Is Redfin's House Crumbling After a Poor First Quarter Outlook?

Is Redfin’s House Crumbling After a Poor First Quarter Outlook?

Redfin is trading down almost 25% pre-market following a bleak outlook for the upcoming quarter, so should investors be looking to sell?

Despite more than doubling revenue to $643 million, beating expectations for earnings, and announcing record revenue for its iBuying division, Redfin (NASDAQ: RDFN) still couldn’t appease investors.

A predicted loss for Q1 2022 of up to $125 million soared past analysts’ predictions of $75 million and shareholders responded swiftly by selling, with shares down more than 25% at time of writing. 

But why are losses growing so quickly?

The purchase of struggling housing media network RentPath certainly isn’t helping, with its contribution to the loss expected to be around $19 million, on top of a recent hiring spree. 

Many are still questioning Redfin’s dedication to its iBuying segment, particularly after rival Zillow has seen a slight stock rebound since revealing its post-iBuying plans. But, CEO Glenn Kelman announced that iBuying is “now on track to generate gross profits, after years of being subsidized by our brokerage.”

The firm sold 600 homes in the quarter, up from 388 in the quarter before. The removal of Zillow from the iBuying space has certainly made purchasing a bit easier, but rising inflation and fears of a housing bubble burst could potentially devastate Redfin’s top line.

However, when considering Redfin as a long-term investment, it helps to look at the underlying numbers. A 10% increase in traffic to its apps and website last year shows clear demand, its brokerage business is up 15% year-over-year, and iBuying is growing during an uncertain market.

Much of the current sell-off seems to be more related to the state of the housing market as opposed to internal changes at Redfin. Kelman expects the inventory shortage to begin to subside this year, and with that should come a return to profitability. Until then, Redfin has carved out multiple streams of revenue to ride out current volatility and remain a big player in housing into the future.

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