Redfin Revenue Soars 43%

MarketsMotley Fool

The U.S housing market is valued at $31.8 trillion, according to a recent report from Zillow. It's a massive market, one in which Redfin (NASDAQ: RDFN) is a relatively small player. But the technology-powered residential real estate brokerage is quickly gaining share, thanks to its low commissions and popular website. That's leading to rapid revenue growth and improving profitability, as can be seen in the company's fourth-quarter results.

Redfin results: The raw numbers

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Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$95.754 million

$66.782 million

43%

Adjusted net income

($1.798 million)

($5.335 million)

N/A

Adjusted EPS

($0.02)

($0.08)

N/A

What happened with Redfin this quarter?

Redfin's market share rose to 0.71% of U.S. existing home sales by value, an increase of 0.15 percentage points from the fourth quarter of 2016. Helping to fuel this growth is the company's relatively low commissions; Redfin rolled out its 1% listing fee to 18 new markets. Compared with the industry standard listing fee of 2.5% to 3%, Redfin can save its customers thousands of dollars in home sale costs. In fact, Redfin estimates that it saved homebuyers and sellers $121 million in 2017, compared with what they would have paid with traditional agents.

These savings are reflected in Redfin's most recent Net Promoter Score -- a measure of customer satisfaction -- that came in 52% higher than that of its competitors. The potential for substantial savings also probably contributed to solid increases in traffic to Redfin's website and mobile app, which jumped 33% year over year. That helped make Redfin the fastest-growing top-10 U.S. real estate website in 2017.

All told, Redfin's revenue surged 43% to $95.8 million. Gross profit leapt 37% to $29.2 million, as gross margin declined to 30% from 32% in Q4 2016. Operating expenses, however, also declined, to 33% of revenue down from 40%. That helped operating loss improve to $2.4 million, compared with $5.4 million in the year-ago quarter, and adjusted net loss per share improved to $0.02 from $0.08.

Looking forward

Redfin expects first-quarter revenue of $74.6 million to $78.4 million, which would represent year-over-year growth of 25% to 31%. The company is also forecasting a net loss of $38.7 million to $35.9 million, compared with $28.1 million in Q1 2017.

"In the fourth quarter, Redfin continued to accelerate its year-over-year gains in market share, with revenue and net income above our guidance, even as the real estate market began to wane in the closing months of 2017," CEO Glenn Kelman said in a press release. "We also strengthened our business at a more fundamental level, expanding Redfin Mortgage to new markets, launching a new premium service for home-selling customers, and shipping major upgrades to our agent software that we believe will over time improve both service quality and agent efficiency."

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool recommends Redfin. The Motley Fool has a disclosure policy.