Please ensure Javascript is enabled for purposes of website accessibility

Why Redfin Stock Slumped 16.6% in May

By Nicholas Rossolillo - Jun 7, 2021 at 2:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Real estate sales have been strong, but Wall Street's worries that a correction is coming overpowered the company's solid quarterly update.

What happened

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.

RDFN Chart

Data by YCharts.

So what

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.  

A home in the background. A for sale sign with a "sold" sticker over the front of it is in the foreground.

Image source: Getty Images.

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.  

Now what

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.

Nicholas Rossolillo and his clients own shares of Redfin. The Motley Fool owns shares of and recommends Redfin. The Motley Fool recommends the following options: short August 2021 $65 puts on Redfin. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Redfin Corporation Stock Quote
Redfin Corporation
RDFN
$10.10 (-11.21%) $-1.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.