Yahoo Finance Redfin Warns of a Weakening Real Estate Market
Redfin (NASDAQ: RDFN) reported second-quarter results on Aug. 9. The internet-based residential real estate brokerage saw an unexpected drop in demand in recent weeks, prompting management to rein in investors' expectations for the months ahead.
Redfin results: The raw numbers
Metric | Q2 2018 | Q2 2017 | Year-Over-Year Change |
|---|---|---|---|
Revenue | $142.64 million | $104.94 million | 36% |
Operating income | $2.46 million | $4.27 million | (42%) |
Net income | $3.21 million | $4.30 million | (25%) |
Data source: Redfin Q2 2018 earnings release.
What happened with Redfin this quarter?
Redfin's market share rose to 0.83% of U.S. existing-home sales by value, up from 0.64% in Q2 2017. Redfin credited the increase to its low fees and high customer service levels.
"Redfin's share gains again accelerated in the second quarter, with especially strong growth in the number of Redfin listings we sold," CEO Glenn Kelman said in a press release. "We also saw the first improvement in homebuyers' engagement with our agents in nearly three years, a sign that our increased levels of personal service will pay off."
To Kelman's point, Redfin earned a Net Promoter Score (a measure of customer satisfaction) that was 50% higher than that of its competitors in a May 2018 survey. This marked the sixth consecutive survey in which Redfin's customer satisfaction score was better than its rivals.
Moreover, people who bought a home with Redfin were 69% more likely to also sell that home with Redfin, up from 42% in the year-ago period. So Redfin's customer loyalty appears to be strengthening.
More people are choosing Redfin for their home-selling needs, but the brokerage expects growth to slow in the coming months. Image source: Redfin.
In all, Redfin's revenue jumped 36% to $142.6 million, besting its guidance for revenue of $134.8 million to $139.1 million.
Yet Redfin's gross margin declined to 31.7% from 35.2% in Q2 2017, as the company's growth investments in its mortgage, title, and Redfin Now home-flipping businesses weighed on results.
All told, net income fell 25% to $3.2 million. And adjusted earnings per share came in at $0.04, down from adjusted EPS of $0.06 in the prior-year quarter.
Looking forward
More worrisome is that Redfin sees a slowdown coming in the real estate market. Due to waning sales trends, Redfin expects its revenue growth to slow to between 25% and 29% in the third quarter. The company also sees net income falling to between $1.2 million and $2.8 million, down from $10.6 million in the third quarter of 2017.
"We're now forecasting slower revenue growth for the third quarter, based on an unexpected drop in Redfin's bookings growth in the past three weeks, slowing traffic growth, and a weakening real estate market," Kelman said.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Redfin. The Motley Fool has a disclosure policy.
