One of the world’s largest and most powerful investment companies appears to be placing a large bet on technology-focused brokerage Redfin.
A stock purchase from Vanguard Group showed up this week in a U.S. Securities and Exchange Commission filing, known as a 13-G, that is produced when an investor takes ownership of more than 5 percent of a company. In this case, the filing indicates that Vanguard actually owns 9,444,137 shares of Redfin, which is 10.54 percent of the company.
A 13-G filing also means an investor will take “passive ownership” of a stock, meaning they don’t plan to exert control over the company or become involved in day-to-day operations.
Based on Friday’s stock prices (closed at $16.96), Vanguard’s investment in the company should be worth more than $160 million. Redfin first went public in the summer of 2017 at $15 per share.
The filing does not indicate when Vanguard purchased its shares, though prior media reporting indicates that the investment company has been gradually increasing its holdings in the tech brokerage.
Both Redfin and the Vanguard Group declined to comment to Inman when asked about the filing.
However, Jen Cookke, a lecturer at the MIT Center for Real Estate, told Inman that the investment suggests Vanguard is “taking a bet on the market share opportunity and growth potential of Redfin.” She explained that the way Americans purchase homes is changing quickly, and that technology based companies like Redfin will be the “future for this industry.”
Vanguard’s decision to put a substantial amount of money into Redfin, Cookke went on to explain, suggests it’s “betting that Redfin will be the dominant player.”
“The market share potential is enormous and even if Redfin is in the top three providers, this investment will pay off,” she added.
Vanguard’s investment is especially significant because of its size and clout. The company is the largest mutual fund provider in the world and manages $5.3 trillion in global assets. It also claims to have more than 20 million investors from 170 countries, and is the world’s second largest provider of exchange-traded funds, or ETFs.
All of which is to say that Vanguard is an extremely influential investor and the company’s bullishness on Redfin sends a powerful signal to the rest of the market.
However, Tom White — an analyst who researches real estate stocks for financial services company D.A. Davidson — also noted that Vanguard is unique because many of its funds try to track the performance of the broader market. He said the investment, then, could be a result of Vanguard’s desire to increase its exposure to the real estate industry more generally.
“Their reasons for buying stock has less to do with the fundamentals of the business and more with trying to increase exposure to industries,” White explained.
Redfin’s stock was up about 3.4 percent late Friday and was trading at just under $17 a share. In its most recent earnings report, the company beat analyst estimates, though just barely.
In an analysis following Redfin’s most recent earnings, and provided to Inman Friday, financial services company RBC Capital Markets concluded that the company is “clearly gaining market share, but is also clearly facing challenging real estate macro conditions.”
Some of those challenges include intense competition and lack of profitability, but RBC Capital Markets also found that Redfin had the potential to benefit from more innovation and consumer adoption.
“We continue to view Redfin as a leading technology-powered real estate company, and with the company ramping up on mass marketing spend, Redfin will likely continue growing market share,” RBC Capital Markets concluded. “Real estate is a massive sector ripe for disruption, and if Redfin’s management continues to execute well, it should create long-term shareholder value.”