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Online brokerage and portal Redfin‘s first quarter revenues fell 45 percent year over year to $325.7 million— a $271.6 million decline from Q1 2021. The Seattle-based company’s gross margins also took a tumble, dropping 23 percent year over year to $56.2 million as gross profits from real estate services also declined 33 percent year over year to $15.8 million.
Despite the decline in revenues and gross profits, the company’s fourth quarter cost-saving measures and focus on increasing digital-margin revenue resulted in net losses declining 33 percent year over year to $60.8 million.
Glenn Kelman
“Redfin’s first-quarter revenues and earnings exceeded our expectations, keeping us on track for full-year adjusted EBITDA in 2023,” Redfin CEO Glenn Kelman said in a statement on Thursday. “We’re drawing online visitors away from our main rivals, and our brokerage has gotten more efficient. For the second quarter, we expect gross-margin gains in our core business for the first time since 2021.”
During the first three months of the year, Redfin’s market share declined 1 percent annually from 0.79 percent to 0.78 percent of U.S. existing home sales. That loss was reflected in brokerage real estate services transactions, which declined 31 percent from 15,001 transactions in Q1 2022 to 10,301 transactions in Q1 2023.
Despite the decline in transactions, the revenue per transaction experienced a slight uptick — increasing 3.26 percent year over year to $11,556.
Similar to his commentary during the company’s Q4 2022 earnings call, Kelman said Redfin — even with double-digit declines in revenue and gross profits, and a 1.9 percent annual dip in website and mobile traffic — is still outperforming competing portals.
“Another reason for optimism is the share of traffic to Redfin.com, which is taking visitors from online rivals and now converting more of those visitors into customers who meet our agents,” he said during Thursday’s call. “ComScore, which lets us compare Redfin’s online visitors to those visiting other sites, reported a 4 percent first-quarter increase for Redfin compared to a 17 percent decline for Realtor.com and a 4 percent decline for Zillow.”
“As a further point of comparison, Google searches on homes for sale declined 20 percent in the first quarter,” he added. “This tells us that though there are fewer people looking online, a higher proportion are using Redfin over the last half of 2022. We had an advantage against Realtor.com, not Zillow, but for the time being at least we seem to be competing well against both. These traffic gains should produce more sales.”
Kelman pointed to the expansion of Redfin’s flagship (e.g. Redfin Full Service) and luxury homeselling (e.g. Redfin Premier) services and exponential growth within its mortgage and title segments as proof that Redfin is on track to outperform its competitors, especially when the real estate market begins its projected upswing in late 2023 into early 2024.
“The fraction of our online visits that lead to an agent inquiry had been declining since last spring, but that trend reversed in March 2023,” he said. “After we increase the pace of online optimization to drive demand, we also redesigned our website and mobile applications to promote Redfin Premier services to luxury homebuyers.”
“This redesign launched on February 15, and since then the growth rate and luxury inquiries to buy a home has been significantly higher than growth in overall demand,” he added. “This gives us confidence that we can increase demand more broadly through similar design improvement by aligning the top producing agents’ on-demand service and low fees of our standard service.”
Kelman also noted the brokerage’s continued focus on enacting cost-saving measures, which most notably, led to the closure of RedfinNow in November 2022. The CEO said the company made solid progress in offloading its remaining stock from 19 homes in Q4 to five homes in Q1, which the company expects to have sold by Q2.
Kelman went on to acknowledge recent staff cuts within brokerage services, which impacted 200 managers, trainers and support staff members as Redfin places a freeze on hiring new junior agents and focuses its attention on recruiting more experienced agents who can drive sales.
“We’ve launched a new program to hire at least 50 experienced agents over the course of 2023 with 20 or more sales in the last two years or 50 lifetime sales,” he said. “Learning how to compete for the most sought-after salespeople in our industry can in future years let us hire hundreds of agents who can quickly drive profits.”
He added, “As of May 1, we’ve hired 39 agents at this level of seniority. The increasing quality of our salesforce is one reason that for the fourth quarter in a row, we’ve had year over year gains and customer retention of the Redfin customers who started with Redfin in the fourth quarter of 2022 and went on to buy a home.”
Looking forward, Redfin expects annual revenue losses to slow dramatically to between 20 and 24 percent, representing a minimum revenue of $268 million and a maximum of $281 million. Net losses are also expected to decline from $78 million in Q2 2022 to between $35 and $44 million, as the company still aims to break even for its full-year adjusted EBITDA by the end of 2023.
“We wouldn’t wish a housing downturn on anyone, but it has made Redfin leaner, hungrier and better,” Kelman said.
Redfin’s Q1 performance is an improvement from the final three months of 2022, when revenues slid 25 percent year over year to $479.7 million in the midst of worsening market volatility. The company’s losses ballooned 129.2 percent from Q4 2021 to $61.9 million in Q4 2022 partially due to the brokerage’s decision to shutter its iBuying arm, RedfinNow.
Like many of its competitors, Redfin’s stock (RDFN) is still on a topsy-turvy ride, with the low point happening in November with a price per share of $3. The company’s stock rebounded to the $9 range in February — a trend it was able to maintain until late April when stocks began trending down to the $6 to $7 range.
The stock opened at $6.89 per share on Thursday and experienced a post-earnings pop that saw the price per share rise to $7.08 in after-hours trading.
