The Real Deal New York

Hot damn! Redfin’s stock skyrockets 45% on Nasdaq debut

Tech brokerage set price at $15, but immediately traded at $20 and higher
By E.B. Solomont | July 28, 2017 05:20PM

Glenn Kelman (credit: Nasdaq)

Like buyers locked in a bidding war, Redfin investors boosted the online brokerage’s stock price a whopping 45 percent on Friday — its first day as a public company.

Ahead of Its Wall Street debut, the Seattle-based brokerage priced its shares at $15, valuing the company at roughly $1.2 billion. But the stock immediately shot up around 30 percent to $20 per share when it started trading around 8 a.m. Pacific Time on the Nasdaq market. Shares inched higher throughout the day, closing at $21.70 — more than 45 percent higher than it started — and valuing the company north of $1.7 billion.

Traditional brokerages and real estate tech companies watched the IPO on Friday closely — with the latter anticipating that a strong showing could bolster their own prospects. Aaron Graf, CEO of New York-based LG Fairmont, a tech-enabled brokerage, summed up Redfin’s IPO in four words: “Great vote of confidence.”

It was also good news for another venture-backed brokerage with IPO ambitions and some serious dough — Compass, which is valued at over $1 billion and is planning an international expansion.

Initially, Redfin planned to raise $138 million by selling 9.23 million shares priced between $12 and $14 each, according to a prospectus filed last month.

On Friday, Redfin CEO Glenn Kelman acknowledged the IPO was a long time coming for the company, which takes a total of 4.5 percent in commission from the home seller (with 1.5 percent going to the salaried Redfin listing agent and 3 percent going to the buyer’s agent), less than traditional brokerages. “We have done it our way, with real estate agents and software engineers working together as partners,” he said, according to GeekWire.

Launched in Seattle in 2004, Redfin generated $267.2 million in revenue last year, up from $125.4 million in 2014. But its losses last year totaled $22.5 million, and it has accumulated a $613.3 million deficit to date, according to its prospectus filed in June.

Kelman said Redfin can’t be compared to traditional firms like Corcoran Group or Douglas Elliman. “The public markets properly valued the tech enabled brokerage space today,” he said.

On Friday, shares of Realogy — the parent company of Corcoran, with a $4.55 billion market cap — closed at $32.98, up marginally. Elliman’s parent company, Vector Group, valued at $2.63 billion, closed down around 5 percent at $20.28 per share (though some of it also had to do with a tumble in the tobacco industry, which Vector has significant holdings in).

Redfin’s strong showing on Friday did little to dispel skepticism among some traditional brokerages.

“The market is always looking for the next disruptor. Everyone wants to be able to boast, ‘I got in at $15 and I sold at $300,’” said Stuart Siegel of Engels & Volkers NYC. “That clouds what I believe are disciplined investing strategies.”

He said revenue growth is great, but at some point, investors will want their money back. “The future for EBIDTA is very cloudy.”