Unlike Zillow (NASDAQ: Z) (NASDAQ: ZG), Redfin's (NASDAQ: RDFN) core business is still traditional residential sales, which means Redfin needs a lot of real estate agents. At the start of the pandemic, Redfin furloughed thousands of agents. When the market quickly powered back, Redfin had to find agents to handle the demand.
“After scrambling in the second half of 2020 to hire enough agents and lenders to handle a pandemic-driven surge in demand, Redfin is just about hitting on all cylinders,” said Redfin CEO Glenn Kelman in the first-quarter 2021 press release.
Redfin reported revenue of $268 million in the first quarter but still had a loss of $36 million, an improvement from the $60 million reported a year earlier. The company had net loss per share attributable to common stock, diluted, of $0.37, compared to net loss per share, diluted, of $0.64 in the first quarter of 2020.
Redfin's hiring frenzy
The number of agents that Redfin employed on March 31, 2021, was up 26% year over year, and the number of partner agents (agents that Redfin refers business to but are not Redfin agents) was up by 93%. Redfin has been actively recruiting, and in the first two months of 2021 the rate at which it hired lead agents increased by 74%. At this point, Kelman feels that the company will have enough agents to satisfy the demand during the heart of buying season in June.
However, Kelman pointed out an interesting phenomenon that's happening because of the current market conditions: New agents are leaving within the first 12 months at an alarming rate, 53% compared to just 26% one year ago. This is partly because, in a hot market with bidding wars common, many buyers aren't getting the first home they make an offer on, and some may be unable to buy a home at all. Redfin has started incentivizing new agents with a $1,500 retention bonus whenever a buyer makes an offer, whether the buyer gets the home or not.
Building the better mousetrap
Redfin's traffic growth has slowed a bit, up 30% year over year to 46 million average monthly users. Kelman attributes this slowdown to the fact that the lack of inventory simply gives browsers less to look at. The company has stepped up its ad campaigns, including ones that showcase Redfin World, a space that Kelman describes as a "groovy, magical portal" in the company's first-quarter earnings call.
Redfin is extracting as much value as possible from those who do visit. Those first-quarter visitors were 13% more likely to subscribe to a search, participate in a shared search, or download the Redfin app than visitors from the previous year. And requests for services from agents and partners agents are up 55%.
Redfin rolls out services on a market-by-market basis and is still not nationwide, although it covers 85% of the population. It expects to add another 30 markets in 2021, which should also help increase traffic. Redfin's current market share is just 1.14% of U.S. existing home sales by value in the first quarter of 2021, so it sees plenty of opportunity for continued expansion.
Two months ago, Redfin announced the RentPath acquisition and has already linked the two sites together. It plans to be able to publish RentPath listings on the Redfin site by next March. Part of Redfin's plans for RentPath is around the idea of both making the renter experience better by offering self-guided tours and a completely mobile application process. As Kelman put it, "Our long-term challenge is to digitize the process of renting a home for both the consumer and the property manager."
Redfin's other revenue streams and the future
Redfin's iBuying business is smaller than ZIllow's, but the Properties business, which buys and sells through RedfinNow, grew 17% in the first quarter to $93 billion. Redfin's iBuying business relies on desk agents who handle leads. Kelman sees an advantage for RedfinNow in that it already has a lowered commission model (1.5% for listings). He believes that many other iBuyers will switch toward this model over time. For Redfin, it seems that iBuying is more of a funnel to the core brokerage business than the future of the company as a whole.
Redfin's mortgage and title services are also still relatively new, only launched in 2017, but that segment grew revenue by 120% to $9 million. Redfin Mortgage is now operational in 56 markets, and its title business is active in 27 markets. Kelman sees hiring as essential to the growth of this side of the business as well, saying in the call: "What limits Redfin Mortgage's growth now and probably for years to come is our ability to hire and train great people."
For the second quarter of 2021, Redfin is anticipating total revenue between $446 million and $457 million. Because of the RentPath acquisition and other expenses, it still is prepared to operate at a loss, but it's likely that the integration of rentals will pay long-term dividends for the business.