Redfin was once the upstart that stirred the real estate industry with its innovative business model. The company, however, has been fighting to maintain the edge that made it successful in the first place. It is starting to resemble just another traditional brokerage, which is why we believe its best days are behind it.
Redfin Corporation is a technology-powered real estate company offering a full-service platform for buying, selling, and renting homes. The company was founded in 2006 and is headquartered in Seattle, Washington. It stands out in its industry due to technology integration with traditional real estate services, providing customers with a range of solutions at reduced commissions.
Redfin’s major offerings include residential brokerage services, rental listings, mortgage lending, title insurance, and home renovation services. The firm makes money through commissions from the sale of homes, fees from mortgage lending, and other related services. In addition, Redfin runs a popular website and mobile app that attracts millions of users who want to buy or sell homes.
Redfin serves a diverse customer base, including home buyers, sellers, renters, and real estate investors. The end market is mainly composed of individual and family consumers who seek to buy and sell residential properties across the United States and Canada. Redfin has offices in more than 100 markets and works towards providing technology-enabled solutions to its customers to make real estate buying and selling easier.
Redfin once stood out in the real estate world, shaking up the traditional brokerage model with its commission-free agents and buyer rebates. But now, these competitive advantages are fast disappearing. The company has done away with buyer rebates and switched to paying agents on a commission basis, which took away its uniqueness. Redfin’s market share is falling, and growth in rentals and mortgage products is slower than that of rivals like Zillow.
The most recent Q3 results demonstrate Redfin’s brokerage performance lagging behind companies like Compass, and this brief run in the stock seems to be more in line with market trends rather than actual business improvement. Worse still, Redfin’s web traffic has been dropping while that of one of its peers, Zillow, has been rising. The company’s failure to execute the direct home-buying model of RedfinNow demonstrates how these blunders have affected the company’s standing.
We are bearish on Redfin. It is trying to go back to the old model and failing, and competition is only getting tougher. Shrinking market share, weak financials, and an overhauled business model mean Redfin is looking less like a disruptor and more like another brokerage in a competitive, slowing market.
Redfin is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 22 hedge fund portfolios held RDFN at the end of the second quarter which was 20 in the previous quarter. While we acknowledge the potential of RDFN as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as RDFN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.