Redfin Corp (NASDAQ:RDFN) provided the world of tech IPOs with some good news amid a pretty tough slog. Redfin’s initial public offering went live Friday with an offering of 9.2 million shares at $15 each, and RDFN stock jumped 36% in early morning trade. pulled off a standout IPO, with the shares up 36% in early trading.
Lead underwriters on the deal were Goldman Sachs Group Inc (NYSE:GS) and Allen & Company.
Today, I’ll give you an introduction to Redfin, and look at its prospects going forward following its successful IPO.
How Redfin Works
Redfin’s roots go back to 2004, when co-founder and former chief technical officer David Eraker dropped out of medical school and saw an opportunity to make a next-generation real estate agency. And while he wanted to disrupt the old-line approaches, he also realized the importance of having qualified people to help with transactions. Redfin became a hybrid of technology and traditional services.
While Eraker has is now gone (and in fact has started a new real estate-focused company, Surefield, Redfin’s successful model remains. How it works: A customer goes to the website and searches through listings that are powered by machine learning. There are also immersive online experiences for each home. These features reduce marketing costs and increase engagement.
When the customer is ready, he or she will meet with a Redfin agent. Fees are based on customer satisfaction, so the emphasis isn’t on grabbing a quick commission, but providing a quality solution. And a typical Redfin customer saves about $3,500 per transaction.
This model has worked quite well. Redfin has coverage in more than 80 markets throughout the U.S., and more than 75,000 homes exceeding $40 billion in worth were sold on the platform last year.
The financials are eye-catching. During the latest quarter, revenues shot up by 44% to $59.9 million. The company still generates losses — $28.1 million worth in Q1 — but that’s to be expected for a company in the early stages of a new market.
RDFN Going Forward
Redfin has plenty of runway left. Based on research from the National Association of Realtors, the existing homes sales hit $1.5 trillion last year, which translated into more than $75 billion in commissions.
The real estate brokerage industry is also highly fragmented. Consider that there are more than 2 million licensed agents and more than 86,000 real estate firms.
Here’s how Redfin explains things in its S-1:
“And we’re just getting started. Because we’re one of the only major brokerages building virtually all of our own brokerage software, our gains in efficiency, speed, and quality are proprietary. Because our leadership and engineering teams have come from the technology industry, and have structured the business to invest in software development, we believe those software-driven gains are likely to grow over time. And finally, because we hire our own lead agents as employees, we can set data-driven best practices for selling homes, with our software tailored to those practices, creating a positive feedback loop between software and operational innovations that we believe differentiates us from traditional brokerages.”