Wall Street wasn't initially impressed by Redfin's (RDFN +0.00%) first quarterly report as a public company two weeks ago. The stock opened slightly higher, only to close out the day with a 5% decline. Given a weekend to weigh the results, the bulls helped the stock bounce back with a 10.1% gain last week.
There were no bullish analyst notes or positive company developments driving last week's surge. We're just seeing more investors bidding up one of this year's better performing IPOs. Redfin went public at $15 less than two months ago. The stock has now soared 77% in its brief publicly traded tenure.
Image source: Redfin.
It's no fixer upper
Redfin's quarter was solid. Revenue climbed 35% to $104.9 million during the quarter. Zillow Group (ZG +2.17%) (Z +2.27%) -- the market darling among real estate portals -- grew its top line at a 30% rate during the same three-month period. Profitability at Redfin more than tripled to $4.3 million, or $0.06 per share.
The rub with the strong showing is that investors essentially knew how the period was going to play out. Redfin went public four weeks after the second quarter came to a close, and the prospectus itself spelled out that revenue would clock in between $104.5 million to $104.9 million with a profit of $3.7 million to $4.3 million. Redfin nailed the high end of both tight ranges, but analysts and investors were already there with their expectations.
The real mystery in the report was always going to be its guidance for the third quarter, and the news was encouraging on that front. The $108.5 million to $110.5 million in revenue and $10 million to $10.8 million in earnings that Redfin is now targeting is ahead of the $107.1 million and profit of $0.10 a share that analysts were forecasting.
Redfin vs. Zillow
We've already established that Redfin is growing faster than Zillow, something that extends to the current quarter as the midpoint of Redfin's range suggests another 35% top-line spurt. Analysts see Zillow's revenue growth decelerating to 23%.
The comparisons between Zillow and Redfin will be inevitable as they are two fast-growing companies that lean on the internet to move real estate. However, the two models are entirely different. Zillow and many of its subsidiaries operate as traditional real estate portals, cashing in on advertising and the premiums that realtors pay to generate leads. Redfin follows the model of a real estate brokerage agency, but it sets itself apart in the industry by hiring agents on salaries instead of commission schedules. The move helps it save prospective home sellers on transaction fees.
The future is bright for Redfin. Analysts that chimed in as largely neutral last month on valuation concerns following the stock's initial pop are better served seeing the growth story play out. Redfin's disruptive model and its growing appeal are too tasty for investors to ignore.
