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Why Shares of Redfin Fell 11% This Week

By Nicholas Rossolillo – Aug 20, 2021 at 5:50PM

Key Points

  • Shares continued to fall in spite of a great Q2 earnings report and equally great Q3 oultook.

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Optimism is waning for now for this real estate brokerage technologist.

What happened

Shares of tech-enhanced real estate brokerage firm Redfin (RDFN 0.96%) fell 11% over the last five trading days ended Friday, Aug. 20. The trend builds on losses the stock has been experiencing since the second-quarter 2021 earnings report earlier in the month; in total, Redfin is now down some 31% in 2021.  

So what 

The real estate disruptor has one of the most well-rounded technology stacks addressing multiple needs of home sellers, buyers, and renters. The company has been doing just fine financially this year as Americans have been moving to new homes en masse during the pandemic. Revenue through the first half of 2021 is up 83% to $740 million, driven both by a hot housing market marked by bidding wars over a tight supply of available homes as well as a big rebound in activity compared to the brief freeze caused by the initial pandemic lockdown last spring.  

A family looking at a computer screen while reviewing paperwork.

Image source: Getty Images.

There are two likely reasons Redfin stock is falling anyways. First, shares are simply cooling off after the massive 225% gain they notched last year as it and many other high-growth tech stocks took flight. Sometimes a reversion back to reality can take awhile. And second, there are signs that the housing market is set for a slowdown. Redfin itself has been reporting a decrease in bidding wars; home price growth may start to ease; and a persistent shortage of homes means many buyers simply have nothing to shop for -- which for a brokerage, means no commission earned.

Now what

For Redfin, the housing market getting doused with some cool water wouldn't be the end of the world. It's far more than just a brokerage these days, especially after the acquisition of RentPath. Rentals will continuously be added to Redfin's leading real estate listing site this year and next as the RentPath assets are gradually integrated into operations. 

Plus, Redfin is also a story of expanding market share of the real estate industry. And at just 1.18% of U.S. market share in Q2 2021 (based on value of homes sold), there's still plenty of room for Redfin to grow as it extends its services into new cities and metropolitan areas.  

In spite of the signs of slowdown, management forecast revenue to jump at least 124% year over year in Q3. Shares now trade for four times trailing 12-month revenue and 14.5 times trailing 12-month gross profit -- perhaps a long-term value if this company can continue its steady pace of growth.

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.

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