What happened
Shares of Redfin (RDFN 8.49%) fell 16.3% in October, according to data provided by S&P Global Market Intelligence. That looks bad in isolation. But for perspective, the stock has still more than doubled year to date and is up more than 300% from March lows. That's a strong run over a short time, so it's not surprising to see it pull back a little, especially considering the market was down in October as well.
So what
That's not to say nothing happened for Redfin during the month. The stock started falling after the company announced a new financing deal, perhaps suggesting existing shareholders weren't keen on the arrangement. Redfin offered $575 million in convertible senior notes. These notes will mature in October 2025 but could convert to Redfin common stock if the price per share is above $72.51. The company could redeem these notes before that happens.
Image source: Getty Images.
The move gives Redfin a big cash boost, and much of that will go to grow the business. Notably, the company's iBuying business, called RedfinNow, is capital intensive. It buys homes, gets them ready for sale, and then sells them. The program only does this in select markets, but has steadily expanded since its launch. During October, Redfin expanded this business into Sacramento, California, demonstrating this is still very much part of its long-term growth strategy.
Now what
Redfin is scheduled to report results for the third quarter after the market closes on Nov. 5. Management guided for revenue in the range of $214 million to $225 million (a 6% to 10% year-over-year decline) and net income of $18 million to $23 million, more than double its net income of $6.8 million a year ago. This guidance reflects a temporary slowdown with RedfinNow. Investors will likely want to hear if this is picking back up now.
On Oct. 12, Redfin released a report showing the national median home price reached an all-time high of $320,625. Other metrics also suggest the housing market remains strong despite the coronavirus pandemic.
Considering that strength, Redfin will need to at least deliver on its guidance to satisfy shareholders. But Wall Street will likely be tuned in to Redfin's guidance to see if we should expect the housing market to remain strong the rest of the year.
