Rapid growth isn't easy for any company, and Redfin (NASDAQ: RDFN) has been experiencing some of the pitfalls of the blistering pace of the current real estate market. Redfin's revenue was up by 121% in the second quarter to $471 million. Even better, its gross profit hit $126 million, a healthy increase of 174% year over year. And yet net losses came in at $27.9 million, down from $6.6 million a year ago but better than last quarter's $36 million. Much of this was the price of expansion, including costs associated with the RentPath acquisition, as well as an increase in marketing spend, such as television ads.
This doesn't faze CEO Glenn Kelman, who sees Redfin as ready to go on the attack when it comes to delivering for consumers. This quarter was the first one where Redfin was fully staffed after furloughing agents in 2020 -- and then being flooded by so much demand that it had to farm out some of its leads to partner agents.
Gaining market share, but losing some agents
Redfin has taken an accretive approach to market share since it went public in 2017. It now has a market share of 1.18% of existing home sales by value.
Glenn Kelman tends to spend more time focused on agent quality than some other brokerage CEOs. On the earnings call, he remarked that of the agents who left Redfin in the second quarter, nearly half of them were people that Redfin wouldn't hire again. Of those that filed out the exit interview, about 20% were ready to leave real estate entirely.
This is, to some extent, what happens when there are more agents than homes for sale. Kelman remarked that a pay update for buyer's agents planned for 2022 may help with agent retention. The brokerage is also experimenting with reducing the amount of customers each agent has to serve.
Like some of the other CEOs of publicly traded brokerages, Kelman sees more inventory as a positive sign for the market, and for Redfin specifically. He noted that website traffic slowed after Memorial Day, but there were more sales under contract. This was not because of online visitors -- instead, it was driven sheerly by increased inventory.
Beyond the basic brokerage
Luxury real estate sales have lifted other brokerages, but Redfin is, surprisingly for a discount brokerage, seeing strong growth in the luxury sector. Sales of homes priced over $1 million represented 13% of all sales, compared to 5% a year ago. Part of that is likely due to overall price inflation, but some credit must be given to the development of Redfin Premier as a white-glove service under the Redfin brand.
Redfin Mortgage struggled a bit this quarter compared to the previous quarter. Redfin Mortgage grew 47% year over year, compared to nearly 200% growth in the first quarter. While it slowed hiring of loan officers in past months, Redfin is not back to growth mode in this area. It plans to expand to California and expects Redfin Mortgage markets to cover 94% of Redfin’s purchase transactions by the end of 2021. Profitability in this segment eludes Redfin for the time being.
Overall, Redfin tends to be more cautious than some of its competitors in the iBuying space, but the company did buy nearly 40% more homes in Q2 than in all of 2020. On the earnings call, Kelman noted that Opendoor has been particularly aggressive in its offers to consumers, but he sees promise not just in buying homes but in using contractor employees in Redfin-branded vans to accomplish the renovations.
One other interesting thing to note about RedfinNow is that Redfin does not, at this time, sell its completed homes to institutional buyers, instead focusing on selling directly to homeowners.
More growth, but also more losses
The third quarter will likely be another one of healthy expansion. Redfin is forecasting revenue to increase by between 124% and 128% year over year, coming in at between $530 million and $541 million. That includes RentPath revenue between $40 million and $41 million, but Redfin is still expected to still be recovering from that acquisition for a while. It's forecasting another loss in the third quarter and expects a total net loss between $24 million and $20 million, compared to total net income of $34 million in the third quarter of 2020.
Redfin's next challenge is in integrating all of its businesses together. It lost a little ground to Realtor.com in terms of traffic recently and is more cautious than some of its competitors when it comes to buying homes. But its steady momentum in market share shows that Kelman and crew are still on the right path forward.