Redfin reports net loss of $90.2 million after layoffs, iBuyer shutdown
Redfin announced significant losses and a new round of layoffs in anticipation of a continuing slowdown "at least through 2023."
- The company is laying off 862 people and has had a 27% drop in employees since April.
- Revenue was up 11% year over year, but profit was down 54%.
- CEO Glenn Kelman predicted that the company can return to profitability in two years.
Redfin reported a net loss of $90.2 million in its third quarter earnings report as the company adjusts to the slowdown in the real estate market.
The net loss is a big jump compared to a year ago, when the company’s third quarter net loss was $18.9 million.
The report comes on the heels of its earlier announcement that it is stepping away from its iBuyer program, which will mean layoffs of 862 people. In announcing the layoffs, CEO Glenn Kelman predicted a housing downturn that will last “at least through 2023.”
This follows a layoff of 8% in June, for a 27% drop in total employees since April.
“A layoff is awful but we can’t avoid it,” Kelman said in a blog post Wednesday morning. “We plan to keep increasing our share of the market, but that market in 2023 is likely to be 30% smaller than it was in 2021. The June layoff was a response to our expectation that we’d sell fewer houses in 2022; this layoff assumes the downturn will last at least through 2023.”
The layoffs also come after its stock price sank to record lows earlier this week after an analyst called the company’s real estate model “fundamentally flawed,” according to a Bloomberg story. The company’s stock is down more than 90% this year. On Nov. 9 the stock was trading at around $3.35 a share, down from nearly $39 back in January.
In after-hours trading following the earnings report, shares dipped to $3.16 a share.
Revenue up, but profits down
According to the company’s report, third quarter revenue was $600.5 million, an increase of 11% compared to the third quarter of 2021. Gross profit, however, was $58.1 million, a decrease of 54% year-over-year.
Adjusted EBITDA loss was $51.0 million, compared to adjusted EBITDA gain of $11.8 million in the third quarter of 2021.
Redfin expects a year-over-year decline in Q4 revenue compared to a year earlier. Total net loss is expected to be around $134 million, compared with a net loss of $27 million in the fourth quarter of 2021.
A look ahead
Kelman believes that the tough cuts the company is making now will enable Redfin to have "more cash and sell more properties by focusing on growth in our online audience, low fees, and better brokerage, mortgage and title service." He believes the company can return to profitably in the next two years: “We’ll generate adjusted EBITDA in 2023 and net income in 2024.”
Kelman also expressed optimism about Redfin's website traffic and believes it is taking market share from its competitors, which include Zillow and Realtor.com. The gains in search engine rankings will have a big impact on the company’s fortunes, he said.
In talking about the layoffs during the earnings report, Kelman said that staffing levels need to match expected activity and may not yet be aligned with the expected slowdown.
As for the overall housing market, Kelman expects it to remain challenging, but he believes that because homeowners generally have more equity compared to the housing market crash of 2008, there won’t be a sudden rise in inventory.
iBuying loss 'larger than we could afford to bear'
Kelman noted that its iBuyer program RedfinNow is too much risk to take on during this uncertain time in the real estate market. He estimated that the RedfinNow properties segment likely lost around $22 million in 2022.
“However small our iBuying loss may be compared to others, that loss is still larger than we could afford to bear again,” Kelman said of the program, which launched in 2017.
In its Nov. 9 SEC filing, the company estimated that its inventory of homes in the RedfinNow program was around $265 million at the end of October. It expects to own less than $85 million by the end of January 2023 and eliminate all remaining inventory by the second quarter of 2023.
Across the industry, iBuyer programs — which involve companies purchasing homes and flipping them — have struggled during this slowdown in the market. Earlier this month, Opendoor announced it was laying off 550 employees. Zillow began exiting the iBuyer space last year, resulting in the loss of more than 2,000 jobs.
Write to Dave Gallagher.