Redfin's (NASDAQ:RDFN) tech-focused real estate business just keeps growing. Revenue was up 38% year over year to $110 million, driven by continued growth in its brokerage business. Furthermore, this took place despite a contraction in the U.S. real estate market in 2018. With the company investing in nationwide advertising to grow its brand, the runway for this company looks fantastic.

In this clip from Industry Focus: Energy, Motley Fool Analyst Tim Beyers and Industry Focus host Nick Sciple discuss what popped out to them from Redfin's most recent earnings report.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on May 23, 2019.

Nick Sciple: Now, let's talk a little bit about Redfin's most recent earnings numbers that we got back at the beginning of May. Tim, we've had some time to digest these since they've come out. What popped out to you most from this presentation, just from a numbers point of view? We'll dive into Redfin Direct a little bit more in a second.

Tim Beyers: Revenue is up over 38%, which is a great number. It's a little bit skewed. It's important to point out that a lot of that outsized growth is from other services. It's from mortgage, it's from title, and most specifically from Redfin Now. Let's just, if we can, take a quick step back. Basically, what Redfin Now is, it's house flipping. I know they hate us using that term. But the house flipping market, where Chip and Joanna Gaines go in, they buy a house, they fix it up, and then they sell it, they make a nice profit. That has been a cottage industry for a long time. We've seen it on reality TV for years. But now you have bigger brands like Redfin using data coming in and saying, "We could make X offers on these types of homes." And they're using it from years of sales data, decades of sales data. And they're using that to make appropriate bids at the right homes, pulling that inventory onto their balance sheet, and then moving it within a year. That's roughly what they're trying to do. I think within a few months, quite frankly.

It's still ramping up. They have a limit on how much they can spend. But Redfin Now was up to $21.4 million vs. $3.1 million last year. I mean, it's up roughly 7 times. That's an incredible gain. The mortgage and title services were up 59%. The core brokerage business was up 15%. That's good. It's not amazing, but it's good. It was kind of a wobbly market last year, so to know that they were up during that period, and that it accelerated sequentially, is a pretty good sign. It shows that Redfin does have a pretty loyal base of customers that they can pull from. And that's a good thing.

But a lot of what's happening here is, this is a business that's in transition. As it transitions into these higher-growth businesses, and pulling in more of the transaction to serve customers in a bigger way, I think that's going to be very good for them over the long term, but they're still building that, Nick.

Sciple: Yeah. You talked about the brokerage revenue. It was up in spite of a real estate market that contracted somewhat in 2017. To see that continue to trend up going into the first quarter of this year is positive. Also, when it comes to that growth, management talked about, they'd been a little bit hesitant to hire a large number of agents in 2018, as there was some weakness in the real estate market. As we see things solidify underneath them, you might see that growth rate tick up a little bit.

You saw their loss expand a little bit in this quarter vs. a year ago. $67 million loss vs. $36 million in the year-ago quarter. However, that's driven in large part -- you mentioned Redfin Now, some investments they're making there. Also, in the first part of this year, they really started ramping up a national advertising campaign. They had a Super Bowl ad. The CEO was talking about, 2019 is going to be the story of what happens to Redfin when the entire country is aware of our customer value proposition. They've been really rolling out advertising to make sure as many people as possible are aware of that.

Tim, as you see them going after a broad mass audience, do you think Redfin is really starting to hit that turning point where they're hitting scale and can really start to press on these things in a large, broad way?

Beyers: Well, they're building out tools to help them do that. It's uncomfortable. They're stretching their agents a little bit, which is why you saw some shrinking -- we talked about this before the show, Nick -- some shrinking in the gross margins. That's because they've got some agents that are learning how to take on a bigger workload using their tools. So they're figuring out exactly what the right mix is. They're not there yet. I think it would be a mistake to say they're there. But they're getting there. They're getting much closer. And I do think that it's absolutely right.

One of the things that could make Redfin a massive winner from here is if it moves from its traditional domain on the coasts, both East and West Coast, into the interior. There's a fascinating stat on U-Haul. The cost of renting a U-Haul to go from California to Texas is much higher, more than double the cost of renting a U-Haul to go from Dallas to Los Angeles. I think that's fascinating! It means that there's an internal migration. Redfin is doing this at a very interesting time. As they expand into new markets, and they get people aware of them, they're going to have a chance to grab some of that low-hanging fruit in the markets when they show up and say, "Hey, we're here, and you've heard of us, because we had a Super Bowl ad, we have YouTube ads, we're on social media, we're advertising in a bigger way, we're doing brand advertising." They're going to have a chance to get some of that low-hanging fruit. I think that's good.

But they are going to have to build better tools, they're going to have to do it quickly. What I mean by that is, for example, instead of having an agent schedule your appointment to see a home, you're going to go into an online calendar and do that, or you'll get an email that says, choose your time. They'll automate some of that. They do need to make agents more efficient, and they recognize that, but they're working on fixing that problem. And as they do, I think they will scale up very well.

Sciple: Yeah, I think when you're looking at their scale, there's always going to be some role for that touch of an agent, and the need to increase that labor pool is going to put a cap on how quickly they can just ramp up growth. There's always going to be some moderation to that growth driven by the people you have to bring in. You have to have those relationships and touch to at least a certain part of the market.

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