What happened
Shares of Redfin (RDFN +0.00%) were moving higher today in sympathy with the stock of Zillow (Z 3.99%) (ZG 3.13%), which jumped after reporting strong growth in its new home-flipping business. Redfin's gains came just a day after the stock swung wildly on its third-quarter results Thursday as investors didn't quite seem to know what to make of the news.
The stock fell 3.1% Thursday, but was up 10.1% as of 2:41 p.m. EST today. Zillow A shares, meanwhile, were trading up 10.8% at that time.
Image source: Redfin.
So what
Redfin beat expectations across the board in its third quarter and issued strong guidance for the fourth quarter, so the sell-off Thursday was a bit puzzling. The stock actually opened 8% higher on Thursday, but then quickly dived, perhaps on skepticism about the overall real estate industry or after a brief short squeeze gave way to selling.
In the third quarter, Redfin's revenue jumped 70% to $238.7 million. Like Zillow, its results were boosted by strong growth in its home-flipping business, RedfinNow. Revenue in its product segment jumped from $11.4 million in the quarter a year ago to $80.2 million.
After the market applauded similar results from Zillow stock today, Redfin stock looked more appealing as investors seemed more confident in the new business model.
Now what
Both Zillow and Redfin are disrupting the traditional real estate market with businesses like Zillow Offers and RedfinNow, which take advantage of the companies' trove of data to buy and sell homes and show the disruptive potential they have.
Still, the two stocks have had rocky histories on the market, with both stocks down since Redfin's IPO in 2017, as investors have been nervous about a slowdown in the housing market. Both of these stocks are long-term bets on the ability of technology to disrupt conventional real estate transactions.
So investors who are looking for a payoff should be willing to hold through the various phases of the housing cycle as this story is going to take years, if not decades, to play out.
