Online Real Estate Broker Actions red fin (RDFN 3.53%) soared on Friday. Shares rose about 7% as investors digested the company’s first-quarter earnings release. A beating of both the top and bottom for the period prompted investors to look up.
Of course, shares of the stock are still down an incredible 80% in the 12 months and over 65% in 2022 alone. So while a 10% gain is nice, many Redfin shareholders are likely still deep in the red. Could Friday’s stock gain be the start of a broader rebound? Or are there still concerns that make the title risky?
Where Redfin exceeded expectations
Redfin’s first-quarter revenue soared 123% year-over-year to $597.3 million, beating analysts’ average forecast for revenue of $551 million. Additionally, the company’s adjusted loss per share of $0.86 was also better than the average analyst forecast for a loss per share of $1.09.
“Redfin exceeded our first-quarter revenue and earnings guidance by tens of millions of dollars,” Redfin CEO Glenn Kelman said in the company’s first-quarter earnings release. “Online traffic has accelerated significantly. Our core business has gained market share and we expect these gains to accelerate throughout the year.”
Several issues to report
For the most part, Redfin investors therefore have reason to be excited. But investors should also consider two other negative factors.
First, the company’s core real estate services business, which is its profit center, only grew revenue 5% year over year. As CEO Kelman noted during the company’s first quarter earnings call, the core segment subsidized all of its other businesses last year. Of course, the other segments may generate gross profit, but only its real estate services business regularly generates pre-tex net income (profits after all program costs, including selling, general and administrative expenses and the cost of income).
It’s no wonder that Redfin’s adjusted loss per share of $0.86 was worse than a loss of $0.37 a year ago. A paltry 5% growth in real estate services was not enough to offset the losses suffered by Redfin’s other businesses. And that highlights the second key concern: Redfin continues to post losses, despite surreal triple-digit growth in its real estate business.
But investors should note that Kelman provided promising news during Redfin’s first quarter earnings call. He said his mortgage and real estate segments now tend to be roughly breakeven — or maybe even profitable — for the full year. “A business that once planned to make money in the distant future will generate operating cash this year and a net profit in 2024,” Kelman added.
Additionally, investors should note that Redfin’s disruptive approaches to the real estate sector continue to drive market share gains and growing brand awareness. Today, Redfin claims approximately 1.2% market share of quarterly US existing home sales, up from approximately 1% at the end of 2020. It can be argued that the company’s aggressive efforts to reinvest in its business as it evolves are worth the market share. earnings. Once the company crosses key break-even points through economies of scale, the higher volume of greater market share could translate into substantial profits.
Overall, there are still substantial risks associated with owning Redfin shares. But the stock’s steep decline over the past year has likely priced in most of those risks. Additionally, with the company likely to generate positive cash from operations this year and net profit by 2024, it seems likely that Redfin stock could continue to rebound over the next 12 months. Of course, there is no guarantee that this will happen. But the shares certainly look more attractive following additional comments Redfin has provided investors on its profitability expectations.