Shares of Redfin Corporation (RDFN 3.55%) were sliding today as the online real estate brokerage posted a solid second-quarter earnings report, but cast doubt on the housing market, saying it saw a significant slowdown in recent days. As a result, the stock was down 14.9% as of 11:23 a.m. EDT.
Redfin revealed another round of strong growth in the quarter as revenue rose 36% to $142.6 million, well ahead of estimates at $137.5 million. Gross margin fell from 35% to 32%. However, the company continued to gain market share, which increased 0.19% to 0.83%, and also showed improvement in other key metrics like repeat customers and its net promoter score.
Marketing costs went up significantly in the quarter, and adjusted earnings per share dipped from $0.06 to $0.04, topping expectations of $0.02.
CEO Glenn Kelman said, "Redfin's share gains again accelerated in the second quarter, with especially strong growth in the number of Redfin listings we sold. We also saw the first improvement in homebuyers' engagement with our agents in nearly three years, a sign that our increased levels of personal service will pay off."
What seemed to cause the stock to tank was Kelman's next statement: "We expect U.S. home sales growth to slow and even perhaps reverse in August and September, but believe Redfin will continue to gain share at a high rate because of our service quality and pricing, as well as consumers' increasing Redfin awareness."
Redfin's business is highly correlated with the housing market as the company is dependent on real estate listings, and has even gotten into the business of flipping houses, which would be pressured by slowing home sales.
For the current quarter, the company sees revenue growth slowing to 25%-29% or a total of $137.1 million-$141.3 million, which compared to analyst expectations of $141.2 million, and it forecasts adjusted EPS of $0.01-$0.03, which was much less than estimates of $0.15.
While Redfin still looks well positioned for the long term, any slowdown in the housing market is likely to affect the stock.