Redfin's (NASDAQ:RDFN) Q1 Sales Top Estimates, Stock Soars

Real estate technology company Redfin (NASDAQ:RDFN) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue up 5.3% year on year to $225.5 million. Guidance for next quarter's revenue was also optimistic at $291.5 million at the midpoint, 2.7% above analysts' estimates. It made a GAAP loss of $0.57 per share, down from its loss of $0.52 per share in the same quarter last year.

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Redfin (RDFN) Q1 CY2024 Highlights:

• Revenue: $225.5 million vs analyst estimates of $217.6 million (3.6% beat)
• EPS: -$0.57 vs analyst estimates of -$0.58 (1.8% beat)
• Revenue Guidance for Q2 CY2024 is $291.5 million at the midpoint, above analyst estimates of $283.8 million
• Gross Margin (GAAP): 31.4%, up from 27.2% in the same quarter last year
• Free Cash Flow was -$49.54 million compared to -$37.49 million in the previous quarter
• Brokerage Transactions: 10,039
• Market Capitalization: $771.8 million

“Market conditions recently got worse, but Redfin got better in the first quarter of 2024,” 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 GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Redfin's annualized revenue growth rate of 13.8% over the last five years was mediocre 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 already weak five-year trend as its revenue has shown annualized declines of 33.8% over the last two years.

We can dig even further into the company's revenue dynamics by analyzing its number of brokerage transactions and partner transactions, which clocked in at 10,039 and 2,691 in the latest quarter. Over the last two years, Redfin's brokerage transactions averaged 21.1% year-on-year declines while its partner transactions averaged 7.9% year-on-year declines.

This quarter, Redfin reported solid year-on-year revenue growth of 5.3%, and its $225.5 million of revenue outperformed Wall Street's estimates by 3.6%. The company is guiding for revenue to rise 5.8% year on year to $291.5 million next quarter, improving from the 54.6% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 7.6% over the next 12 months, an acceleration from this quarter.

Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Redfin's demanding reinvestments to stay relevant with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 1.9%.

Redfin burned through $49.54 million of cash in Q1, equivalent to a negative 22% 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.

Key Takeaways from Redfin's Q1 ResultsIt was great to see Redfin's optimistic revenue guidance for next quarter, which exceeded analysts' expectations. We were also excited its revenue outperformed Wall Street's estimates. On the other hand, its operating margin missed and its number of brokerage transactions fell short of Wall Street's estimates. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is up 5.9% after reporting and currently trades at $6.75 per share.