With the Fed’s recent interest-rate cut heralding a decline in mortgage rates, homebuying demand is starting to bounce back, according to the latest report from online-based real estate brokerage company Redfin (RDFN). The company reported an impressive 9% month-over-month increase in its Homebuyer Demand Index. However, sales haven’t returned to pre-pandemic levels, and the future remains uncertain. Redfin experienced a significant drop-off in revenue and earnings as rising interest rates caused the housing market to decline.
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While the firm’s most recent quarterly results were above expectations, it is still far from recovering profitably. The stock has jumped over 73% in the past 90 days, primarily in response to the shift in the rate environment. Investors interested in exposure to the housing market may want to keep an eye on RDFN for further signs of positive results before taking action on the stock.
Redfin Grapples with Decade-Low Home Sales
Redfin Corporation utilizes technology to provide real estate services, such as home buying and selling, title and settlement services, and mortgage origination and sales. Its online platform is also used for on-demand home tours, expedited lending, and title services. The company currently serves over 100 markets.
Redfin’s latest report indicates a significant decrease in U.S. home turnover rates during the first eight months of 2024, the lowest in decades, with only 25 out of every 1,000 homes sold. This data shows a decrease of 37.5% compared to the 2021 pandemic buying period and 31% less than the pre-pandemic year of 2019.
The contributing factors for this decline include elevated mortgage rates, which have discouraged homeowners from selling due to the subsequent higher rates, increasing home prices, and a historically low supply of listed homes. Economic and political uncertainties linked to the upcoming U.S. presidential elections have led to a wait-and-see approach.
Analysis of Redfin’s Recent Financial Results & Outlook
The company recently reported results for Q2 2024. Revenue was $295.20 million, a 7% year-over-year increase, beating analysts’ expectations of $291.39 million. Gross profit also rose by 9% to reach $109.6 million. On the downside, real estate services gross profit saw a 4% decline from last year, at $53.7 million, and its margin dropped to 29% compared to 31% in Q2 2023.
Redfin reported a net loss of $27.9 million, slightly higher than last year’s $27.4 million. However, Adjusted EBITDA showed a significant improvement from a loss of $6.9 million in Q2 2023 to a flat rate this quarter. CEO Glenn Kelman attributes profitability growth to strategic and operational changes and has a positive outlook for the company’s financial health. The company posted earnings per share (EPS) of -$0.23, surpassing the analyst’s forecast of -$0.26.
Following the second-quarter results, RDFN’s management has provided guidance for Q3 2024. Revenue is expected to range between $273 million and $285 million, indicating year-over-year growth of 1% to 6%. However, the company anticipates a total net loss between $30 million and $22 million, higher than the $19 million loss in Q3 2023. Adjusted EBITDA is expected to fall between $4 million and $12 million.
What Is the Price Target for RDFN Stock?
The stock has steadily declined since its peak in 2021, shedding 77% over the past three years. Yet, the recent jump in share price, likely driven by Fed rate activity, has breathed much-needed life into the stock. It trades in the upper half of its 52-week price range of $4.26 – $15.29 and shows positive price momentum, trading above its 50-day (10.28) moving average. The P/S ratio of 1.3x sits below the Real Estate Services industry average of 1.8x, indicating the stock trades at a slight discount to industry peers.
Analysts covering the company have mostly taken a wait-and-see approach to RDFN stock. Based on ten analysts’ aggregate recommendations, Redfin is rated a Hold. The average price target for RDFN stock is $8.14, representing a potential decline of -21.12% from current levels.
RDFN in Review
Redfin is showing signs of recovery amidst a turbulent housing market, driven by the Fed’s recent cuts in interest rates. Although the firm’s performance is still below pre-pandemic levels, it has experienced a noteworthy surge in its stock. However, U.S. home turnover rates are at a decade-low, and economic and political uncertainties loom. The company’s Q2 2024 financial results show positive strides, surpassing analysts’ expectations, yet the firm still posted a net loss.
With signs of potential growth across the real estate market, investors may wish to watch RDFN for possible opportunities. Still, a cautious approach is recommended, given the firm’s expected further net loss in Q3 2024.
