Q3 2024 Earnings Summary
- Redfin Next program is resulting in higher close rates, especially in the luxury segment, and attracting more experienced agents, which is expected to improve gross margins and drive market share gains.
- Planned increase in advertising spend for 2025, supported by organic traffic growth in October and November, and improved sales execution with higher profits from mortgage and title services, positions Redfin for accelerated growth.
- Redfin's large website reach and pro-consumer position provide a competitive advantage in adapting to industry changes like the Clear Cooperation Policy, potentially benefiting from policy reforms.
- Redfin's market share declined in Q3 2024, attributed to reduced advertising spend amidst aggressive competition from Homes.com. This raises concerns about Redfin's ability to regain market share while balancing profitability and increased marketing expenses planned for 2025.
- Q3 volumes were lower than expected, leading to less revenue and missing profitability targets. Unexpected additional costs, particularly related to the Redfin Next program, further impacted profitability. This casts doubt on Redfin's capability to invest in growth while maintaining profitability, especially with plans to ramp up advertising in 2025.
- Challenges in recruiting agents quickly led to understaffing in key markets, potentially hindering growth and market share gains. While Redfin is now adding agents, some are joining at lower margins, which may affect overall profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +3.7% (from $268.96M to $278.02M) | Total Revenue increased modestly due to strong performance in key segments such as Other (+43.5%), Rentals (+9.0%), and Mortgage (+8%), despite a decline in the Partner segment (-10.6%). This reflects an overall shift in segment mix and strategic focus. |
Other (Real Estate Services) | +43.5% (from $10.87M to $15.60M) | The Other segment surged driven by robust growth in title and digital revenue, reflecting successful digital monetization strategies and high-margin revenue expansion compared to the previous period. |
Rentals (Real Estate Services) | +9.0% (from $47.41M to $51.66M) | Rentals revenue increased as a result of enhanced integration of rental operations and product expansion, which improved customer engagement and operational efficiencies relative to Q3 2023. |
Mortgage Revenue | +8% (from $32.92M to $35.62M) | Mortgage revenue grew due to improved gross margins and operational cost efficiency, with better performance in underwriting and lower relative costs compared to Q3 2023. |
Partner Segment (Real Estate) | -10.6% (from $11.65M to $10.41M) | The Partner segment declined likely because of a shift in focus towards more profitable segments and/or adverse market conditions affecting partner transactions, in contrast to the improvements in other areas of the business. |
Operating Income | -5.6% (from -$25.53M to -$26.95M) | Operating Income worsened modestly despite revenue gains, as cost reductions in some areas were partly offset by increased expenses in others, reflecting challenges in balancing growth with operational cost control between the periods. |
Interest Expense | +245% (from $1.60M to $8.54M) | Interest Expense escalated dramatically due to new debt financing—specifically, the incurrence of a term loan not present in Q3 2023—resulting in significantly higher interest costs that adversely impacted profitability. |
Net Income | -78% (from -$18.97M to -$33.78M) | Net Income deteriorated sharply, reflecting the combined effect of higher interest expenses, a wider operating loss, and a lower gain on cost mitigators, despite revenue and gross margin improvements in several segments. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Revenue | Q4 2024 | $273M–$285M | $237M–$247M | lowered |
Real Estate Services Revenue | Q4 2024 | $171M–$179M | $144M–$150M | lowered |
Rentals Revenue | Q4 2024 | $50M–$51M | $51M | raised |
Mortgage Revenue | Q4 2024 | $36M–$39M | $28M–$32M | lowered |
Other Revenue | Q4 2024 | $15M–$16M | $13M–$14M | lowered |
Total Net Loss | Q4 2024 | $30M–$22M | $32M–$25M | lowered |
Adjusted EBITDA | Q4 2024 | $4M–$12M | positive $1M–$8M | lowered |
Real Estate Services Gross Margin | Q4 2024 | no prior guidance | 29% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Redfin Next program | Q1: Strong pilot results in CA, planned expansions. Q2: Shift to commission pay, improved agent performance. Q4: Salaries replaced, notable agent bonuses. | Fully rolled out, driving higher close rates (esp. luxury) and agent census growth. | Expanded from pilot to full adoption; key for 2025. |
Sign & Save program | Q1: Boosted buyer close rates by 20%. Q2: Nearly half of sales from signers. Q4: Scaled across the company, pivotal to share gains. | Not mentioned [N/A]. | No new details, overshadowed by other programs. |
Advertising spend | Q1: $115M plan, cautious due to rates. Q2: Competitors outspent Redfin, minor campaigns. Q4: Deferred mass media to Q2 2024. | Significant increase planned for 2025 to regain share. | Shift from cautious to aggressive marketing. |
Market share | Q1: Rose from 0.72% to 0.77%. Q2: 0.77%, first gain in 2 yrs. Q4: Down to 0.72%. | Fell 2 basis points YoY; plan to regain via ads. | Slight decline after prior gains, aiming for recovery. |
Mortgage interest rates | Q1: Rose from 6.85% to 7.5%, slowing listings. Q2: Dropped 7.5%→6.9%, minimal buyer response. Q4: 7% dampening demand. | Fed cut 50 bps in Sep, sales hit low of 3.8M annually, irregular buyer reaction. | Remains volatile driver of demand. |
Profitability and gross margins | Q1: Adjusted EBITDA loss $28M, improved YoY. Q2: Near breakeven, margin 37%. Q4: Net loss $23M, better YoY. | Adj. EBITDA $4M, net loss $34M (impacted by Redfin Next costs). | Improving overall but hit by one-time costs. |
Agent recruiting and retention | Q1: Higher-quality hires post-comp change. Q2: +200 top producers, forming teams. Q4: Redfin Next spurred excitement. | 22% census growth in pilot vs. prior year, now +8% YC growth. | Strengthened by new pay model. |
Rentals segment | Q1: 3rd straight quarter of positive EBITDA. Q2: 4th quarter +EBITDA, revenue up 12%. Q4: 5th quarter of growth, $49M revenue. | 8th quarter of growth, $52M revenue (+9% YoY), net loss $9M. | Consistent growth, minor EBITDA dip. |
Competition from Zillow, CoStar, Homes.com | Q1: Zillow/CoStar dominating rentals. Q2/Q4: No major mention [N/A]. | Homes.com ran “unprecedented” ads, impacting Redfin share. | New focus on Homes.com’s heavy spending. |
Commission structure changes and fee compression (NAR settlement) | Q1: Expected compression, $9.25M settlement. Q2: Early fee drops in pilot MLSs. Q4: Not mentioned [N/A]. | MLS changes forced, but fees mostly unchanged so far. | Still evolving, bigger impact likely in 2025. |
Clear Cooperation Policy | Q1/Q2/Q4: Not mentioned [N/A]. | Redfin reaffirms pro-consumer stance, largest brokerage site advantage. | Newly discussed, potential future edge. |
Mortgage and title services | Q1: 28% attach rate, Bay Equity synergy. Q2: Mortgage margin 19%, Title Forward strong. Q4: $26M mortgage rev (4.6% margin). | Mortgage +8% YoY rev, attach 27%, title usage 60%+. | Increasing attach rates, profitable segment. |
Large website traffic and brand reach | Q1: +2% YoY, no TV ads. Q2: +4% YoY, modest spend vs. rivals. Q4: +10% YoY, outpacing peers. | Down 4% YoY, competitor ads hurt share; aiming bigger spend. | Short-term dip, planning marketing push. |
Pro-consumer market position | Q1: Low-fee focus. Q2: Using price to gain share. Q4: Direct offers, enabling choice. | Linked to Clear Cooperation stance, largest brokerage site cited. | Consistently consumer-friendly angle. |
Debt obligations and convertible notes | Q1: $145M due Oct 2025, buybacks. Q4: $193M due 2025, $125M Apollo available. Q2/Q3: Not discussed. | Not mentioned [N/A]. | Overshadowed, no updates. |
Housing market macro conditions | Q1: Rates soared, constrained inventory. Q2: Rate drop conflict, no buyer surge. Q4: 7% rates, partial resilience. | Fed cut 50 bps, sales at 3.8M annual low, political volatility. | Still volatile, potential pick-up in 2025. |
Digital business model transition | Q1: Digital revenue push, AI chat tool. Q2: Shift to digital margin. Q4: +101% in digital rev. | Redfin Next further reduces fixed salaries, favoring variable costs. | Deepening reliance on digital/efficiency. |
Luxury segment | Q1: Gains in pilot markets. Q2: Challenges with associate agents. Q4: Not mentioned [N/A]. | Luxury buyer close rates up 79% vs. 28% in other mkts. | Strong improvement under new model. |
Apollo financing | Q1: $125M term loan available. Q4: Still $125M line, $195M cash. Q2/Q3: No mention. | Not mentioned [N/A]. | No updates, overshadowed in Q3. |
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Profitability Outlook
Q: What's the EBITDA outlook and profitability roadmap?
A: Management noted that Q3 volumes were lower than expected, leading to less revenue and unanticipated costs from the Next program. They've addressed these costs, which won't continue into Q4 or next year. To fund growth while maintaining profitability, they plan to find efficiencies in the business and invest in marketing, particularly media. Cost reductions made in the second half, like ending the concierge service and eliminating sales managers, will benefit 2025. -
Redfin Next Impact
Q: Early indications from Redfin Next expansion?
A: They're optimistic due to higher close rates from better agents, especially with luxury customers. On a dollar basis, they expect to perform even better. They've added hundreds of experienced agents, improving staffing in previously understaffed markets. While agent bonuses under Next are higher, reduced fixed salaries make the shift neutral on gross margin. Higher close rates and independence among agents enhance gross margins. -
Market Share and Competition
Q: Why did market share drop in Q3?
A: Earlier in the year, traffic growth was lower as Homes.com advertised aggressively. They've concluded they need to adjust their cost structure to increase advertising. Spending more on growth should lead to steady market share gains each quarter. They don't expect Homes.com to increase its budget from 2024 to 2025, while Redfin plans to increase theirs. Current traffic growth in October and November is primarily from organic growth, not marketing spend. -
2025 Home Sales Outlook
Q: Is the recent activity bump temporary?
A: Despite high mortgage rates above 7%, they've seen strong activity, but they expect rates will eventually impact sales if they continue rising. Geopolitical uncertainties and economic factors make predictions tough. They believe 2025 will be better than 2024, noting September's low of 3.8 million units is unusually low compared to the past 20 years. -
Cost Efficiencies for Advertising
Q: Where will you find efficiencies to fund advertising?
A: They'll continue investing in growth areas like improving the search experience and leveraging AI for better listing recommendations to drive traffic. Investments in technologies to improve close rates during the long sales cycle are also prioritized. Other areas are considered for cost reductions to fund the advertising ramp in 2025. -
Clear Cooperation Policy Stance
Q: What's your stance on the clear cooperation policy?
A: They support a pro-consumer position that buyers should see all homes for sale. They're pleased the National Association of Realtors supports this view. If the policy changes, they believe they're well-positioned due to operating the largest brokerage website in America. -
Seattle Market Performance
Q: Can you comment on Seattle's performance?
A: Management declined to comment on individual markets. They noted that adding agents leads to more sales when demand is sufficient and suggested they should have transitioned to Redfin Next earlier.
Research analysts covering RDFN.