Will Redfin become the Amazon of Real Estate?

Summary

  • Redfin has managed to deliver robust growth in the past.
  • Revenues for the three months ended March 2017 grew 44% to $59.9 million.
  • The company continues to suffer losses, which grew from $24.3 million a year ago to $28.1 million for the March ended quarter.

According to the National Association of Realtors, the aggregate value of existing US home sales in 2016 was approximately $1.5 trillion. Researchers estimate that 5.5 million transactions were conducted for these homes by over 2 million active listing agents and more than 85,000 real estate brokerages. Overall, these agents would have earned more than $75 billion in commissions last year. Recently listed, online real-estate firm and Billion-Dollar Unicorn Redfin (NASDAQ:RDFN) is looking to stand apart in this highly fragmented market.

Redfin’s Offerings

Seattle, Washington,-based Redfin was founded in 2004 by David Eraker, Glenn Kelman and David Selinger. The company was focused on becoming a technology-powered residential real estate brokerage. It represents people in more than 80 markets throughout the United States.

Redfin boasts of a technology platform that can leverage machine learning to recommend better listings to customers. Its platform helps keep costs low for customers. Redfin’s customers can access the listing through its listings-search website and mobile applications. It allows homebuyers to schedule home tours and find details about the house they are interested in, through a few taps of a mobile-phone button. It helps sellers create an immersive online experience for the Redfin-listed home.

To attract a big customer base, Redfin tries to minimize the seller commissions. Redfin sell-side lead agents charge only a 1.5% commission, and in certain markets, like Chicago, Seattle and Denver, its agents charge even less – 1% commission. On the buy-side, Redfin still earns the typical 3% fee paid by the home seller, but it refunds a portion of this money to its customer in the form of closing cost deductions. This translates to a commission payout of 4%-4.5% per home sale transaction through Redfin, compared with the average fee of 6% charged by other brokerages. Redfin believes that it is able to charge a low fee because of its technology platform.

Redfin’s Financials

Redfin has managed to deliver robust growth in the past. Revenues for the three months ended March 2017 grew 44% to $59.9 million. The company continues to suffer losses, which grew from $24.3 million a year ago to $28.1 million for the March ended quarter.

For the years ended December, revenues have grown from $125.4 million in 2014 to $187.3 million in 2015 to $267.2 million in 2016. Overall losses appear to be coming down from $24.7 million in 2014 to $30.2 million in 2015 to $22.5 million last year.

Till recently, Redfin was venture funded. It had raised $167.8 million in funding from investors including Annox Capital, Austin Ligon, BEV Capital, Brooks Brothers, CrunchFund, Dragoneer Investment Group, Draper Fisher Jurvetson (NYSEARCA:DFJ), Globespan Capital Partners, Glynn Capital Management, Greylock Partners, Jeffery Boyd, Madrona Venture Group, The Hillman Company, Tiger Global Management, T. Rowe Price, Vulcan Capital, and Wellington Management. Its last round of funding was held in June 2015 when it raised an undisclosed amount at an undisclosed valuation.

Recently, Redfin went public and raised $138.5 million by selling 9.23 million shares at $15 each. The IPO values the company at $1.2 billion. The stock has done well since it went public last month. It is currently trading at $24.83 with a market capitalization of $2 billion. It had soared to $33.49 soon after listing.

Unlike the other online real-estate players like Zillow (NASDAQ:Z), Redfin is a true brokerage firm. Where Zillow operates like a media company and aggregates listings, Redfin has its agents as employees and pays them a remuneration along with sales bonuses. Since Redfin is a brokerage, it also has direct access to MLS listings. Its listing details are more accurate than anywhere else. Also, Redfin is able to promote a customer focused behaviour by linking a portion of its agents’ remuneration to customer satisfaction scores. It recently also started originating mortgages, because the company wants to become the “Amazon of real estate.” It wants to be the one-stop shop for all things real estate.

Well, Real Estate, thus far, is a category that Amazon hasn’t entered. Will they?