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Why Redfin Stock Rallied on Friday

By Joe Tenebruso – Updated May 8, 2020 at 9:06PM

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The real estate services provider is growing at a rapid clip.

What happened

Shares of Redfin (RDFN 4.78%) popped 8% on May 8, following the release of the discount brokerage's first-quarter results. 

So what 

Redfin's revenue surged by 73% year over year to $191 million. Its gross profit, meanwhile, soared 368% to $3 million, as its real estate gross margin improved to 14% from 6% in the year-ago quarter. 

Redfin is rapidly gaining share in the massive U.S. housing market, thanks in part to its internet-based platform -- which is proving particularly valuable during the COVID-19 crisis -- and the hefty cost savings it often provides to its customers.

"Real estate commerce has probably virtualized itself more in the past two months than it had in the prior 20 years," Redfin CEO Glenn Kelman said in a press release. "This makes Redfin's technology advantage over other brokers more important than ever."

A person in a business suit sitting behind a table that has miniature houses on top of rising stacks of gold coins on it

Redfin is taking share from its rivals. Image source: Getty Images.

Now what

Redfin continues to generate operating losses as it scales its business, but with such an enormous growth opportunity still ahead -- its market share of U.S. existing home sales is still less than 1% -- management is wisely prioritizing expansion over profitability. As long as Redfin can steadily increase its market share of the $80 billion U.S. real estate brokerage industry, long-term investors should continue to be rewarded.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Redfin. The Motley Fool has a disclosure policy.

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