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    Redfin Corp. (RDFN) stock Still has a Huge Implied Upside Despite the Cooling Real Estate Market

    By Gule Rukhsar

    May 27,2022

    4:32 AM UTC

    The stock market is hammered severely this year with Nasdaq squared in the bear market territory. Nasdaq losses extend well beyond the 20% marker. Being a tech-heavy index, Nasdaq has brought about a downfall of many tech stocks but the ones engaged in the real estate sector are facing another challenge. There’s talk about a market cool down as the economic situation continues to deteriorate. Several factors, including hiking interest rates, soaring inflation, and mortgage rates crossing highs of over 13 years, are responsible for the bearish sentiment.

    The Real Estate Market

    Recent data shows that new home sales have continued to drop with April, the fourth consecutive month of decline. According to data from the Census Bureau and the Department of Housing and Urban Development, sale prices for new homes rose 20% YOY. With mortgage rates surging due to interest rates, the number of new homes still on the market at the end of April also reached the highest since 2008. Furthermore, the latest sign of the market slowdown comes from a survey by Redfin Corp. (RDFN). As per the survey report, the number of home sellers lowering prices has reached the highest level since October 2019. Therefore, the economic uncertainty is indicating not just a slowdown but a possible deceleration of the real estate market.

    However, some economists are implying the sustained pressure on housing demand due to continued strength in the job market. And summer is a peak season, demand is expected to continue as consumers would be inclined to buy homes before rates become unbearable in the near future. A further reason to add to the implied growth in demand comes from the fact that a large group of millennials could soon be homebuyers. Even more so, rising mortgage rates while a threat to the industry cannot last this high for a longer time.

    Redfin Corp. (RDFN)

    Down over 74% in 2022, RDFN is one of the severely beaten-down tech stocks this year. The company is one of the largest online marketplaces for buying, selling, and renting real estate, with over 51 million users per month.

    As per the pre-market today, May 26, the stock had a price of $9.97 a share, at the last check.

    Growth & Financial Performance

    The company has so far shown strong performance in the recent years:

    Source: RDFN Investor Presentation

    As can be seen in this chart, the company has not only been improving its revenue throughout the years but amassing market share as well. As of March 31, 2022, the company has expanded its market share to 1.18% of U.S. existing home sales by value.

    In its latest earnings report, the company grew its revenue by a huge 123% YOY in Q1, 2022. Topping the consensus estimate by 8.60%, the quarterly revenue was $597.35 million.

    Moreover, RDFN also increased its gross profit by a nice 71% YOY to $72.5 million in the quarter.

    While its net loss expanded to $90.8 million, the loss per share of $0.82 still was better than the expected $1.09 a share.

    Future Outlook

    The provided and expected guidance for Q2 is mentioned in the table below:

    Metrics Company Guidance Analysts’ Estimate
    Revenues $613-$650 million $690.65 million
    Net Loss $72-$60 million $0.53 per share

    It is anticipated that the company would increase its revenues by 32.5% in 2022 and 15.3% by 2023.

    Competitive Edge

    RDFN has a strong competitive edge being a technology-enabled real estate company. Boasting its scalability, the company has a nationwide presence across the U.S. unlike most brokers, with a market presence in one specific geographic location. It typically charges much lower listing fees of 1% to 1.5% against the industry norm of 2% to 2.5%. As per the Q1 data, it has saved consumers $59 million in the quarter alone while it says to have saved over $1 Billion since inception. This brings a win-win situation, with the company’s market share soaring higher by the quarter.

    Further expanding its business, RFND aggressively entered rentals with the 2021 acquisition of RentPath. RentPath is the parent company of Rent.com, Rentals.com, and ApartmentGuide.com. And now, it has sped up its entry into the mortgage business with the latest acquisition of Bay Equity Home Loans.

    So What?

    Recently, an analyst of Truist Financial gave a price target of $31 a share of the RDFN stock. This represents an upside of over 170%. While the analyst did bring down the target price by $11 a share following the relative softness in the Q2 housing market activity and its outlook, he remained bullish on the stock. Given the recent acquisition and space left in the market, the company does have scope for expanding its margins. However, if the economic turmoil continues, growth could reduce for some time, but the long-term prospects are still great.

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