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Redfin losses soar amid iBuying ramp up

The acquisition of RentPath also contributed to a $110 million yearly loss in 2021

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You can’t please all the people all of the time, but Redfin is a unique real estate brokerage, an instant homebuyer, a popular listings website, a platform for renters, a mortgage company, a title company, a concierge service, and a research service on the U.S. housing market.

What does that all add up to? A company that posted a $110 million dollar loss in 2021, a sextuple leap from the $19 million lost in 2020. Redfin is projecting similar, if not higher losses, in upcoming quarters as it incorporates multiple moving parts.

The loss was accompanied by rapid growth. Redfin posted $1.9 billion in 2021 revenue, a 108% jump from 2020.

As with rival Zillow, Redfin grew its 2021 revenue and losses due to iBuying. The company’s properties division, home to iBuying arm RedfinNow, saw revenue rocket to $881 million in 2021 compared to $210 million in 2020, a year when the company partly paused iBuying due to COVID-19.

Redfin CEO Glenn Kelman claimed on an earnings call Thursday that his company is running a profitable iBuying business. The $881 million in revenue did exceed a $871 million “cost of revenue.” But this “gross profit” imagines a world where none of the company’s $367 million in operating expenses went to iBuying.

In fact, operating expenses were split among Redfin Now, Redfin’s 16-year-old brokerage division, and its mortgage arm.

Redfin’s brokerage generated $849 million in revenue for the company, and the mortgage division $20 million.

Redfin plans to completely revamp its mortgage services in 2022 following the expected acquisition of Bay Equity Home Loans in the second quarter.

On the call, analysts expressed concern about iBuying especially whether Redfin is buying pricier homes. Kelman said that the company is being cautious.

“We are running on the knife’s edge with volume, and we know it,” Kelman said. “When in doubt we go low.”

And while Zillow has scrapped iBuying, which all evidence so far points to as a money-hemorrhaging industry, Kelman said that Redfin will stay the course.

“We are committed to iBuying at an existential level,” the company CEO said.

Analysts also raised questions about RentPath, a rental listings platform that Redfin acquired for $608 million last February and was an unseemly blotch on the company’s earnings statement.

RentPath contributed $122 million in revenue, but triggered sundry increases in company expenses across the board.

For example, technology expenses increased 86% to $157 million, with RentPath making up the majority of the increase. Also, marketing expenses soared 153% to $84 million in 2021, predominantly due to RentPath.

Kelman was fairly candid about RentPath’s struggles. He repeatedly mentioned that the company had fallen into bankruptcy and was “not on track” to even make a profit before subtracting operating expenses.  

The CEO suggested that RentPath could improve with its listings incorporated onto Redfin’s website but warned investors “We haven’t laid out long-term targets” for the struggling division.

Meanwhile, Redfin is putting a pause on any further acqusitions. “We don’t need to buy any more companies,” Kelman said.

Kelman introduced some levity to the call. He compared homebuyer’s reluctance to sell without a new home lined up to that “guy in college” who won’t break up with their partner, until they have someone new lined up to date. He referred to tough questions as a “humdinger,” and told analysts at the end that he had a fun time.

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