary and built in-house, but we look for opportunities to accelerate our product road map when there is an opportunity to acquire a technology that agents love. The acquisition of Glide, which closed last week, is a great example. Glide is a fast-growing software services platform that provides Compass and non-Compass agents with critical transaction management tools such as offer and transaction management, digitization of key forms, e-signature and digital disclosures. Glide is used by tens of thousands of real estate agents in California, and we plan to expand its reach both within and outside of Compass to more states across the country.

We also made progress in expanding our adjacent services business. Our extensive network of top-performing agents and their transactions creates an opportunity to capture more spend in the real estate ecosystem, adjacent to the transaction. Today, we offer services in title and escrow and digital marketing, and we plan to provide mortgage and other adjacent services in the future.

In February, we acquired KVS Title, a leading title company serving the Washington, D.C. area. Compass' closing services portfolio now operates in California, Florida, Washington State, Maryland, Virginia and Washington, D.C. We plan to continue to scale our title and escrow business in existing geographies and new markets going forward.

The first quarter of 2021 provide a strong start to our journey as a public company. The market is growing, but our revenue, transaction volume in GTV are all growing much faster. Every day, more agents are joining Compass in using our platform to grow their business and improve the real estate experience for their buyers and sellers.

And for those that are skeptical about the future role of the agent, agents are not going away. In fact, people are using them more over time, not less. According to the National Association of REALTORS, 89% of home sellers and 88% of homebuyers use an agent. And contrary to what some may have assumed, those rates have actually increased over time, rising from 83% in 2010 and even less than that in 2000.

At Compass, our strategy is to replace today's overly complex, paper-driven, antiquated workflow with a seamless, all-digital end-to-end platform that empowers every real estate agent to provide exceptional experiences to their buyers and sellers. This will take time and continued investment, but the opportunity is enormous. And Compass is approaching the problem from a different angle than any other player, by empowering agents with a proprietary end-to-end platform that drives growth in their business.

Real estate agents are CEOs of their businesses, positioned at the center of a complex multiparty transaction. And agents serve as a liaison between the clients, the counterparty and many other stakeholders from presale to post-close. As we continue to expand our platform to serve the real estate industry, we will continue to get closer to our vision of modernizing an archaic industry for the benefit of everyone, agents, clients and shareholders.

Now with that, I'll now turn the call over to Kristen to walk you through the details of our first quarter. Kristen, take it away.

Thanks, Robert. We met a lot of you on the virtual road over the past few months, and we look forward to reconnecting.

Q1 was a busy quarter for us, culminating with our IPO on April 1, but we kept our eye on the ball operationally and delivered a record first quarter. We grew significantly faster than the industry while improving profitability. Our unique platform and vision help us attract top agents in new and existing markets, which in turn drive transaction volume, market share gains and strong revenue growth.

Three things really stand out to me as highlights this quarter: the first is the revenue growth we showed at scale; the second is our EBITDA improvement, we're growing fast on the top line, but also showing improving margins and a commitment to financial discipline; and third, the ongoing momentum in our business is reflected in the guidance that we'll provide today.

Let's start with the top line. Revenue was $1.1 billion in the first quarter, up 80% compared to the prior year. That growth was driven by a few factors: closed transactions grew 67% year-over-year; transactions per principal agent grew 39%. This measure captures both market strength and the power of our platform to unlock additional transactions and revenue for our existing agents. Also, we grew our principal agent base by 20%. As we grow our agent base, our ability to increase transactions per principal agent paired with our industry-leading retention rates of over 90%, creating compelling agent lifetime value.

This quarter, we saw notable strength in Florida, California and the New York region, including early signs of a strong recovery in New York City, where revenue was up 89% in March year-over-year. Finally, adjacent services delivered strong revenue growth of a small base as we drive attach rates for title and escrow in existing regions and expand into new ones.

We're really starting to see the power of the platform, which helps us to attract and retain the agents by making them more productive, unlocking more transactions and then layering on more revenue per transaction through the addition of adjacent services. I think it's remarkable. It really speaks to the strength of the flywheel that underpins our business and our competitive moat.

Next, on the path to profitability. Adjusted EBITDA in the quarter was negative $31 million, an improvement of $71 million year-over-year. This improvement is even more clear on a margin basis, where we saw an improvement of nearly 14 percentage points, moving from a negative 16.5% margin in the first quarter of 2020 and to negative 2.7% in the first quarter of 2021. The improvement in adjusted EBITDA was driven by strong top line growth and a focus on cost management.

We saw improvements in operating leverage across all expense lines on a non-GAAP basis. This includes an 80 basis point improvement in commissions and other related expense as a percent of revenue. This was the second consecutive quarter where this metric improved and it highlights our ability to manage costs through geographic and agent mix.

We continue to reduce the cost required to support our agents on the platform. In the first quarter of 2021, we saw a reduction in our per agent support costs of over 15% compared to the same period last year. We expect additional improvements through automation, and we'll continue to invest to further reduce the marginal cost of an agent as more agents join our platform.

We've refined our expansion playbook in a variety of new markets. This allows us to drive faster market share gains, which leads to market level profitability sooner. Programs like Compass Anywhere are key to driving efficient expansion. This allows us to improve overall agent economics while reducing occupancy and support cost per agent.

And we continue to see our capital position strengthen. Q1 free cash flow improved $120 million versus the prior year. We ended the quarter with over $750 million of cash when including our net IPO proceeds. In addition, our $350 million revolver is undrawn. We have ample liquidity to execute our strategy, and our top priority is to drive profitable growth through smart investments in our business.

Now let me turn to the guidance. We expect 2021 to be a strong year for the residential housing market, but we also expect for our agents to continue to capture more share. In the second quarter, we expect revenue of $1.5 billion to $1.6 billion, implying growth of 127% at the midpoint. We expect to see outsized growth as we lap the COVID impact, felt most acutely in the second quarter of 2020. We expect second quarter adjusted EBITDA of negative $10 million to positive $10 million. At the midpoint, this implies that we will be breakeven for the second quarter.

For full year 2021, we expect revenue of $5.35 billion to $5.55 billion. At the midpoint, this represents 46% year-over-year growth. This top line guidance reflects our ability to successfully grow our existing agents businesses, bring new agents onto our platform and the strength of the housing market.

Finally, we expect our full year adjusted EBITDA to be in the range of negative $225 million to negative $245 million or a negative 4.3% margin at the midpoint. This is roughly in line with our EBITDA margin in 2020. Given the current momentum, we see a compelling opportunity to invest in future growth while also ensuring our path to profitability and better unit economics.

We plan to reinvest roughly half of the incremental profit back into the business in 2 areas: first, accelerating the expansion of adjacent services, where our long-term adjusted EBITDA margins are strong; and second, investment in R&D, with a focus on automating internal workflows to reduce the marginal cost of acquiring and supporting our agents. We expect these investments to drive our ability to scale profitably as we grow, provide meaningful value to our agents and our clients and substantially increase our TAM.

We are well on our way to delivering on our vision for a seamless all-digital end-to-end platform that empowers real estate agents to deliver an exceptional experience to their clients. We have the vision, the experience and the engineering talent, along with the capital and financial profile to enable us to continue to build upon our mission to transform real estate.

In closing, we had a phenomenal start to 2021. We are executing well from our leadership position, gaining share and driving operating efficiencies, all while creating tremendous value for our agents, their clients and the broader residential real estate ecosystem. With that, we'll open the line to your questions.

(Operator Instructions) And your first question comes from Lloyd Walmsley with Deutsche Bank.

Two questions. First, can you help us understand the magnitude of adjacent services revenue in the quarter. We were just trying to kind of assume flattish commission rates year-over-year. At 2.46% of GTV, it was implying something like just shy of $40 million of adjacent services revenue, which seemed pretty high. Are we in the right ballpark here? And if so, can you let us know what's driving the strength there?

And then second, on the kind of mortgages opportunity. Can you just talk about how you guys plan to go to market there? Is that something you're building right now? Is that something you'll move into through acquisition, through a partnership? Give us a sense for how you're going to attack that and kind of where are you guys in preparing for that?

Sure. So Lloyd, nice to talk to you here. So I'll take the first question in terms of adjacent services. So our adjacent services business grew nicely in the first quarter. We were really glad to see that. Of course, it's growth off of a small base, but we think we've got a huge runway ahead of us there. As a reminder, the overall market opportunity for title and escrow is $35 billion. So we are spending some time focus there. We're not going to disclose an exact amount in terms of adjacent services revenue. But we are very focused on continuing to deepen our presence in existing markets, and also looking for opportunities to expand to new markets.

I think the second part of your question on adjacent services was really on sort of the implied commission rate. And I think there are a couple of things that are included in our revenue that are not necessarily captured in GTV. So I think that's part of the -- you're right, adjacent services is bridging part of that gap when you do just sort of your rough math on the commission rates. The other things that are included in revenue that aren't captured in GTV are rentals and referrals. We actually did see a slight pick up in commission rates, but it was a slight uptick, not something that we think is necessarily indicative of a longer-term trend. So hopefully, that clarification is helpful.

And on the question around mortgage and buy versus build, we looked at the buying versus building versus JV, and we have committed on a path towards a JV. When balancing the quality of an outcome, the speed of an outcome and the potential size of the outcome, JV is where we think there will be the most opportunity.

And our next question comes from Jason Helfstein with Oppenheimer.

So two, just let me start with Compass Anywhere. I think you said 38% of agents were Compass Anywhere. What was that last year in the first quarter? And any plans to have any new markets be comprised entirely of Compass Anywhere agents?

And then secondly, I can't help ask after the open door call. I think they highlighted how they were in a position to start doing homes over $1 million. I think they quoted doing a home like $1.4 million in Los Angeles, and maybe there was a one-off. But to the extent that iBuyers, if they are able to move up market, which most people were skeptical of, how you think about that, i.e., relative to your business and do you need to take more of the overall transaction into your system?

Thank you for the questions. How about I'll start with iBuyers, and I'll pass on to Kristen to walk through Compass Anywhere in Q1. In terms of iBuyer, they were 6 -- putting it into context, there are 6 million transactions last year and I believe around 15,000 of them were iBuyer. And I believe this year is expected to be around 17,000. And so I think the actual impact on our industry hasn't been felt as much by our agents.

When I think about what concerns me in terms of competition, I think about anything that an agent says is hurting their ability to do their business, serve their clients, or someone that makes them want to leave Compass and go somewhere else, right? And so we are not hearing from our 21,000 agents that they're losing business in any meaningful way from iBuyer.

Now in terms of them moving up in the spectrum of value of the home, I think there are a couple of challenges with that. One is it's more capital-intensive and on top of an already very capital-intensive business. Two is as you move up price point, that type of clientele is more accustomed to using an adviser and paying for advisory services. And then lastly, the homes are more differentiated. And it becomes harder to algorithmically say what the value of a home should be. But with that, I'll pass it on to Kristen to walk through Compass Anywhere.

Yes, sure. Thanks, Robert. So in terms of Compass Anywhere, 38% -- you're correct, 38% of the agents who joined in Q1 were Compass Anywhere agents. Compass Anywhere agents made up about 30% of the total base of agents in 2020. And we did see a slightly higher percentage of agents who joined in 2020 were Compass Anywhere agents. The thing that makes first quarter of 2021 a little bit different from 2020 is just a number of new markets that we've launched. And as we've talked about before, when we launch a new market, we start off by really recruiting top producing agents. And those tend to be -- those kind of less often to be Compass Anywhere agents. So I think that sort of explains the differential in mix quarter-to-quarter.

I think your second question was on whether or not we would look to launch Compass Anywhere-only market. And as we look across all the market opportunity that we have in the U.S., we have a plan to be in every market in the U.S. But our strategy may shift market-to-market. I think there's a possibility at some point in the future that we may look to -- we may look to launch Compass Anywhere-only market, but that's not in the current plan.

Your next question comes from Mayank Tandon with Needham.

Congrats on the quarter and the recent IPO. I wanted to start, Kristen, with -- could you talk about what's embedded in your guidance around agent adds, the number of transactions and the average transaction value just so from a modeling perspective, that would be helpful.

Yes. So I'm happy to talk through that. In terms of total transactions, we expect for that number to -- you could tell by the way that we're guiding for the second quarter that we expect for transactions to increase in order to support that. We are -- we did see a 4% increase in terms of price, in terms of average transaction value in the first quarter. I think you should expect to see that go up as well. And we do also expect to see continued strength in that transaction for principal agent metric as well. And it's been really great for us to see that in the midst of what is admittedly a very strong market, our agents seem to be gaining share in the market. And in Q2, we expect for that to continue.

Okay. That's helpful. And then I wanted to go back to the adjacent services. How are you thinking about the road map for adding additional services? Should we expect more M&A? Or is that going to be more of an organic initiative? And then also if you could talk about the economics and the attach rates of the adjacent services over time, and how we should be thinking about that as we look beyond 2021 and longer term?

Sure. So in terms of our title and escrow business, we have been growing that business. We've sort of taken a dual-pronged approach. We've been looking to grow it both organically and we have done some M&A. To the extent,we use M&A to grow that strategy, it's really about timing. That really helps us to accelerate our ability to grow that business. And keep in mind, what we're getting is title and escrow officers generally assets where we already see strong attach with Compass agents. And then we just replicate the playbook that we have to drive attach higher over time.

As we look to expand the suite of services beyond title and escrow, Robert talked about how we are currently working through a strategy around mortgage, and we're in active discussions around that. Really when it comes to acquisitions, it's just about our pace of being able to accelerate our progress into new areas. We are targeting -- we have been looking at attach rates in the industry for title and escrow specifically. We see in the industry attach rates of right around 40%. In mortgage, we see in the industry attach rates, right around 20%. And we think that's really -- that's a good target for us, but I'm sure if you talk to Robert, he'll tell you he thinks that's really a floor for what we can do there.

Yes. I think we have 2 advantages to get above the average attach rates: one, agents; and two, integration. On the agents side, real estate agents are the #1 source of recommendations for adjacent services, whether a title and escrow and even mortgage. The typical client doesn't have a title or escrow person that they tend to go back to. And the agent is the trusted adviser there.

On integration, we're building an integrated platform where the recommendation can go through the workflow, through the platform and actual title experience and mortgage experience can go through there. That's a real advantage. Other brokerage firms have title, escrow and mortgage, but it's just united by a common legal entity. It's not united in a single pane of glass. It's not united to do a one log-in experience. And that's really the advantage that we have over the market.

Your next question comes from Daniel Adam with Loop Capital Markets.

Congratulations on the great quarter and your first earnings call as a public company. My first question is on interest rates, which while they remain at historically low levels, they have been increasing recently, particularly to the treasury yields. And to the extent we continue to see interest rates rise, is there a level at which you'd expect that to have an impact on transaction volumes?

Let me just give a little bit of context that our business is more weighted towards the high end of our markets relative to the traditional brokerage company. And so we -- in the high end, there's less use of mortgage. And so yes, as interest rates go up above a certain level, that will have an impact. But we will not be impacted as much as some of our peers. Secondly, interest rates are still -- they're at historic lows. And the Fed has said that they're going to keep rates low for 2 years. And so we feel pretty positive about that -- the future ahead of us.

Yes. One thing I might add to that, if you look at our business historically, as Robert said, we've operated in a number of different rate environments. But the fact is what really dictates our growth has been our ability to continue to add agents to our platform and our ability to help them grow their business once they're on our platform. And so we are generally focused much more so on that as opposed to the rate environment as a determinant of our ability to grow the business.

Okay. Great. That's super helpful. And then secondly, so you guys grew total transactions by 67% in the first quarter, considerably higher than the market's 14% growth rate. I guess, how sustainable do you think that level of share gain is, that not just this year, but over the next 2 to 3 years.

Well, the metric that we look at, that we think is sort of the best measure of that is our transaction for average principal agent. And if you look at the transactions per principal agents in 2019, that number was about 12.8. We grew that number by about 30%, it's 16.7 in 2020. And then, of course, grew that number 39% in the first quarter year-over-year. So we've been really successful in terms of being able to drive that going forward. We believe that the combination of having the best agents on the best platform will continue to drive productivity and that productivity is what allows us to capture more share. And we see increases in this metric of transactions per average principal agent as evidence that the platform is working.

Our agents typically see a 19% growth in their transaction, year 1 to year 2 on our platform, and they continue to see growth beyond that. And as a reminder, that 19%, that's really an average that we've seen consistently over the course of the last 5 years. So we've seen that across cohorts, across the market. And that's certainly a factor in terms of helping our agents get more productive over time.

At Compass, we are assessed with agent workflow, and we always look for opportunities to use software to drive efficiencies for agents. We think that at least, 50% of the time that an agent is spending now, we can give back to them by just making our platform better. And they can use that time to invest back in their business and that will, in fact, allow them to create more transactions and allow us to gain share over time.

And your next question comes from Trevor Young with Barclays.

First, you highlighted some new product rollouts like the business tracker as well as the recently completed Glide acquisition that sort of round up the platform. Can you help us understand maybe the 1 or 2 areas where you feel there's some need to continue to infill on functionality and your appetite for further acquisitions? And then the second one, just on Glide, you noted that it has non-Compass agents. How should we think about monetization for that and revenue potential as you noted, it's going to expand other Compass agents nationwide?

Yes. So on the 2 areas that I would say we're investing the most in to fill out the platform are, one team, functionality, role permissioning. This is -- agents are the center of a highly complex multiparty transaction. And they have teams, there are agents on other side. They have their own clients. There's a lot of work that requires role permissioning and team functionality. Over time, we want to extend that collaborative functionality to the title officer to the mortgage officer. And so that's a core part of the platform that we need to continue to invest in.

Secondly is what we call agent brokerage workflow and more traditional words would be just transaction management. And there are a lot of disclosure forms, e-signatures, there are contracts. We will all need to flow through the system to create simplicity for all sites, buyer, seller, agent as well as the Compass employee team. So those are the 2 areas.

In terms of Glide, yes, they currently serve non-Compass agents, and we want to continue to extend that product to states across the country. The priority is focusing on bringing the best of the functionality to the Compass platform. That's the priority. But we want to continue to serve the non-Compass agents that they have to date, and we're committed to that as well as expanding into additional markets.

And your next question comes from Brian Nowak with Morgan Stanley.

This is Alex [Wong] on for Brian. Two questions. First, I think you talked a little bit on the formal remarks around changing up the playbook as it relates to some of the newer markets. Can you maybe provide some color on that? And it would be helpful to get a little bit context how you think about sort of the payback period and over what time period for some newer markets.

And then second, I think you also called out a very, very encouraging metrics around the weekly to -- sort of daily to weekly users, up sort of 7 percentage points year-over-year. Obviously, I think in some parts of the workflow, you're trying to save agent time, so it may not be a direct read. But are there any sort of areas you would call out that are really driving that in terms of areas that agents are being more interactive with the Compass platform?

Sure. So I'm happy to address the first one, the question around our expansion playbook. So we have a presence today in 47 markets. We launched -- we launched 3 new major markets in the first quarter, and we actually launched another 3 in the fourth quarter. And we've got a lot of experience in terms of how to expand successfully in markets across the country. We've had a lot of opportunity to refine that playbook.

And first and foremost, we're focused on using technology to allow us to launch more quickly and our -- in these new markets. So a really good example is we've accelerated our ability to ingest data feeds that are required in the market from MLSs. We have refined our virtual onboarding capabilities that allows us to essentially bring onboard agents onto our platform very, very quickly. And we've got a strategy that is focused on really finding the most influential and most productive agents in the market, and bringing them onto the platform and from there, accelerating market share gains.

And so what you really see in terms of our expansion playbook is experience. And so we really know in a variety of markets, how to do that effectively. I would say over the course of the last couple of quarters and going forward, we're really focused on expansion in mid-sized cities. So Tampa is a good example. Jacksonville, Florida is a good example. We already have operations in Nashville and Atlanta and Austin. And so we're really looking to those markets as really good templates in terms of how to successfully launch and grow these markets. And the faster we're able to grow market share in those markets, the faster we get to profitability in those markets.

And in terms of product usage and what's driven the largest impact, as we would have our weekly average usage go up 5 percentage points year-over-year, daily active usage has increased 9 percentage points year-over-year and the DAU/WAU has gone up 7 percentage points. The biggest impact over the last year has been marketing center and CRM, and the biggest impact I would expect over the next year will be team functionality and transaction management.

On the former marketing center CRM, the reason for that impact is, it helps agents grow their business by seeing top of mind with their sphere. Helping someone buy and sell a home is executing the business. But the best -- the way to grow, that is to get more clients, is making sure that every one in your sphere of influence, when they think about buying or selling home, they think of you. And whenever they have a friend who thinks about buying or selling a home, they refer you.

And so CRM helps you stay -- know who to reach out to and when to reach out and what to say. And then marketing center, it gives our agents the power of being a professional designer in the palm of their hand. For digital, for print, whether it's digital newsletters, social media, whether it's postcards, brochures, even client gifts, it's an entire program for staying in touch and marking yourself. That gives them the content to reach out to their sphere and helps them grow their sphere of influence to stay top of mind, as a result, get more business.

Going forward, for the next year, the way I would categorize team functionality and transaction management is really executing more of the foundational workflow in the day-to-day job as opposed to generating business is more of the execution of the business, particularly the business, post finding the home, right? And we've already done a lot of work on the prefinding the home part. But there's a lot of work agents do that, quite frankly, the public doesn't fully see and appreciate because we can try to protect their clients from the work. And that's the workflow that we're really going to empower and unlock with the team functionality and transaction management.

And your final question comes from Matt Gaudioso with Compass Point.

Congratulations on a strong quarter out of the gate. Just a question on the commission line item. Good to see the improvement of 80 basis points there. I was wondering if you could help us think about some of the puts and takes in that line item moving forward, just between kind of geographic mix, new agent adds, volume. And then longer term, just wondering how you view the commission split line item as a lever to hit your longer-term margin targets.

Sure. Well, we were needless to say, very pleased with the trend in the commissions and other line. That improvement of 80 basis points is really good to see and we have started to see a nice trend in the fourth quarter of 2020, but this was a really nice step up. And really, it was the result of a few different things that you mentioned.

First, we see improving margins as our agent cohorts mature, and we're able to deliver more value for our agents. We expect for that to continue going forward. We've really focused our expansion on higher-margin markets. We started doing that, in earnest, last year in 2020. We'll continue to integrate that into our expansion strategy.

As I mentioned in my remarks, we're seeing a nascent recovery in New York City already. And New York is one of our oldest markets that a nice lift in New York should be good for margins over the foreseeable future. And of course, our move into adjacent services, expansion in adjacent services will be helpful there, too. As we also look to bring on more up-and-coming mid-tier agents onto our platform, we tend to have more attractive economics that will also support good performance in that line. So it's really all 5 of those things together that come together to help us to drive improvements there. And I would expect to see over the next several years, continued improvements in that line. But this performance we saw in the first quarter was certainly really great to see.

I will now turn the conference back over to Kristen Ankerbrandt for closing remarks.

All right. Thank you all for listening to the Compass First Quarter 2021 Earnings Call. Please feel free to reach out if we can be of further assistance. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.