Company Overview & Success To Date
Seattle-based real estate agent RedFin Inc. (RDFN) has filed for an IPO. The deal is expected to take place in late July or early August. The company was launched in 2004 and has raised $167M in venture funding. Notable investors include: Greylock Ventures, Madrona Ventures, and Draper Fisher Jurvetson.
(Click on image to enlarge)
(S-1/A)
Redfin’s mission is to make buying and selling homes better for the consumer. The company differentiates itself from other real estate brokerages through its high-tech software. Redfin is the only major real estate brokerage, which builds its own brokerage software. This recently became the most visited brokerage sit in the US.
The company’s online and mobile platform make it easy for customers to search for homes, schedule viewings, and match with an agent. On their phones or online, customers can create filtered home searches, get notifications on new listings in their area, schedule tours with Redfin agents, and even begin the process of making an offer on a property. At the same time, Redfin maintains the personal touch by partnering homebuyers with a real estate agent that stays with them through the entire home-buying process.
Redfin currently operates in 80 markets, with the majority of revenue coming from to top ten metropolitan areas. In 2016, 72% of revenue was derived from its top-10 markets: Boston, Chicago, Los Angeles, Maryland, Orange Country, Portland, San Diego, San Francisco, Seattle, and Virginia.
The company plans to list on the Nasdaq and lead underwriters for the deal are Goldman Sachs and Allen & Co.
Unique Business Model Aims To Align Agents With Customers
Redfin employs a different business model than typical real estate brokerages. As opposed to real estate agents making money through the commission of home sales, agents are salaried employees of Redfin and receive bonuses post-sales, based on the home buyer's rating of their performance. The purpose of this model is to align the goal of the real estate agent with the home buyer.
Another perk of working with Redfin as a homebuyer is the "Redfin Refund," which is the discount taken from realtor commissions that Redfin shares with the buyer. The amount ranges, and in 2016, the average refund was around $3500.
(S-1/A)
New Launches
In 2017, Redfin began to originate and underwrite loans through its platform, Redfin Mortgage. The objective is to make the process of closing on a home easier and possible completely online. Additionally, the company launched Redfin Now, an experimental service, in which it buys homes from sellers and then lists the property on this website. Customers who sell through this option typically get less money for their property but are able to complete the sale in a more efficient manner.
Recent Lawsuits
Redfin is currently in the process of settling three lawsuits over class or representative claims from the third party agents it employs during high demand periods. Redfin has agreed to settle these cases; however, this is subject to court approval, and there is no assurance that it will be approved. The company spent $1.8M in 2016 related to the three proposed settlements.
Financial Highlights
The company generates money through a 1 to 1.5 percent commission fee on home sales facilitated by their site. This is significantly below the industry average of 5 to 6 percent.
In 2016, Redfin generated $267.2M in revenue, versus $187.3M in 2015, and 125.4M in 2014. This represents annual growth of 37%, 49%, and 43%, respectively. Losses were $22.5M, $30.2M, and $25M in 2016, 2015, and 2014 respectively. Losses were up in the most recent quarter from $29.5M in the first quarter of 2016 to $52.8M during the same period in 2017, largely due to its recent launch into the two new areas described above (Redfin Now and Redfin Mortgage).
As of its IPO, Redfin had an accumulated deficit of $613.3M.
(Click on image to enlarge)
(S-1/A)
Management
Glenn Kelman serves as President, Chief Executive Officer, and board member, positions he has held since March 2006. Mr. Kelman previously co-founded Plumtree Software, Inc., a which provides enterprise portal software products. He holds a B.A. in English from University of California, Berkeley.
Chris Nielsen serves as Chief Financial Officer. Previously, Mr. Nielsen served as Chief Financial Officer and Chief Operating Officer at Zappos.com, an online shoe and clothing subsidiary of Amazon.com, Inc. (2010 – 2013). Mr. Nielsen holds a B.S. in Industrial Engineering from Stanford University and an M.B.A from MIT Sloan School of Management.
Conclusion: An Exciting Deal To Watch Develop
Redfin is gaining market share in almost all of the areas in which it operates and has won the spot as the most-visited brokerage site in the US.
The real estate brokerage market is highly fragmented, and Redfin is growing quickly, yet continues to have room to grab market share.
The company has built a high-powered software platform and continues to innovate, with the launch of new services like Redfin Now and Redfin Mortgage.
Despite some noted legal issues, we are optimistic on the company and look forward to more news on the pricing details for the IPO.
Comments
Log in or sign up to join the conversation.