What happened
Shares of Redfin (RDFN +0.00%) were falling last month after concerns about a slowdown in the real estate market and the broader economy pressured the stock in spite of solid first-quarter earnings results. Redfin also missed the mark with its second-quarter guidance and continued to warn of a housing slowdown over the rest of May.
According to data from S&P Global Market Intelligence, the stock finished the month down 12%.
Image source: Redfin.
As you can see from the chart below, Redfin got swept up in the market sell-off early in the month and never fully recovered.
So what
On May 6, a day when the broad market fell over concerns about rising interest rates, Redfin bucked the trend, rising 3.5% after reporting first-quarter earnings.
Revenue more than doubled in the quarter, up 123% to $597.3 million, driven by the growth of its Redfin Now home-flipping business. That figure beat estimates at $551.1 million. In its more conventional services segment, which generates most of its gross profit and is made up of listings fees, sales commissions, and related services, revenue rose 24% to $217.6 million.
On the bottom line, the company reported a GAAP per-share loss of $0.86, compared to a per-share loss of $0.37, but that still beat estimates at a loss of $1.09 per share.
Second-quarter revenue guidance called for 30%-38% growth to $613 million-$650 million, which was below the consensus at $684.8 million.
NASDAQ: RDFN
Key Data Points
Redfin remained volatile over the rest of the month, falling sharply over the next week in tandem with the market sell-off on fears of rising interest rates. Higher mortgage rates are expected to cool off the housing market, and already seem to be doing so.
Later in the month, Redfin reported that more listing prices were dropping, saying that nearly 1 in 5 sellers were dropping prices, the highest since October 2019. The company also advised would-be sellers to make the move sooner rather than later.
Now what
Like other growth stocks, Redfin shares have plunged in recent months after initially soaring during the real estate boom earlier in the pandemic. While a slowdown in the housing market bodes poorly for the real estate stock, there's a good argument that it's undervalued, given its disruptive potential using technology to charge lower fees than traditional brokerages.
If you're a long-term investor, this stock looks like a good bet to rebound once the housing cycle bottoms out.
