Redfin beat Wall Street expectations for revenue and profits in the third quarter, but its stock is falling in after-hours trading.
The tech-powered real estate brokerage reported net profits of $3.5 million — $0.04 per share — on $140.3 million in revenue, a 28 percent increase over a year ago. Analysts surveyed in advance expected Redfin to post earnings of $0.02 per share on $139.27 million in revenue.
If Redfin beat expectations, then why is the stock dropping? It appears the company took the wind out of investors sails with lower revenue targets for next quarter. The cooling housing market, which comes as Redfin and cross-town real estate giant Zillow are diving deeper into buying and selling homes directly, could also have something to do with it.
In a statement, Redfin CEO Glenn Kelman lauded growth in the company’s market share of home sales. Redfin had a 0.85 percent market share at the end of the third quarter, which up from 0.71 percent a year ago.
“Redfin’s steady third-quarter market share gains reflect the enduring appeal of our low prices and personal service,” said Redfin CEO Glenn Kelman. “A housing-market correction always makes it harder to grow revenues, but our ability to do so in even challenging markets speaks to our business’s fundamental strength. We believe that our improved third-quarter growth in traffic, as well as increased engagement levels between agents and customers, sets us up for continued share growth. Our investments in software to make our agents more efficient — and to integrate all the paperwork and processes for buying and selling a home, getting a mortgage and transferring the title — should let us compete at a price and a scale few other brokerages can.”
Redfin’s Properties segment, which includes the direct home buying and selling operation Redfin Now, more than tripled over a year ago. In the third quarter, it brought in $11.3 million versus $3.3 million a year ago. In August, Redfin took the “experimental” tag off Redfin Now, making the service a key part of its business moving forward.
On a call with investors Kelman said each of the 24 homes Redfin sold in the third quarter went for more than the company paid for them. Redfin had another 56 homes on its books at the end of the third quarter.
“As Redfin Now grows and the market softens, we don’t expect to sell every single home for a profit as we have to manage a larger number of properties as a portfolio, where the goal is plenty more winners than losers rather than a perfect record,” Kelman said.
Kelman was one of the first to call out the slowing housing market, and he sees the trend continuing, at least over the next few months. Homes aren’t selling nearly as quickly as they did a year ago, and the number of sellers that have dropped prices is on the rise as well.
Kelman says it is impossible right now to predict what will happen with the housing market next year. The smoke usually clears just after the Super Bowl, and that’s when we’ll know if the housing market is in for a long-term slide or if it’s just a temporary blip.
If the economy continues to hum along, Kelman said he wouldn’t be surprised if frustrated buyers who have sat out in recent months return in the spring. In that case, there are still not that many homes for sale, and the bidding wars that characterized the housing market for much of this year could return.
“In that event, some will wish they had been greedy when others were fearful,” Kelman said.
The stock drop — shares slipped as much as 9 percent in after-hours trading and are now down about 5 percent — could stem from a fourth quarter outlook that came in below what analysts expected. Redfin projected a net loss between $16.6 million and $18.7 million on revenue between $115.1 million and $118.3. That figure would represent 20 to 24 percent annual growth, but it comes in below expectations of $121.3 million.
Redfin stock recently fell below its $15 IPO for the first time since the company went public in 2017. The stock has lost about a third of its value since early August, with a huge drop coming after the company’s last earnings report when Kelman warned of a slowing housing market and lowered the Redfin’s targets for revenue and profits this quarter.