Redfin (NASDAQ:RDFN) is a hit in its brief tenure as a public company. The tech-savvy real estate brokerage is trading 67% above its late July IPO price of $15, and Redfin will get its first big test to justify its buoyancy when it posts quarterly results after Thursday's market close.
There isn't a lot of mystery to the numbers. Redfin posted preliminary results in its prospectus. It expects revenue of $104.5 million to $104.9 million for the three months ending in June, 34% to 35% higher than the $77.7 million it recorded a year earlier. Redfin sees a profit of $3.7 million to $4.3 million, nearly tripling at the midpoint of that range.
It's an open house
We know a bit more about how Redfin's second quarter played out. The hot debutante attracted 24.4 million monthly average visitors to its platform during the quarter, 43% more than it was drawing a year earlier. It helped facilitate between 13,060 and 13,080 transactions, up from 10,099 deals a year earlier.
The question mark -- and it's what will ultimately drive the stock higher or lower later this week -- is how it's been doing since its IPO. There is never a quarterly report as important for a freshly minted debutante as its first financial update as a public company. Investors need to know that they're buying a real growth company, and not one that just raised money as an exit strategy. Analysts are holding out for a profit of $0.10 a share on $107.05 million in revenue for the third quarter, numbers to file away and match up to any guidance that Redfin may provide on Thursday afternoon.
Redfin is a unique company. It runs its brokerage as a customercentric operation, offering up its real estate pros salaries in lieu of commissions. Redfin can then pass on the savings to its users. It's generating 78% of its transactions through its brokerage with the balance originating from third-party partners. The unique model means that it's not fair to pit it against traditional real estate portals that lean on Realtors buying premium subscriptions or ad space. Redfin requires a physical presence in the 80 markets that it is currently participating in, unlike the websites with an easier path to broader coverage breadth.
It's a fixer-upper
Redfin has made its IPO buyers a good chunk of change, but it hasn't been as kind to those who chased it a few days later. Redfin shares peaked at $33.49 on its fifth day of trading, shedding a quarter of its value since hitting those highs.
It didn't help that many of the firms that helped take Redfin public this summer put out lukewarm endorsements two weeks ago. RBC Capital, Stifel, Goldman Sachs, and BofA/Merrill Lynch all initiated coverage with neutral ratings and price targets between $20 and $28. Oppenheimer's Jason Helfstein was the rare bull with an outperform rating and a $31 price goal. Then again, you can't blame the skittishness on the underwriters that had priced the offering at just $15 in July.
Those Wall Street pros with ho-hum ratings will have a chance to change their tunes after the report. There's upside here if Redfin can find a way to keep growing in a challenging marketplace, as those firms will no longer be tied to their $15 pricing now that new information will be out. It's Redfin's own open house, and there's a lot at stake in that its first public showing goes well.