I’m currently in the process of selling my house. After this transaction we will have bought, sold, and bought using traditional real-estate agents + zillow and now sold using Redfin.
Through my experience, I am EXTREMELY impressed with Redfin’s data driven approach. They bring the resources (salaried agents, awesome photos + 3D tours, open houses, data driven listing approach, etc) that Zillow is lacking.
They used web traffic and open house data to pin point the perfect time (1pm on a Friday) to list our house and knew the best time based off of momentum for the open house was the following day from 12-2pm. We had an offer w/in 2 days which is part driven by the current market, but also because of Redfin’s incredible approach. Here’s our listing so you can see the quality of photos yourself: https://www.redfin.com/WA/Lacey/4966-Switchback-Loop-SE-9851…
Additionally, we are saving 1-1.5% in commissions which is $3-$5k for our sale; a sizable amount.
So what does this mean for Redfin as an investment? Let me start by saying I’m long (a relatively small position) and I think they are going to re-imagine the real estate industry. The reason I’m keeping my position small now is because of macro fears for the short term prospects of housing with rising interest rates. However, I think a downturn in the housing market will allow Redfin to take large steps ahead of the competition, build it’s moat, and come out stronger than competitors.
In my opinion, Redfin could potentially benefit from a down turn. More people will turn to Redfin to sell because of their lower fees which will give cash-strapped sellers a chance to get out from their liability with as little damage as possible.
Now for the financials from 4Q’17:
Revenue yoy: +$95.8mm / +43%
Gross profit: $29.2mm / +36% from 4Q’16
Gross Margin 30% / -2% from 4Q’16
Real Estate Gross PRofit $29.7mm / +36% from 4Q’16
Real Estate Gross Margin 33% - same as 4Q’16
Operating Expenses $31.5mm / +18% from 4Q’16
Operating Expenses were 33% of revenue / -7% from 4Q’16
Net loss $1.8mm compared to loss of $5.3mm in 4Q’16
And some highlights I’d like to point out:
They have only a fraction of market share: “Reached market share of 0.71% of U.S. existing home sales by value in the fourth quarter of 2017, consistent with the third quarter of 2017 and an increase of 0.15 percentage points from the fourth quarter of 2016. The year-over-year gains were an acceleration from 0.14 percentage points for the third quarter of 2017, 0.11 points for the second quarter, and 0.10 points for the first quarter.”
Their web traffic is increasing greatly; their moat: “Continued to drive strong traffic growth, with visitors to our website and mobile application increasing by 33% over the fourth quarter of 2016, and 40% for the full year. Redfin continues to be the fastest-growing top-10 U.S. real estate website.”
They are growing to new markets and are exploring a lending option to ultimately lead to an all digital closing: “Expanded Redfin Mortgage from Texas to Illinois and Washington D.C., offering conforming mortgages and jumbo loans to Redfin homebuyers, with a 30-day closing guarantee. We believe integrating a lending operation with Redfin’s existing brokerage and title businesses can ultimately lead to an entirely digital closing, which can be faster and less expensive than the traditional process.”
With scale they can lower their listening fees: “Introduced the Redfin 1% listing fee to 18 additional markets, now reaching approximately 80% of Redfin customers across 25 markets total. The Redfin 1% listing fee saves customers $7,000 to $10,000 on a $500,000 home, compared to the typical listing fee of 2.5 to 3% with a traditional agent. The fee is subject to a minimum commission of $3,000 to $5,500, depending on the market, and does not include the buyer’s agent commission, which is typically paid by the seller. We plan to offset the lower listing fee by reducing the Redfin refund for buyers in markets where it’s offered.”
With a growing platform, they can begin to offer more, higher margin services that also makes their customers lives easier: “Began experimenting with concierge-style home-selling service in Los Angeles and Washington D.C., in which Redfin coordinates, supervises and pays for services such as deep cleaning, staging and other cosmetic improvements, for an introductory 2% listing fee. Redfin Concierge Service is complementary to the in-person service and custom online marketing of Redfin’s current 1% listing service, and is available for homes priced at $500,000 or higher. Our goal is to use Redfin’s cost advantage to appeal to customers who are more focused on convenience than price, by offering a level of service that we believe no brokerage has consistently offered before.”
They are empowering their agents and making their lives easier. I experienced this myself with my agent who has been in the business for 20+ years and joined Redfin 2-3 years ago… HE RAVES about it! “Expanded offer-writing software to Redfin agents in Maryland, in addition to Washington, D.C. and Virginia. Each new market where we launch Fast Offers requires an inordinate amount of customization based on dozens of different forms, local customs around earnest-money amounts, and other deal terms. Adding additional markets will take years, but in time we believe this software will let us move faster than any other broker, at lower cost, and with comprehensive data about what it takes to win in each neighborhood.”
Now for that money saving part which will protect them in a down-turn: “Saved Redfin homebuyers and sellers $29 million in the fourth quarter and $121 million in 2017, compared to a 2.5% commission typically charged by traditional agents.”
All of this leads to in credible customer experience and satisfaction. Proven by my experience, but more importantly by the all important NPS: “Earned a Net Promoter Score, a measure of customer satisfaction, that is 52% higher than competing brokerages’, as measured in a Redfin-commissioned November 2017 survey of people who bought or sold a home in the previous 12 months. This was the fifth consecutive survey in which Redfin’s customer satisfaction was higher than our competitors’.”
They are focusing on diversity and inclusion which is becoming more and more important for long-term performance…and it’s just the right thing to do: “Grew the Redfin technology team from 30% women in 2016 to 32% in 2017. This percentage of women in technology roles is significantly higher than other major technology companies’ self-reported data. The area where Redfin needs to make more progress and where we are focusing now is increasing the percentage of black and Hispanic professionals. We continue to believe that diversity is a major recruiting and retention advantage in an intensely competitive talent market.”
I need to dive deeper into their financials and continue monitoring, but I will look to add to my smallish position as they continue to pass the sniff-test.
What are your thoughts? Shoot holes in this please!
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