Redfin is now worth 2 Blue Aprons. But is trouble cooking?

Share price of techy RE brokerage crosses $30

Aug.August 03, 2017 08:00 AM

As of August 2, Redfin’s market cap was more than twice that of Blue Apron’s

Online residential brokerage Redfin’s stock price continued to rise Wednesday, crossing the $31 mark by the end of day. The company now has a market capitalization of $2.47 billion, according to Yahoo Finance, making it, on paper at least, worth more than twice as much as meal-delivery service Blue Apron (market cap: $1.18 billion).

Ahead of its IPO on July 28, the Seattle-based brokerage priced its shares at $15, valuing the company at roughly $1.2 billion. Its performance is being watched closely by the residential brokerage industry, as many insiders believe Redfin’s fortunes could impact firms seeking to raise money or get acquired.

The company’s CEO Glenn Kelman said this week that Redfin’s main rival wasn’t listings giant Zillow, which owns StreetEasy and has a market cap of $8.3 billion, but old-school franchise brokerages such as Century 21, RE/Max and Keller Williams.

While Redfin’s annual revenues jumped to $267.2 million in 2016 from $125.4 million in 2014, the company is still losing money – its losses last year totaled $22.5 million. And not all investors are convinced it’s a good bet. In an analysis published July 31 on Seeking Alpha, Gary Alexander, an independent investor who said he had no position in the stock, pointed out that while Redfin touts its tech credentials and bills itself as the company that can champion the “Uber-ization” of residential real estate, “it makes money the old-fashioned way: collecting commissions on real estate transactions.” Alexander pointed out that Redfin’s smaller commission percentages relative to traditional brokerages means it needs massive scale to succeed, but real estate by its very nature is hyperlocal and fragmented.

Redfin has positioned itself as a tech company rather than a real estate company and enjoyed the higher valuations and venture-capital interest that come with that association. It’s a strategy that’s been used successfully – so far – by the likes of WeWork and Compass. But it might come back to bite the firm, as it has in the case of Etsy, the online marketplace whose two-year journey in the public markets has been a painful one.

“We have invested too much in building our version of things that already exist in the market,” Josh Silverman, Etsy’s new CEO, said this week. 

Another investor, who goes by the moniker “Bull & Bear Trading,” and is short on Redfin, wrote on Seeking Alpha Wednesday that Kelman’s “efforts to convince investors of Redfin’s innovator and disruptor status are questionable at best.” According to Bull & Bear’s analysis, Redfin’s revenue growth decelerated from 2015 (49 percent) to 2016 (43 percent).

“As is the case with most growth stocks, when revenue numbers become larger then growth tends to decelerate,” Bull & Bear wrote. “If Redfin is already only at 44% growth, then what will decelerating growth rates look like in coming quarters?”

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