As a result of the Fed’s recent interest rate hike announcing a reduction in mortgage rates, demand for housing is beginning to return, according to a recent 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 have not returned to pre-pandemic levels, and the future remains uncertain. Redfin saw a significant decline in revenue and earnings as rising home prices caused the housing market to slow.
While the company’s latest quarterly results were above expectations, it is still far from a profitable recovery. The stock has jumped over 73% in the past 90 days, largely in response to climate change. Investors interested in exposure to the housing market may want to keep an eye on RDFN for other signs of positive results before making a move on the stock.
Redfin Grapples with Decade-Low Home Sales
Redfin Corporation uses technology to provide real estate services, such as home buying and selling, title and maintenance services, and home starts and sales. Its online platform is also used for on-demand home tours, quick loans, and title services. The company currently operates in over 100 markets.
The latest Redfin report shows the sharpest decline in U.S. home transaction prices during the first eight months of 2024, the lowest in decades, with just 25 out of every 1,000 homes sold. This data shows a decrease of 37.5% compared to the purchasing period of the epidemic of 2021 and 31% lower than the pre-epidemic year of 2019.
The reasons for this decline include rising mortgage rates, which are discouraging homeowners from selling due to high mortgage rates, rising home prices, and a lack of listed homes. The economic and political uncertainty surrounding the upcoming US presidential election has led to a wait-and-see attitude.
Review of Redfin’s Recent Financial Results & Outlook
The company recently announced the 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 $196 million. On the other hand, real estate sales profit saw a decrease of 4% from last year, at $5.57 million, and its margin decreased to 29% compared to 31% in Q2 2023.
Redfin reported a net loss of $27.4 million, up slightly from 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 the profit growth to innovation and operational change and is optimistic about the company’s financial health. The company posted earnings per share (EPS) of $0.23, beating analysts’ estimates of $0.26.
Following the results of the second quarter, RDFN management gave guidance for Q3 2024. Revenue is expected to reach between 273 million and 285 million, showing year-over-year growth of 1% to 6%. However, the company expects a financial 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 Target Price for RDFN Stock?
The stock has declined slightly since its peak in 2021, shedding 77% over the past three years. However, the recent jump in the share price, likely driven by Fed rate action, has breathed much-needed life into the stock. It trades in the upper half of the 52-week price range of $4.26 – $15.29 and shows the positive value, trading above the 52-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 small premium to industry peers.
Analysts covering the company have largely taken a wait-and-see approach to RDFN stock. Based on 10 analysts’ aggregate recommendation, Redfin is rated Hold. The average price target for RDFN stock is $8.14, representing a decrease of -21.12% from current levels.
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RDFN in Review
Redfin is showing signs of recovery amid a volatile housing market, driven by the Fed’s recent interest rate cuts. Although the firm’s performance is still below pre-pandemic levels, it has seen a dramatic increase in its stock. However, US housing turnover is at a 10-year low, and economic and political uncertainty is imminent. The company’s Q2 2024 financial results show a positive performance, exceeding the expectations of analysts, but the firm still posted a loss.
With signs of potential growth in the real estate market, investors may want to look at RDFN for potential opportunities. However, a cautious approach is recommended, given that the firm is expected to increase losses in Q3 2024.
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