The nearly two months since the U.S. started to close down wide swaths of the economy to fight COVID-19 have been a whirlwind. The financial repercussions are only just beginning to be felt, as are the changes in long-term consumer and business activity. But for many, this has been a crisis in a microcosm.

Such has been the case at small technology-driven real estate broker Redfin (NASDAQ:RDFN). Unsurprisingly, purchasing activity that was going stronger than ever in January and February 2020 suddenly reversed course in March. Surprisingly, the rally in activity on its real estate platform since then has been just as dramatic.

All told, the company had an impressive showing in the first quarter of the year. While Redfin cautiously issued guidance for year-over-year revenue declines in Q2, question marks abound. But a few things are certain: Home buying going forward is looking forever changed due to COVID-19.

First, a few numbers

While the trajectory of business growth has been altered -- at least for the immediate future -- Q1 2020 will be important as it sets the high-water mark against which future results are measured. And Q1 was another big win for Redfin, at least until mid-March when the wheels started to come off the wagon.

Metric

Q1 2020

Q1 2019

Change

Revenue

$191 million

$110 million

73%

Cost of revenue

$178 million

$107 million

66%

Operating expenses

$70.3 million

$70.2 million

0%

Net income (loss)

($60.1 million)

($67.2 million)

N/A

Data source: Redfin.  

Within the total, revenue from Redfin's core brokerage services grew 26%. Redfin sales from buying and selling homes on its own account grew 276% to $79 million, and other services like lending and title increased 39%.  

Core buying and selling on Redfin's digital marketplace is a key indicator of where business is heading, though. For the week ended April 5, CEO Glenn Kelman said home-buying demand was 68% of what it was in January and February. Astoundingly, that figure had improved to 96% by May 3. Selling demand is a different story. Activity on new home listings had fallen to negative 52% in mid-April year over year and had improved to negative 39% by the beginning of May. Progress, yes, but without a more pronounced uptick in home listings, households that are buying are soon going to run out of inventory.  

A home in the background with a "For Sale" sign in the foreground. A "Sold" sticker has been placed over the sign.

Image source: Getty Images.

A mass migration to the suburbs?

Long story short, while real estate activity is rallying, it's going to be a bumpy ride. To shore up the balance sheet, Redfin raised fresh capital in April ($110 million in common and preferred stock), giving the company total cash and equivalents of $426 million. Kelman and company think that should last through the end of 2021 at the current rate of crisis-level cash burn.  

But some monumental shifts could be shaping up in the wake of the pandemic. First is the continued migration to virtual purchasing. Redfin's share of the total home buying market improved another 0.1 percentage points in Q1 (for a total of 0.93%). Conversion using new digital tools (virtual tours, video conferencing, etc.) also increased, which means better gross profit margins. And of course, Redfin's heavily discounted take of a sale is always compelling (1% of a home's price for customers who use Redfin for the purchase and sale of a home, 1.5% for everyone else).

But the biggest change is the migration from the largest cities to smaller ones -- a trend that had begun in recent years but could seriously pick up steam as the world begins to put pieces of the economy back together post-COVID-19. Kelman explained:  

Prior to this pandemic, the housing affordability crisis was already driving people from large cities to small. Now more permissive policies around remote work and a rising wariness about close quarters will likely accelerate that trend. More people will leave San Francisco, New York and even Seattle, some for nearby towns like Sacramento and Tacoma that are close enough to support a weekly office visit, others for a completely remote life in Charleston, Boise, Bozeman, or Madison.  

There's data to back this up. Searches for homes in cities with populations less than 50,000 have increased 71% since March 15. Perhaps this trend will ease as worry over infectious disease subsides, but I personally think a new norm has been established. Recent announcements like Twitter (NYSE:TWTR) saying that remote work is now an option for all of its employees going forward could be the start of a trend. For big tech firms, making remote work possible for employees en masse isn't a far-fetched idea. The infrastructure is there to support it, which means said employees are now free to live where they want.  

Besides the fear of getting sick, the high costs of living in the city make moving to the suburbs even more compelling. And the type of workers likely to make such a move are tech-savvy and used to doing business via the internet. These are all trends that favor Redfin if this is to be an enduring shift in homeownership.  

Of course, that doesn't mean Redfin stock is for everyone. The company may be in high-octane growth mode (although Q2 guidance is calling for a 4% to 9% decline in revenue), but that growth is needed as the rate of cash burn remains a serious consideration before making a purchase. Nevertheless, this small brokerage technologist remains a holding in my portfolio (albeit small at about 1% of my investable net worth) as it continues to disrupt the status quo in buying and selling a home.