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Earnings Results: Redfin stock tanks after forecast shows losses expanding as iBuying business grows

Redfin Corp. shares plunged more than 10% in after-hours trading Thursday, after executives predicted losses in the first quarter of 2022 would exceed full-year losses in 2021 as the company maintains an iBuying business that a rival dropped.

The real-estate services company reported a fourth-quarter loss of $27 million, or 27 cents a share on Thursday, after recording a profit of 11 cents a share in the same quarter a year ago. Revenue more than doubled from the year before, to $643.1 million from $244.5 million, and easily topped analysts’ expectations.

Analysts on average expected Redfin to report losses of 31 cents a share on sales of $599 million, according to FactSet. Redfin
RDFN,
-6.13%

shares, however, dove to less than $26 in the extended session, after closing with a 6.1% loss at $28.64.

The decline was likely tied to Redfin’s forecast, which called for a first-quarter loss of $115 million to $125 million, more than the company lost in the entire 2021 calendar year, $109.6 million. Last year in the first quarter, historically the slowest quarter for the company on both the top and bottom lines, Redfin lost $38.1 million, and analysts on average were expecting a loss of $75 million heading into the print.

Redfin executives guided for first-quarter revenue of $535 million to $560 million, with the bulk coming from its “Properties” division, which they expect to collect $330 million to $350 million in revenue. That division, which is almost entirely made up of iBuying, produced record revenue of $377.1 million in the quarter, up from less than $40 million in the fourth quarter of 2020.

Redfin has maintained an iBuying business, which flips homes and tends to boost revenue while being a drag on the bottom line. Rival Zillow Inc.
Z,
-2.09%

ZG,
-1.71%

decided to drop its iBuying business after buying thousands of homes that were underwater last year.

Opinion: Zillow thought it could rule the housing market. It was very wrong.

Redfin Chief Executive Glenn Kelman was forceful in comments three months ago, after the Zillow disaster first came to light, that his company would continue with its iBuying plans. In a statement Thursday, he praised the effort’s gross profit.

“Redfin is broadening its sources of customer value and corporate income, with title, mortgage and iBuying now on track to generate gross profits, after years of being subsidized by our brokerage,” he said in the announcement. “Entering an uncertain market, Redfin’s pricing power and on-demand service will let us take share and improve operating margins.”

Redfin disclosed that it sold a record 600 homes in the quarter for average revenue of $622,251 apiece, and that gross profit in the business was less than $4 million. Redfin did not disclose a net loss in the business, though it did disclose that the company’s total interest expense was roughly the same total as the gross profit of the company’s “Properties” division: $3.96 million in gross profit vs. $3.94 billion in interest expense.

Redfin stock has struggled since Zillow’s iBuying business imploded, falling 24.7% in the past three months as the S&P 500 index
SPX,
-2.12%

has declined 4.6%. Zillow shares have actually increased in that time frame by 4%, thanks to a boost after the company detailed its post-iBuying path last week.

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