Grim Outlook for US Brokerage Firm Redfin as Market Realities Bite in Q2

The US brokerage and discovery site operator Redfin has released a report on its results for the second quarter of its 2023 financial year. Notable points from the Seattle-based company's missive to the market include:

• Quarterly revenue was $275.6 million, a decrease of 21% compared to the second quarter of 2022.
• Gross profit was down 10% at $100.2 million while Net loss was narrowed to $27.4 million from $78.1 million in the comparison period.
• Brokerage market share of all existing home transactions dipped to 0.75% from 0.83% in the comparison period.
• Traffic was stable with the company's website and app seeing 52 million average monthly users (53 million in the comparison period).

Overall, Redfin's losses were slightly better than expected but the company's core business continues to be materially impacted by stubbornly high interest rates and a lack of inventory in the market.

In comments to investors, CEO Glenn Kelman admitted that profitability would come later than hoped but said that Redfin would get back to earning market share and traffic would pick up soon.

“In a declining market, Redfin improved our second-quarter net income by $50 million. We expect to break-even on an adjusted-EBITDA basis over the next 12 months rather than in 2023, which is a setback, but still we project that our adjusted EBITDA this year will improve by more than $140 million."

"We lost market share due to one-time setbacks from agent layoffs and the closure of RedfinNow, but we expect to return to quarter-over-quarter gains in the second half, as Redfin.com has been competing better for traffic. The year-over-year change in visitors to Redfin.com was 17 points better in the second quarter than it was for the two largest portals to for-sale listings, an acceleration from our first-quarter advantage of 12 points. Gross margins in our core real-estate-services business improved by nearly two percentage points. We believe Redfin is set up for profitable growth.”

Although Redfin's primary business is its brokerage services, the company operates one of the most popular real estate websites in the United States and, thanks to the way the US market works with MLSs, has all the listings from rival firms on its website and effectively acts as the market's number three portal after Zillow and Realtor.com.

Much like Zillow, Redfin had a costly misadventure in iBuying and also sees a lot of future growth coming from attaching mortgages to its services.

The $135 million purchase of Bay Equity Home Loans in 2022 has given Redfin's mortgage business added volume and the company is now reporting mortgage attachment rates of 19%, compared to 9% in the second quarter of 2022.

However, despite positive signs in its mortgage division and a 19% uptick in rental revenues, the outlook for Redfin remains downcast. Kelman said that sales volumes were "near rock bottom" and Redfin's report predicted revenues to fall between 9-13% in the next quarter with Net loss expected to be between $21-31 million.

The company's share price has fallen by more than 20% since the results were announced.