While 2020 has been a wild ride for many businesses, it's been especially so for the real estate brokerage industry. Redfin (RDFN +0.00%), in particular, has experienced huge swings in activity on its tech-driven home buying platform. In its second-quarter earnings report, CEO Glenn Kelman said that demand swung from down 41% year over year during the spring's peak coronavirus shutdown to up 40% currently.
Along with some other disruptive effects, it's clear that the pandemic is creating renewed demand in home purchasing, and Redfin and its online brokerage peers are poised to benefit.
Image source: Getty Images.
The headline numbers
Second-quarter revenue increased 8% from a year ago to $214 million, handily besting management's expectations for a contraction. Net losses also narrowed to $6.6 million, compared to a loss of $12.6 million in Q2 2019. When added to the first quarter, 2020 is shaping up to be a monumental year for Redfin. The company even reported profitability when using free cash flow (revenue less cash operating and capital expenses).
|
Metric |
First Half 2020 |
First Half 2019 |
Change |
|---|---|---|---|
|
Revenue |
$405 million |
$308 million |
31% |
|
Cost of revenue |
$346 million |
$257 million |
35% |
|
Operating expenses |
$121 million |
$131 million |
(8%) |
|
Net income (loss) |
($68.0 million) |
($79.8 million) |
N/A |
|
Free cash flow |
$2.67 million |
($153 million) |
N/A |
Data source: Redfin.
Redfin also issued more cautious guidance, calling for as much as a 10% year-over-year decline in revenue in Q3.
One of the challenges for the company -- and the industry overall -- is a serious shortage in home listings. Redfin also specifically says it's scrambling to hire to keep up with the surge in demand, all the while cognizant of the fact that more COVID-19 cases could cause the economy to capitulate again.
But, for the time being, the pandemic is creating a strong tailwind for the upstart online brokerage, as home buyers have so far been undeterred.
A mass migration, but to where?
Numbers aside, though, Redfin has turned into an interesting indicator of where households are moving. In the broader context of this new era of remote work, the company's tech-enhanced real estate services are hastening the moves brought on by the "redundancy crisis" and creating a new boom for suburbia. Kelman said on the earnings call:
We hear from our agents in outlying areas that more workers each month are getting permission from their employers to move far from the office. As a result, buyers are flooding into markets like Phoenix, Sacramento, Fresno, Bridgeport, Vegas, and Detroit ... Some customers who are planning to buy a vacation home decide halfway through the purchase to make it their only home. Rather than leaving the city for the summer, they never come back.
It would seem that rapid deployment of cloud computing and the spread of high-speed internet service over the past decade are rendering traditional work irrelevant, at least for a select number of professions for which remote production is possible.
But beyond people buying homes and leaving expensive and crowded cities, there are other implications for the economy. Kelman cited a U.S. Census Bureau report that showed homeownership rates increased to 68% from 64% a year ago, supported by low interest rates and this migration to more affordable areas thanks to remote work.
Who knows how long this trend will last, but it's another reason to be bullish on online brokerage firms like Redfin. And if the migration out of the densest cities goes on, that helps bolster prospects for related retailers (Home Depot, anyone?) as well.
Shares of Redfin have already doubled in value this year, but the as-of-yet consistently profitable technologist trades for 4.5 times trailing 12-month sales. It may be hard to justify the price tag at this moment, but for investors who think trends will continue to favor the online purchase and sale of homes over the next decade, there's a lot to like about this stock.
