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Just hours after it announced that it was ending its iBuying program and cutting staff, Redfin revealed on Wednesday its revenue ticked up slightly in the third quarter of the year even as its losses spiked.
In total, the company brought in $600.5 million in revenue between July and September of this year. That’s up 11 percent compared to the same period last year. However, despite the uptick in revenue, Redfin also suffered a net loss of $90.2 million — up from a loss of just $18.9 million in the third quarter of 2021.
The company’s third-quarter revenue was also down slightly from the second quarter of 2022 when it brought in $606.9 million. Losses in the second quarter of this year were $78.1 million during the quarter — meaning the company lost more and brought in less during the third quarter of this year compared to the immediately preceding three-month period.
Redfin’s latest earnings report came the same day the company announced that it was “laying off 862 brilliant, loyal people and also closing RedfinNow,” according to a blog post from CEO Glenn Kelman. In the blog post, Kelman said the moves were necessary, because the “market in 2023 is likely to be 30 percent smaller than it was in 2021,” and because iBuying represents “a staggering amount of money and risk for a now-uncertain benefit.”
Glenn Kelman
During a call with investors Wednesday afternoon, Kelman said all of RedfinNow’s inventory of homes should be liquidated by the second quarter of 2023. That in turn should “return more than $100 million of cash to our balance sheet.”
“Today’s layoff assumes a housing downturn that lasts at least through 2023,” Kelman also said during the investor call.
In Wednesday’s earnings report, Kelman added that while layoffs are “heartbreaking” he feels “relief about closing RedfinNow with relatively low losses.”
Kelman expects Redfin to generate its first annual net profit in 2024, he said during the call.
Redfin’s shares spent Wednesday losing value in the lead-up to the earnings report. At one point they dipped to $3.08, a new all-time low that follows months of declines, before rebounding somewhat. Redfin’s current share prices are vastly lower than they were at the beginning of this year when they were close to $40. In February of last year — when many real estate companies saw share prices peak — Redfin’s shares soared to nearly $100.
Credit: Google
Redfin’s shares fluctuated in after-hours trading Wednesday following the earnings report’s publication but generally moved down slightly from the day’s closing price.
As of the close of the market Wednesday, Redfin had a market cap of about $355 million.
In axing its iBuying program, Redfin follows Zillow, which made a similar move last fall. Zillow’s decision sent shockwaves through the industry, though in a call with investors last week, CEO Rich Barton said that in light of what has happened over the last year he feels the company made the right move.
Redfin’s announcement also comes days after Opendoor — the original and largest iBuyer — revealed that it lost nearly $1 billion in the third quarter of 2022. Rival Offerpad didn’t have as disastrous a third quarter, but nevertheless still lost $80 million and reversed a multi-quarter profitable streak.
In Wednesday’s earnings report, Kelman said that “the cost of capital isn’t going back to 2021 levels any time soon.” And in the subsequent investor call, he added that the decline in the market could ultimately be “similar to the great financial crisis.” However, he said that outside of “boomtowns like Boise,” Idaho, prices will likely be more stable because homeowners today have more equity in their properties than they did when the market crashed in 2008.
Kelman went on to say that right now the “problem with demand is that housing has become unaffordable.”
Asked during the investor call when the market might improve, Kelman responded that “hope is not a strategy.”
“We have to assume the sun will never come up, that it’ll be night always,” Kelman said, adding that Redfin needs to be able to make money even in the now-tougher market. “All we can do is prepare for the market we are in.”
The housing downturn has been particularly hard on Redfin, which diversified into areas, such as mortgage lending and iBuying that have proven particularly vulnerable right now. The company’s brokerage is also relatively unique for paying agents a salary rather than classifying them as independent contractors as most companies do. That strategy means Redfin has to keep paying employees even when revenue drops, and it’s an approach that drew criticism this week from an analyst who called the company “fundamentally flawed.”
During his call with investors, however, Kelman pushed back on the idea that Redfin’s business model is flawed. He pointed out that Redfin not only employs agents but also routes leads to non-employee partner agents when it has more demand than it can handle. The key, then, is striking the right balance between those partner agents and employees, the latter of whom have higher close rates, according to Kelman.
Asked during the call if Redfin has considered scaling back or abandoning its brokerage operations, Kelman replied that his company can’t afford to have “employees who are idle.” But he ultimately resisted the idea that Redfin would walk away from its distinctive employee-agent model.
“Long term I just think that you will get more durable growth if you give people a better proposition,” he said.
Kelman also said that Redfin’s website “is really, really taking search share from competitors,” which is “the best indicator of top line growth.”
Redfin’s websites and apps had 51 million average monthly users in the third quarter, which is up 3 percent year over year, Wednesday’s report notes.
Kelman ultimately went on to say during the investor call that in a downturn the “only growth we’ll get next year is what we take from others.” But he went on to argue that Redfin has survived different markets so far and even in a “long night” Redfin can still “thrive in the darkness.”
“We’ll pay our debts come heck or high water,” Kelman continued, “and we’ll keep growing.”
Update: This story was updated after publication with additional information from Redfin’s earnings report and from a call company leaders held with investors.
