Last night, real estate technology company Redfin (RDFN) priced its 9.2 million share IPO at $15, above the $12-$14 expected range, raising total gross proceeds of $138 million. The company plans to use the proceeds from the offering for technology development and marketing expenditures. The lead underwriters on the deal were Goldman Sachs, BofA Merrill Lynch, RBC Capital, and Allen & Company. Shares are set to open for trading later this morning on the Nasdaq.
Below is a Briefing.com Article:
Along with Zillow, RDFN is among the most widely-visited real estate sites and is one of the fastest growing real estate-oriented companies around. Click here to access Redfin's home page. However, RDFN is positioning itself more as a technology company, rather than purely as a real estate company.
RDFN is really a hybrid though, consisting of an online and offline model, offering updated real estate information using machine learning and proprietary software, along with traditional brokerage services. The site itself is free to use and it has complete access to all homes listed for sale in the multiple listing services (MLS), in the markets it serves. RDFN combines these listings with its artificial intelligence/machine learning technology to provide the following:
- Listing Recommendations: By knowing which listings customers visit online, tour in person, or make an offer on, its algorithms can make better listing recommendations.
- Redfin Estimates: RDFN says that its access to detailed data about every MLS listing has helped it build what it believes is the most accurate home-valuation tool. According to its own study, 64% of the listings for which it provided a public valuation estimate sold within 3% of that estimate. That is compared to 29% and 16% of the public estimates.
- Refin Hot Homes: This proprietary algorithm identifies the homes it believes are most likely to sell quickly. Coupling Redfin Hot Homes alerts with on-demand tours, as well as data it's collecting about offer deadlines, is part of its strategy to give its customers a first-mover advantage in pursuing the most desirable homes for sale.
With this powerful information, RDFN pairs its own real estate agents to offer a service that is faster, better, and costs less. The brokerage side of its business is newer, but, the company is already in 84 markets across the U.S. What's especially appealing to its customers -- and what has been a driving force in its growth -- is that it rebates part of the sales commission when a property purchase is closed. Specifically, the average rebate is $3,500 per sale. Additionally, RDFN already has a lower commission rate than most traditional real estate brokerage companies, at 1-1.5% vs. 5-6%.
Taking a look at 1Q17 results, revenue jumped by 44% to $59.9 million. Brokerage revenue represented $16.5 million, or 90%, of the increase. Brokerage revenue grew 43% during the period, driven by a 42% increase in brokerage real estate transactions and a 1% increase in real estate revenue per brokerage transaction. The increase in brokerage transactions was attributable to higher levels of customer awareness of Redfin and increasing customer demand and market share in most of its markets.
Gross margin improved by 313 basis points to 10.7%. This was primarily attributable to a 231 basis point reduction in personnel costs and a 90 basis point reduction in home touring and field costs, each as a percentage of revenue.
Total operating expenses climbed by 25% to $34.5 million, with the largest increase coming from General & Admin expenses, up 38%. The increase in operating expenses was more than enough to offset the healthy revenue growth and improvement in gross margin. On the positive side, though, total operating expenses as a percentage of revenue declined to 57.6% from 66.0%.
Another positive is the balance sheet, which has no debt and a cash balance of about $38.0 billion.
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