Shares of tech-enhanced real estate brokerage Redfin (RDFN -11.21%) fell by 16.6% in May, according to data from S&P Global Market Intelligence. The culprit was a steeper-than-expected net loss in the first quarter even as Redfin benefited from a booming housing market.
Specifically, for Q1, Redfin reported total revenue of $268 million (up 40% year over year) and a net loss of $38 million (compared to a net loss of $60 million a year ago). At the time, management said to expect Q2 sales in a range of $446 million to $457 million, more than double what they were in the prior-year period, when the pandemic led to a sharp reduction in the number of homes being sold. However, Redfin expects to again incur losses as high as $38 million.
Redfin is quickly expanding its services, though, adding new markets to RedfinNow, though which it directly purchases homes from the homeowners for cash to speed up and simplify the home selling process. Its acquisition of RentPath (owner of websites ApartmentGuide.com, Rent.com, and Rentals.com) was also completed at the start of the second quarter. Those operations are now being integrated into Redfin's leading real estate listing site.
Because Redfin is losing money in the midst of a booming housing market, investors worry that its situation could deteriorate quickly if home buying cools off. In fact, the shortage of homes for sale has contributed to skyrocketing home prices in some markets. Nevertheless, Redfin isn't at risk of running out of liquidity anytime soon. It finished March with cash and equivalents of $1.24 billion, offset by total debt of $1.25 billion.
The risk that home sales might hit the skids has now been at least partially priced into the stock. Shares of Redfin are down by more than a third from the all-time high they reached in February of this year. As of this writing, the company is valued at about 6 times trailing 12-month sales. Though Redfin's bottom line has dipped into the red as of late due to a ramp-up in its marketing and new service expansion initiatives, the real estate brokerage disruptor is well on its way to reaching sustainable profitability.
Plus, this story is really about the company scooping up a larger share of the residential real estate industry over the long term. In the first quarter, Redfin said its market share based on the value of homes sold in the U.S. was only 1.14% -- up from only 0.93% in the prior-year period.