Redfin’s brokerage business boomed in the fourth quarter, the company revealed Thursday, as part of its fourth-quarter and year-end results.
“Revenues in our core business of brokering home sales increased 51 percent in the fourth quarter, with gross margins again exceeding 40 percent,” Redfin CEO Glenn Kelman said in a statement.
For the fourth time in 2020, Redfin beat analysts’ revenue expectations, posting $244.5 million in revenue in the fourth quarter of 2020, a year-over-year increase of 5 percent and ahead of the $228 million consensus estimate. Revenue for the full year increased 14 percent to $886.1 million in 2020.
On an earnings call, Kelman revealed the company’s RedfinNow iBuyer platform was the reason that revenue was only up 5 percent in the quarter. The company temporarily halted buying homes through RedfinNow in the early days of the pandemic and RedfinNow — which includes the sale price of a home in revenue — had an “outsized impact” on revenue.
“Our gains were limited by RedfinNow revenues,” Kelman said.
RedfinNow saw revenues decline 60 percent in the fourth quarter, Kelman said, but he expects the first quarter will match the first quarter of the year prior and year-over-year revenue gains starting in the second quarter of 2021.
“Demand will swing between brokerage sales and instant offers depending on the market,” Kelman said.
While the year-over-year revenue gains were slight — at least in comparison to Realogy — the real story was the company’s boost in profitability, posting a gross profit of $80.1 million in the fourth quarter, an increase of $30.6 million from the year prior.
The company’s net income also increased to $14 million in the fourth quarter, up from a net loss of $7.8 million in the fourth quarter of 2019.
For the entire year, the company posted a net loss of $18.5 million, compared to a net loss of $80.8 million in 2019.
The company held steady, owning 1.04 percent of all market share in the fourth quarter, the same as the prior quarter, but 0.10 percent higher than the fourth quarter the prior year.
That means Redfin is capturing more market share as the housing market blazes as competitors like Realogy stay steady — even if Realogy’s more than 13 percent market share is far higher.
“The gain would have been larger had we recruited more agents as Redfin employees or partner agents,” Kelman said, admitting the company couldn’t keep up with demand, and was even discouraging potential consumers from requesting an agent when the company knew one wouldn’t be available.
Kelman believes the company won’t have caught up to demand with its employee-agent staffing levels until June 2021.
While the company’s brokerage business boomed as a result of the hot housing market, its nascent mortgage business “had even stronger results, with 210 percent revenue growth,” Kelman said.
Redfin saw traffic to its listings website increase roughly 40 percent in the fourth quarter of 2020, and the company plans to invest even more into increasing traffic.
“We were the fastest-growing major real estate website, as home-buyers moving to a new part of the country have increasingly turned to the Internet to find a real estate agent,” Kelman added. “Since more than half of all homes now sell in a bidding war, our on-demand home-touring has become a crucial competitive advantage for our customers, who want to see a listing either in-person or virtually before other buyers even know it’s for sale.”
The company also announced last week it would be acquiring RentPath — which owns the consumer-facing rental portals Rent.com and ApartmentGuide.com for $608 million. The acquisition is aimed at both boosting traffic to Redfin’s existing real estate portal and moving the company into the rental advertising marketplace.
On the earnings call, Kelman revealed the company plans to start incorporating rental listings into the Redfin platform in late 2022.
In the first quarter of 2021, Redfin expects revenue will be between $249 million and $255 million, which represents a year-over-year increase of 30 percent to 34 percent.