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Why Redfin Stock Tumbled Today

By Jeremy Bowman - Updated May 6, 2021 at 3:44PM

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Shares of the online real estate brokerage fell after bottom-line guidance missed the mark.

What happened

Shares of Redfin (RDFN 2.88%) were taking a dive today after the digital real estate brokerage posted strong revenue growth in its first quarter but got dinged for missing expectations on the bottom-line loss. It also guided to a wider-than-expected loss in the second quarter.

As of 2:32 p.m. EDT, the stock was down 17.2%.

A Redfin for sale sign outside a house.

Image source: Redfin.

So what

In the midst of a record housing boom, Redfin delivered another strong quarter of top-line growth with revenue up 40% to $268 million, ahead of the analyst consensus at $253.3 million. Gross profit more than tripled to $42 million, showing the business is gaining leverage and scale. The company's market share rose 21 basis points to 1.14% of U.S. existing home sales, showing it continues to make progress in its mission to disrupt the real estate industry.

On the bottom line, its loss per share narrowed from $0.64 to $0.37, though that was short of estimates at $0.34.

CEO Glenn Kelman touted the strong performance, saying:

After scrambling in the second half of 2020 to hire enough agents and lenders to handle a pandemic-driven surge in demand, Redfin is just about hitting on all cylinders. From the fourth quarter of 2020 to the first quarter of 2021, our year-over-year market-share gains more than doubled, and our year-over-year gross-margin gains also accelerated.

Now what

For the second quarter, when the company will lap the depths of the pandemic, it expects revenue growth of 109% to 114%, or $446 million to $457 million, well ahead of estimates at $348.4 million, though that guidance includes $41 million to $42 million in revenue from RentPath, a rental-listings company it acquired last month. However, Redfin said its net loss would expand from $7 million in the quarter a year ago to $32 million to $38 million, or $0.31 to $0.37 per share, significantly worse than estimates of a per-share profit of $0.01. That guidance includes a $9 million to $10 million loss on RentPath.

Given the torrid top-line growth, it seems nearsighted to punish the company for a bottom-line loss. Redfin is wisely investing in its business during a boom time in real estate, and those investments should pay off in market-share gains down the road.

Nonetheless, the forecasted loss and shifting market sentiment against growth stocks were enough to sink the stock. Still, the long-term picture remains bright..

Jeremy Bowman owns shares of Redfin. The Motley Fool owns shares of and recommends Redfin. The Motley Fool recommends the following options: short May 2021 $65.0 puts on Redfin. The Motley Fool has a disclosure policy.

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