What happened
Shares of Redfin (RDFN -2.07%) were climbing for the second consecutive day following a third-quarter earnings report that missed Wall Street expectations but still contained good news for investors. Shares are 13.7% higher at 11:41 a.m. ET on Friday.
Redfin's instant home purchase iBuying program is being jettisoned, and the real estate outfit was cutting the size of its workforce.
Image source: Getty Images.
So what
iBuying became popular for real estate stocks during the housing boom. Zillow (Z 0.02%) (ZG -0.17%) had a program, and Opendoor Technologies (OPEN 0.70%) thrived with it. But with the housing market slowing down, it's not proving to be a smart choice, as companies may be stuck with inventory when rising interest rates result in fewer buyers.
Zillow abandoned its iBuying program last year, and now Redfin has as well. Opendoor will be more problematic, as that's its business model, and it's already seeing its losses begin to dramatically widen even as it accelerated dumping its inventory on to the market.
Redfin is also working to trim costs by firing 13% of its employees, more than 860 in all, to get down to a more manageable, cost-efficient size.
Now what
Redfin saw revenues rise 11% in the quarter to $600 million, but that was below consensus expectations of $602 million. Similarly, its loss of $0.83 per share was worse than the $0.80-per-share loss Wall Street was anticipating, and it ended the quarter significantly more in the red than it had last year when it reported a $0.20-per-share loss.
One internet wag termed iBuying (along with 15-minute grocery delivery, buy now pay later, and metaverse offices) as something only feasible in a 0% interest rate environment. Now that we're in a period where the Federal Reserve is raising rates at an unprecedented clip, such programs are struggling.
