As Redfin gears up for an IPO, the high-tech brokerage has released a video presentation designed to coax investors into pouring more than $100 million into the company at a valuation of over $1 billion.
- The focus of the company's IPO statement is on happy customers first, big profits later on.
As Redfin gears up for an initial public offering, the high-tech brokerage has released a video presentation designed to coax investors into pouring more than $100 million into the company at a valuation of over $1 billion.
The focus of the company’s IPO statement is on happy customers first, big profits later on — a feel-good IPO.
The video, to be shown to investors in Redfin’s IPO “road show,” offers insight into the company’s long-term vision, while flagging some of its key initiatives and technology. Here are seven takeaways from the presentation.
1. Redfin was ‘born in the darkness’
Setting expectations for investors, presenters painted Redfin as a scrappy firm that will put customer satisfaction and long-term growth above short-term gain.
Redfin has learned to “fight like wild animals” and is willing to make “who-cares-what-they-think business decisions,” CEO Glenn Kelman says in the 23-minute video.
Because the firm cut its teeth during the housing slump, Redfin is similar to the Batman villain Bain, who boasts that he doesn’t fear the dark “because he was born in the dark,” Kelman said.
But Redfin is “not just a money-making thing.”
“We’re looking for investors who share our conviction that the most valuable company in real estate will be the one that does the most good for its customers,” Kelman added.
“This goodness is the first measure of our success. It depends on decisions to improve our service that may be costly over quarters, but over years and decades, are essential and profitable.”
2. Redfin is positioning itself as a technology company
“Technology is how we sell homes for more money and charge half the typical fee,” Kelman says. “Technology is how we meet our customers at a scale that other brokerages can’t.”
Much of the video is crafted to support this thesis. It cites examples such as Redfin’s popular property-search site, on-demand showings and what the company claims is the best home valuation model out there.
Analysts have pointed out that being perceived as a technology company, rather than a brokerage, will be key to securing a high valuation.
“If Redfin is a brokerage, making $256 million in revenues and losing tens of millions every year… it’s worth zip. Zilch. Zero. Nada,” real estate consultant Rob Hahn recently wrote.
If Redfin has accurately gauged its IPO share price ($12 to $14), the brokerage will be valued at more than $1 billion — around four times its revenue in 2016.
That said, Redfin still identifies as a “technology-powered brokerage,” not just a technology company. Presenters emphasized the importance of using agents to add a human touch to its service, noting that not everything can be automated.
3. Chasing an end-to-end experience
Redfin’s strategy for perfecting its customer experience is simple, Kelman says: “Top to bottom integration of digital tools and in-person service for buying and selling homes, getting a mortgage and transferring the title.”
The company has already found some success with this, revealing in its IPO that 46 percent of its buyer clients chose to use its title and settlement service.
Over the next decade, the company plans “to make major investments in a completely digital process for buying and selling a home,” says Redfin Chief Growth Officer Adam Wiener.
4. Helping clients compete like cash buyers
Redfin’s new lending arm will be critical to providing an end-to-end experience.
The company believes that plugging Redfin agents and mortgage advisers into the same platform “can avoid the delays and miscommunications over a low appraisal or a late inspection response so our customer is more likely to close on time,” Wiener says.
The end goal is ambitious: “We want to fund a loan so quickly that our homebuyers can compete for a listing like a cash buyer.”
5. A need for speed
This exemplifies Redfin’s focus on speeding up the transaction.
Other efforts cited in the presentation include on-demand showings, which Wiener said have taken four years to perfect; a lightning-fast listing alert system; and a new tool that purportedly lets Redfin agents “generate an offer from the front steps of the home we just toured — sometimes before other buyers even realize it’s for sale.”
“As we systematically increase the speed of our service each year, our goal is to give our customers their first choice for every home for sale,” Wiener said.
6. Better data
Redfin’s combination of technology and data offers its website visitors and customers a competitive edge, presenters said. Thanks partly to direct access to multiple listing services (MLSs), Redfin can detect listings hours before other top real estate sites and provide more accurate home valuations, they said.
“The underlying technology of price estimates and listing recommendations is all our own,” Wiener said. “These calculations would have been cost-prohibitive without recent quantum leaps in cloud computing.”
7. Listings, listings, listings
Redfin’s growth and innovation will depend on its ability to acquire more listings, the video made clear.
“We believe that over time being one of the only companies to reach millions of homebuyers with thousands of our listings will let us explore new sources of competitive advantage and profit,” Kelman said.
Why are listings so important?
Because Redfin can show its own listings “first and best on our own site and make our own rules for how they’re toured, bought and sold,” Kelman said.
The more in-house listings Redfin has to play with, the more Redfin can differentiate its website and streamline the buying process.
Redfin will need ample inventory to execute on perhaps its most intriguing long-term goal: to directly match buyer and seller clients. Low-fee brokerages Trelora, Purplebricks (in the UK) and Homie have all gained traction, in part, by using this technique.
“[We] believe listing more homes and drawing more homebuyers to our website and mobile application will let us pair homebuyers and home sellers directly online over time, further improving our service and lowering our costs,” Redfin said in its IPO filing.
In the video, the company touted its 3-D home tours, 1 percent list fee and seller dashboard as draws for homesellers. Redfin Now, which allows homeowners to sell their homes directly to Redfin, could also help the firm snatch up more listings.
Redfin’s list-side transactions grew to 30 percent of its total transactions in 2016, up from 20 percent in 2014, according to Redfin’s IPO filing. But even in its best markets, the brokerage still only has only a few dozen listings.
To view Redfin’s “road show” listing video in full, visit here. Click on Redfin Corp., then “Proceed,” and “Proceed to Presentation” after acknowledging the disclaimer.