After the close tonight, Redfin (RDFN) is scheduled to issue
its Q4 results with an earnings conference call to follow at 4:30 ET. The real
estate brokerage company has a history of exceeding expectations, and the stock
has been rallying over the past several weeks, up nearly 30% since the end of
With its low fees (RDFN agents generally charge half of typical rates) and leading online and digital sites, RDFN has become a disruptive force in the real estate brokerage space, consistently taking share from its traditional realty firm competitors. The company has been growing at consistent 30-40% rates, but it still has a substantial amount of runway to go in terms of overall market share. In fact, last quarter, RDFN said that it picked up 14 basis points of share in the U.S. housing market, reaching a modest total of 0.85%.
The company still faces awareness issues in the market as most people only know the company for its ultra-popular real estate website. Consequently, the company has been ramping up its marketing and advertising efforts to get the word out. After four years of spending between $4-13 mln on mass media ads, RDFN commented during last quarter's earnings call that it plans to spend $40-60 mln on media buys this year across 20+ markets.
However, the company will be hitting the accelerator as the housing market continues to cool. On that note, existing home sales in December fell by 10.3% on a year/year base to a seasonally adjusted rate of 4.99 mln. That followed a 12% dip in November. Some of the steepest declines have been seen in the West and in coastal cities, where home price affordability had gotten excessive. That's an issue because more than half of RDFN's sales are concentrated in the West, where sales volume has been falling by double-digit rates.
The good news is that the Fed has been adopting a much more dovish tone in terms of interest rates, which has kept a lid on mortgage rates, and the labor market remains very solid. Also, the spring selling season is upcoming. With demand eroding sharply at the end of 2018, driven in part by rising rates and volatility in the markets, we could see an acceleration in activity in the coming months.
For the quarter, analysts are expecting RDFN to report a GAAP loss per share of ($0.19) and revenue of $117.5 mln, equating to year/year growth of 22%. As we noted above, RDFN has a history of outperforming expectations. Last quarter, it easily beat on the bottom line, posting EPS of $0.14 vs. the $0.02 consensus. Revenue was up 28% to $140.3 mln, also edging out the $139.5 mln expectation. In its core business of brokering home sales through Redfin agents and through other firms' agents working as our partners, revenues increased 22%.
Outside of the main headline numbers, the other key metric to focus on is market share, which has been slowly and steadily rising. Over the past few quarters, the company has been expanding share by 0.15-0.20 points.
RDFN will also likely provide net income/loss and revenue guidance for Q1. In order to meet the Street's expectation, it will need to guide for revenue of $103.4 mln.
While the company’s brokerage business represents a vast majority of revenue, its Redfin Now business has been growing rapidly. For those unfamiliar, Redfin Now is the business through which the company buys homes on its own account and then sells them. After experimenting with this business for several quarters, RDFN turned it into a long-term business venture a couple of quarters ago, due to how successful it had been. Last quarter, this segment contributed $11.4 mln in revenue, up from $3.4 mln in the third quarter of 2017. Additionally, each of the 24 homes it sold in the third quarter were for a price above what it paid for it. At the end of the third quarter, it was selling the 56 homes it owned.
To conclude, RDFN has been a solid performer as relates to outperforming expectations. The company also continues to chip away at market share, but it seems that RDFN is now ready to take a more aggressive approach -- as evidenced by its bolstered advertising investments. The slowdown in the housing market is well known at this point, but its commentary regarding the upcoming spring selling season will be of particular interest. Sentiment has brightened, the stock market has been strong, worries over a significant global economic slowdown have subsided, the Fed has become more dovish, and the government is no longer shut down. These factors should be positives for the housing market as we exit the slow winter months.