What happened
The stock market was having a strong day on Friday, with all three major indices slightly higher. However, real estate technology company Redfin (RDFN 8.49%) was a different story. As of 11:45 a.m. EDT, Redfin has shed more than 20% of its value.
So what
In some ways, Redfin's second-quarter numbers were strong. Sure, revenue was lower year over year due to the slowing housing market and the closure of the RedfinNow iBuying business, but it came in ahead of expectations. What's more, Redfin's net loss for the quarter was about one-third of what it was a year ago, a better improvement than analysts expected. And momentum in the mortgage and title services businesses was impressive.
However, there were a couple of major disappointments for shareholders.
First, CEO Glenn Kelman had previously said that Redfin would be profitable on the basis of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2023, and he now says that this isn't likely to happen. Instead, he says adjusted EBITDA break-even will happen "over the next 12 months." In short, while Redfin is making excellent progress, the slow real estate market is delaying the company's expected profitability timetable.
What's more, Redfin's market share in the second quarter was 0.75% of U.S. existing home sales, down from 0.83% a year ago. To be sure, this isn't a total surprise, as Redfin completed several rounds of layoffs (including many of its agents), and the company doesn't have an iBuying business making home sales anymore. But this was still worse than many investors expected.
Now what
It's important to keep things in perspective. Even after today's 20% haircut, Redfin is still up by 170% in 2023, so take this move with a big grain of salt. Given the recent price action in the stock, it's fair to say that expectations going into earnings were quite high, so it isn't surprising that a few negative items are weighing on the stock.
