Stock Story -
Real estate technology company Redfin (NASDAQ:RDFN) (NASDAQ:RDFN) missed analysts' expectations in Q4 FY2023, with revenue down 54.5% year on year to $218.1 million. On the other hand, the company expects next quarter's revenue to be around $218.5 million, in line with analysts' estimates. It made a GAAP loss of $0.20 per share, improving from its loss of $0.42 per share in the same quarter last year.
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Redfin (RDFN) Q4 FY2023 Highlights:
- Revenue: $218.1 million vs analyst estimates of $220.3 million (1% miss)
- EPS: -$0.20 vs analyst estimates of -$0.21 (5.1% beat)
- Revenue Guidance for Q1 2024 is $218.5 million at the midpoint, roughly in line with what analysts were expecting
- Adjusted EBITDA Guidance for Q1 2024 is ($32.5) million loss at the midpoint, below expectations of a ($21.2) million loss
- Free Cash Flow was -$37.49 million, down from $99.52 million in the previous quarter
- Gross Margin (GAAP): 33.5%, up from 7.8% in the same quarter last year
- Brokerage Transactions: 10,152 (slight beat vs. expectations of 10,135)
- Market Capitalization: $789.4 million
“In a dreadful housing market, Redfin got more efficient in the fourth quarter, again improving gross margins and operating margins, even as we laid the foundation for meaningful long-term growth,” said Redfin CEO Glenn Kelman.
Founded by a former medical school student, electrical engineer, and Amazon (NASDAQ:AMZN) data engineer, Redfin (NASDAQ:RDFN) is a real estate company offering brokerage services through an online platform.
Real Estate ServicesTechnology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.
Sales GrowthA company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Redfin's annualized revenue growth rate of 17.5% over the last five years was solid for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Redfin's recent history shows a reversal from its five-year trend, as its revenue has shown annualized declines of 24.8% over the last two years.
We can better understand the company's revenue dynamics by analyzing its number of brokerage transactions and partner transactions, which clocked in at 10,152 and 3,186 in the latest quarter. Over the last two years, Redfin's brokerage transactions averaged 20.2% year-on-year declines while its partner transactions averaged 7.6% year-on-year declines.
This quarter, Redfin missed Wall Street's estimates and reported a rather uninspiring 54.5% year-on-year revenue decline, generating $218.1 million of revenue. The company is guiding for a 32.9% year-on-year revenue decline next quarter to $218.5 million, an improvement from the 45.5% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to decline 2.9% over the next 12 months.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Over the last two years, Redfin has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 1.9%, subpar for a consumer discretionary business.
Redfin burned through $37.49 million of cash in Q4, equivalent to a negative 17.2% margin. This caught our eye as the company shifted from cash flow positive in the same quarter last year to cash flow negative this quarter. Over the next year, analysts predict Redfin's cash profitability will improve. Their consensus estimates imply its LTM free cash flow margin of 4.1% will increase to 46.4%.
Key Takeaways from Redfin's Q4 Results It was encouraging to see Redfin slightly top analysts' EPS expectations this quarter. On the other hand, its brokerage transactions unfortunately missed and its revenue fell short of Wall Street's estimates. Guidance was also mixed, with Q1 2024 revenue guidance in line with expectations but adjusted EBITDA guidance below, showing lower margins than Wall Street is estimating. Overall, this was a mixed quarter for Redfin. The stock is up 1.1% after reporting and currently trades at $7.24 per share.