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This article was shared here with permission from Mike DelPrete for Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.
Redfin’s latest results reveal a worrying financial trend – and raise questions about the sustainability and viability of its business model.
Why it matters: A lot of debt, dwindling cash, and an unprofitable core business are a challenging collection of attributes for the business to deal with, which may force a larger strategic change.
- It all started with Redfin taking on a substantial amount of debt in 2020, eventually rising to $1.2 billion by 2021.
- Since 2020, Redfin’s available cash balance (cash and liquid investments) declined sharply, from over $1 billion in 2020 to just $173 million at the end of Q3 2023.
- Redfin has incurred a net loss since at least 2018 — it doesn’t appear that the business has ever been profitable.
- Redfin’s real estate brokerage is unprofitable, its now-closed iBuying business, RedfinNow, was unprofitable, its rentals business is unprofitable, and its mortgage business is unprofitable.
- Redfin’s brokerage is unprofitable, but not all brokerages are unprofitable — several are posting a positive net income, even in a very challenging market.
- Redfin is losing agents and market share, but not all brokerages are losing agents and market share — several are increasing agent count and growing transaction volumes despite the down market.
This leads to a strategic dilemma: Redfin is significantly under-resourced in a challenging, competitive market.
- Its web portal is up against Zillow and CoStar, who have billions in free cash available.
- Its brokerage is up against the likes of Compass, eXp, and dozens of others that are able to attract agents with higher commission splits and structural cost advantages.
- Its rentals business is up against Zillow and CoStar, again.
- And its mortgage business … well, it’s just a very challenging time to be in the mortgage business.
The bottom line: A receding tide reveals, and the current market is highlighting Redfin’s various challenges.
- Strategically, it appears that Redfin is overstretched with limited resources, and up against well-funded competitors with cost advantages, something it cannot compete with.
- This is a galvanizing moment for the business; one way or another, something has to change.
Mike DelPrete is a strategic adviser and global expert in real estate tech, including Zavvie, an iBuyer offer aggregator. Connect with him on LinkedIn.
