Please ensure Javascript is enabled for purposes of website accessibility

What Market Correction? Redfin Was Up 11% in February

By Jon Quast - Mar 5, 2020 at 11:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Profitability is on the rise, and that's reason for excitement.

What happened

Shares of real estate broker Redfin (RDFN -1.15%) were up 11.2% in February, according to data provided by S&P Global Market Intelligence. The stock at one point was over 30% higher, after a strong earnings report and promising guidance excited investors.

The broad market correction eventually pulled Redfin down by the end of the month, but it still handily outperformed the 8% loss of the S&P 500. That makes Redfin one of the few February winners.

A man celebrates as cash rains down on him.

Image source: Getty Images.

So what

Redfin reported Q4 revenue of $233 million -- up a whopping 88% year over year. This blew past the $217 million analysts were expecting. Furthermore, the company reported a quarterly net loss of $7.8 million, which was better than the $12.2 million it lost in the comparable quarter last year and also better than expectations. 

However, the news that investors are likely most excited about is that Redfin is changing its brokerage fees in 2020. The company strives to save people money, so raising prices could be a one-time pull of the trigger. But it's profound. Starting in 2020, home sellers will pay a 1.5% brokerage fee -- up from 1% previously. But if they choose to buy a home through Redfin within 12 months, the fee for both buying and selling is 1% each. 

The move doesn't erode Redfin's value proposition, as 3% is the industry standard broker fee. But it can have a dramatic effect on profitability. Brokerage revenue accounted for 64% of Redfin's revenue in 2019 and was its most profitable segment. An increase in its brokerage fee goes straight to the bottom line.

Now what

In the end, it was just one quarter. But it further cemented why I believe Redfin is a top small-cap stock to own right now.

Looking ahead, the company expects to increase marketing spending in the first quarter, which will be costly. It expects to lose between $68 million and $72 million, up a hair from the $67 million it lost in Q1 2019. But with less than 1% market share, using funds on marketing is a smart decision, setting up a strong 2020 and beyond.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Redfin Corporation Stock Quote
Redfin Corporation
RDFN
$10.31 (-1.15%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.