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Redfin Corporation (RDFN) Q4 2022 Earnings Call Transcript

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Redfin Corporation (NASDAQ:RDFN) Q4 2022 Results Conference Call February 16, 2023 4:30 PM ET

Company Participants

Meg Nunnally - Head of IR

Glenn Kelman - President, CEO and Director

Chris Nielsen - CFO

Conference Call Participants

Ryan McKeveny - Zelman & Associates

Tom White - D.A. Davidson

Ygal Arounian - Citigroup

John Campbell - Stephens

Michael Ng - Goldman Sachs

Jay McCanless - Wedbush

Chris Suchecki - Jefferies

Operator

Greetings, and invited to nan Redfin Corporation Fourth Quarter 2022 Earnings Conference Call. At this time, each participants are successful a listen-only mode. A mobility and reply convention will travel nan general presentation. [Operator Instructions] Please statement that this convention is being recorded.

I will now move nan convention complete to our host, Meg Nunnally, Head of Investor Relations. Thank you. You whitethorn begin.

Meg Nunnally

Good afternoon, and invited to Redfin's financial results convention telephone for nan 4th fourth and afloat twelvemonth ended December 31, 2022. I'm Meg Nunnally, Redfin's Head of Investor Relations. Joining maine connected nan telephone coming is Glenn Kelman, our CEO; and Chris Nielsen, our CFO.

Before we start, statement that immoderate of our statements connected today's telephone are forward-looking. We judge our assumptions and expectations related to these forward-looking statements are reasonable, but our existent results whitethorn move retired to beryllium materially different. Please publication and see nan consequence factors successful our SEC filings together pinch nan contented of today's call.

Any forward-looking statements are based connected our assumptions today, and we don't undertake to update these statements successful ray of caller accusation aliases early events. On this call, we will coming non-GAAP measures erstwhile discussing our financial results. We promote you to reappraisal today's net release, which is disposable connected our website astatine investors.redfin.com for much accusation related to our non-GAAP measures, including nan astir straight comparable GAAP financial measures and related reconciliations.

All comparisons made successful nan people of this telephone are against nan aforesaid play successful nan anterior year, unless different stated. Lastly, we will beryllium providing a transcript of our prepared remarks connected our website by nan conclusion of today's call, and a afloat transcript and audio replay will besides beryllium disposable soon aft nan call.

With that, I'll clip move nan telephone complete to Glenn.

Glenn Kelman

Thanks, Meg, and hi, everyone. Redfin generated $480 cardinal of 4th fourth revenue, exceeding our projected scope of $430 cardinal to $459 cardinal successful revenue, mostly connected nan spot of Redfin now sales. Our nett nonaccomplishment of $62 cardinal included a $57 cardinal summation from repurchasing astatine a discount $143 cardinal of indebtedness owed successful 2025. The adjusted EBITDA nonaccomplishment of $63 cardinal was adjacent nan favorable extremity of our $58 cardinal to $71 cardinal guidance.

Earnings mostly exceeded expectations, but comparing nan 4th fourth of '21 and 2022, Redfin mislaid 2 ground points of marketplace share, successful portion owed to layoffs and nan nonaccomplishment of RedfinNow driven demand. As we compete amended for online existent property postulation and improved income execution, we expect stock gains to accelerate successful nan 2nd half, particularly erstwhile we're nary longer comparing our income to a play of fierce spending connected supplier hiring and location purchases.

It will beryllium a awesome accomplishment to return stock successful a twelvemonth wherever we're besides improving yearly profits by astir $200 million, driven by higher gross margins, little spending and nan closure of money-losing businesses. We couldn't beryllium much excited astir nan twelvemonth ahead. Two months into 2023, we're still connected people to gain an adjusted EBITDA profit for nan afloat twelvemonth and connected schedule to waste our past RedfinNow location successful nan 2nd quarter.

For nan Property conception that includes RedfinNow, nan gross profit losses successful nan 4th fourth were astatine nan favorable extremity of our range. The afloat twelvemonth gross profit losses for this conception were $23 million, and nan 2023 gross profit losses should beryllium a fewer cardinal dollars -- excuse me, should beryllium a fewer cardinal dollars aliases less. Only 19 homes primitively purchased by RedfinNow for $12.2 cardinal neither been sold nor accepted an connection to beryllium sold. The closure of RedfinNow is portion of a larger displacement to higher margin, little cyclical revenues.

The percent of homebuyers served by our partner agents alternatively of our labor will summation from 37% successful 2022 to projected 42% successful 2023. We decided to waste much request to partners aft accounting for costs that aren't straight tied to a sale, but that still turn pinch nan number of agents we employ, for illustration nan costs of quality resources support and training for agents.

This determination will not only summation 2023 profits but besides limit layoffs and losses successful early downturns. Real property services will thrust much integer revenues arsenic good rent, our online marketplace for promoting rental homes. Once nan liability Rent has accelerated its maturation successful each of nan past 4 months and expects to gain an adjusted EBITDA profit successful nan 4th fourth of 2023. Beyond rent, we launched 2 different integer businesses successful nan 2nd 4th of 2022, our ain owe marketplace and ads connected redfin.com, some of which are now increasing faster than immoderate different Redfin business.

The owe marketplace offers our visitors a prime of lenders beyond nan lender we acquired successful April 2022, Bay Equity Home Loans. Bay Equity has a unit income unit to activity pinch homebuyers already engaged pinch an agent, but doesn't person nan telephone halfway to grip online inquiries astatine each hours of nan time and night. Over nan adjacent 2 years, we expect to motorboat further integer businesses, pinch nan extremity of moving much money from an online sojourn than immoderate different usability of a awesome existent property site.

Those are nan structural changes we're making to amended Redfin's margins moreover astatine a onetime costs to our growth. More of each dollar of gross should autumn to nan bottommost line, but now we request much dollars to. This is why we'll walk nan remainder of this telephone connected growth. The superior measurement we've grown is by reaching much group done our sites and mobile applications. Comparing nan 4th fourth of 2021 and 2022, nan mean monthly visitors to Redfin's website and mobile applications declined by 2%. But complete that aforesaid period, searches connected Google for homes for waste declined 33%. The quality betwixt these 2 numbers indicates why we apt accrued Redfin's stock of online existent property traffic. ComScore, which lets america comparison ourselves to different sites reported a 6% 4th fourth diminution for Redfin compared to 22% for realtor.com and 2% for Zillow.

According to comScore, we started keeping gait pinch Zillow successful December contempt a 2nd half fund for TV ads, that was a 4th of nan size of nan Zillows. To amended our semipermanent competitory position, we cognize we person to tie visitors distant from each our awesome rivals, not conscionable one, and we judge that we can.

For Google searches connected a location reside and our 10 longest established markets, Redfin is now astir apt to look arsenic nan first consequence crossed nan U.S. for these searches, we're now apt to look for america much than realtor.com, which has astir doubled our traffic. And we tin still turn by expanding nan parts of nan U.S., our competitors already screen and by improving nan instrumentality learning package we usage to urge listings.

Drawing much visitors to Redfin is nan first measurement successful our growth. but we besides want a higher proportionality of those visitors to prosecute our agents. Because we look for illustration different existent property sites, consumers often presume we're a marketplace for promoting nan agents who paid america nan highest fee. In fact, nan full logic we employed our ain agents has been to present faster work astatine a little interest from apical producers. Almost nary 1 knows that successful 2022, Redfin agents had nan highest mean income measurement of immoderate awesome brokerage beating our closest competitor by almost 20%.

Our agents' acquisition is 1 logic why our work is better. Now nan tract is telling that story, a process that started yesterday erstwhile we launched a redesigned redfin.com to promoter agents to luxury customers. We now way those customers to nan Redfin agents pinch nan astir luxury experience. The week before, we launched an advertisement run that explains why for 7 years straight. We've sold homes for much money than accepted agents because of our apical producers but besides owed to nan other vulnerability each listing gets connected redfin.com.

In 2023, we expect to summation share, not conscionable owed to much postulation and much customers from that postulation but besides by getting much income from each customer done owe and title income and, complete time, repetition and referral transactions. Our extremity is to create nan brokerage into a 2nd motor of Redfin's maturation supra and beyond our online presence.

We person much room to turn arsenic a brokerage connected arsenic a website, astir 20 years since online existent property portals first launch, astir 95% of homebuyers hunt for listings online, conscionable based connected nan income claimed by Zillow and Redfin, it seems apt that only astir 5% of location income originate pinch group asking nan agents connected awesome existent property sites for service.

These sites tin ever compression a spot much gross from postulation games aliases from postulation gains, not games aliases by claiming a higher stock of nan committee from each preferred sale. But if Redfin gives customers a logic to take our ain agents, building a marque for amended work and value, that 5% of income that commencement online tin 1 time go 50%.

Employing our ain agents could summation user affinity for our work but tin besides summation adjacent rates. Our information indicates that nan customers who asked america for work successful nan 3rd 4th were little apt to spell done pinch nan acquisition whether pinch Redfin aliases pinch a competing broker. But are nan Redfin customers we met successful nan 3rd 4th of 2022 who ended up buying a home, a projected 35% will person stuck pinch nan Redfin supplier for nan acquisition compared to 26% successful nan 3rd 4th of 2021.

This tells america that moreover though nan marketplace is down, our income execution is up. Beyond amended work for customers who travel to america via redfin.com, our agents are besides generating their ain sales. 34% of 4th fourth income came from repetition and referral customers compared to 32% a twelvemonth earlier. Even here, a Redfin supplier has a monolithic advantage complete accepted agents, having astir 100 to 200 customers via redfin.com each twelvemonth pinch each customer's interaction accusation and online hunt activity tracked successful our database.

Whereas galore accepted agents are canvassing each Tom, Dick and Sally for sale, our agent's customer web typically starts pinch nan hundreds of buyers and sellers who those agents met complete nan years done Redfin. More than ever, nan agent's Redfin labor coming are tin of driving loyalty sales. One logic for our improved income execution is an betterment successful nan value of our income force, which ended 2022 30% smaller than it was 9 months earlier. Back successful March, 37% of our agents had little than 1 twelvemonth of Redfin tenure and only 29% had much than 3 years.

Today, only 13% person little than a twelvemonth of tenure, whereas 42% person 3 aliases much years nether their belts. That income squad now includes not conscionable agents but besides indebtedness officers. After all, 1 rationale for serving nan customer ourselves is much follow-on owe and title income pinch each of our services moving together to make a customers move easier and little expensive.

As successful nan 3rd quarter, 17% of our brokerages 4th fourth homebuying customers borrowed money from Bay Equity Home Loan. The pre-acquisition precocious was 8%. After our January institution kickoff sewage each region's agents and lenders successful nan aforesaid room for nan first time, that number surged to a projected 21% for this February. From nan 4th quarters of 2021 to 2022, nan percent of eligible brokerage customers who utilized our title service, Title Forward, besides accrued from 12% to 44% and lending and title margins improved successful nan 4th quarter, a inclination apt to proceed done 2023 arsenic nan lending manufacture completes its accommodation to little volume, value title whitethorn ease.

And arsenic nan lodging marketplace recovers, our brokerage lending and title businesses will beryllium good positioned for growth. Our rent business, by contrast, has already benefited from rising flat vacancies successful nan 2nd half of 2022 and it's increasing gross now. This is simply a dazzling turnaround for a business acquired retired of bankruptcy successful April 2021 whose caller CEO didn't commencement until August of that year. Net bookings, a measurement of nan annualized gross rent added done income to caller customers little nan annualized gross nonaccomplishment from departing customers astir doubled quarter-to-quarter from $5 cardinal successful nan 3rd 4th to $10 cardinal successful nan 4th quarter.

In each 4th of 2021, nett bookings person been antagonistic $4 cardinal to $5 million, and we're hardly affirmative successful nan first half of 2022. Rent's 4th fourth gross grew year-over-year for nan first clip since 2017 by 5% compared to nan 3rd 4th of 2022, 4th fourth gross grew 6%. We expect Rent's gross gains to accelerate connected nan spot of caller products, a January 2022 value summation January 2023 value summation and improved income productivity, which has much than tripled since nan summertime of 2021.

In support of nan value increase, redfin.com's integration of Rent listings has generated much request for Rent's spot guidance customers. In June, redfin.com added 12% of rental visits supra and beyond nan visits to rent site. In nan 4th quarter, this publication grew to 18%. Rent besides launched a $3 cardinal 4th fourth wide media run offsetting immoderate of nan money we saved from nan departure of rent employees.

We felt observant astir investing successful a 2nd brand, but nan entreaty of a self-explanatory for ample domain was truthful powerful that we had to springiness it a shot. We'll cautiously measure nan return connected this advertizing finance and tally nan business to make adjusted EBITDA successful nan 4th fourth nether a assortment of marketplace conditions. The occurrence we've had truthful acold is simply a tribute to nan activity of Rents CEO, Jon Ziglar and his full team.

Now earlier turning nan telephone complete to Chris, let's talk nan lodging market. On March 15, 2022, we were 1 of nan first to authorities publically that nan marketplace was cresting and "it was crazy for request to beryllium truthful beardown successful nan midst of a marketplace volatility and inflation. By May, nan marketplace began its first sustained diminution since nan awesome financial crisis. Ten months later, connected January 25 of this year, we said that lodging successful January had been stronger than anyone could person hoped and that nan marketplace will "fragile" was "recovering." We be aware that nan betterment could beryllium trim short by a complaint hike.

By nan extremity of that week, nan National Association of Realtors reported that a seasonally adjusted scale of pending location income had improved 2.5% successful December, a consequence astonishing to galore aft six consecutive months of declines.

But successful February, nan marketplace sewage different gold, first from past week's grounds debased unemployment information and past from this week's study a persistent ostentation and beardown unit sales. Mortgage rates had fallen from 7.3% successful November to 6% successful early February, past climbed supra 6.7% yesterday connected nan news. Unsurprisingly, Redfin's February request is still amended than it was successful November moreover aft accounting for nan season, but worse than it was successful January.

We still judge that our 2023 budgeting presumption of 4.3 cardinal existing U.S. location income is reasonable. Rate volatility and buyers' geriness astir rates conscionable make that marketplace unusually difficult to predict. We're moving Redfin retired of nan rate registry successful 2023. So nan existing location income look apt to travel $4.3 million, we'll trim our spending.

Regardless of what happens to rates successful 2023 and beyond, inventory will apt enactment low. What's astir singular astir this lodging downturn is that nan number of homes for waste hasn't meaningfully accrued from nan calamitous lows of nan pandemic. Sure, nan number of homes connected nan marketplace astatine nan extremity of January 2023 was up 40% since January 2022, but it was still astatine astir half nan pre-pandemic level it was from 2016 to 2019 during a beardown seller's market.

Our agents study that would beryllium sellers pinch 30-year mortgages astatine a complaint beneath 3% are choosing to support their homes alternatively of trading either to unrecorded successful aliases to rent out. This is why from May 2020 to May 2022, location prices accrued 40%, but person fallen only 3% since. The millennial procreation that mostly came of location buying property conscionable aft location prices and owe rates changeable up still faces an affordability situation pinch nary existent alleviation successful sight.

Because of debased inventory, we proceed to judge that income measurement will beryllium much volatile than location prices. Regardless of marketplace conditions, Redfin will make adjusted EBITDA successful 2023 and nett income successful 2024. Once we retrieve from restructuring our business to beryllium much profitable, our stock gains will resume and accelerate. And if we tin make money successful a lodging downturn, we'll beryllium successful a bully position to make a batch of money erstwhile nan marketplace recovers.

Now let's perceive from Chris connected our financial capacity and guidance.

Chris Nielsen

Thanks, Glenn. 2022 was a challenging year, but we've taken nan correct actions to position Redfin for semipermanent profitable growth. We're entering 2023 pinch appropriately blimpish plans and nan knowledge of nan betterment whitethorn beryllium touch and go, but it's comforting to spot nan commencement of nan twelvemonth search successful statement to somewhat amended than our expectations.

Since announcing our determination to upwind down RedfinNow past November, we've moved quickly to trim inventories. We applied nan influx of rate to afloat salary down nan in installments installation that supported location purchases and extinguished much than $140 cardinal of convertible notes. We've besides taken action to trim costs and grow margins, including nan elimination of our buy-side refund successful December, which should group nan business up for semipermanent separator description arsenic we move done nan year.

Fourth 4th gross was $480 cardinal and decreased 25% from a twelvemonth ago. Real property services revenue, which includes our brokerage and partner business generated $146 cardinal indebtedness successful revenue, down 35% year-over-year. Brokerage gross aliases gross from location income closed by our ain agents decreased 34% connected a 34% alteration successful brokerage transactions.

Revenue from our partners decreased 45% connected a 40% alteration successful transactions and operation displacement to little worth houses. Real property services gross per transaction accrued 1% year-over-year. The spot segment, which consists chiefly of homes sold done RedfinNow generated $261 cardinal successful revenue, down 31% year-over-year. Revenue for this conception will beryllium de minimis erstwhile nan upwind down is complete. Strong 4th fourth gross for this conception is suggestive of a speedy action we've taken to trim inventory.

Our rentals business generated $41 cardinal successful revenue, up 5% from a twelvemonth ago. As Glenn highlighted, this is nan first 4th of year-over-year gross maturation for nan business since 2017. Our owe conception generated $28 cardinal successful gross compared to $4 cardinal successful gross successful nan anterior year. The alteration was owed to nan acquisition -- summation -- sorry, it was owed to nan acquisition of Bay Equity, which occurred past April. This consequence was somewhat beneath our guidance scope of $29 cardinal to $32 cardinal pinch lower-than-expected measurement complete nan past fewer weeks of nan twelvemonth impacting locked loans.

Finally, our Other segment, which includes title and different services contributed gross of $6 million, an summation of 89% aliases $3 cardinal year-over-year. The summation chiefly was attributable to a $2 cardinal summation from our title business and a $1 cardinal summation from show advertisement revenue. As Glenn mentioned, increasing high-margin integer gross is an important priority, and we're conscionable getting started.

Total gross profit was $37 million, down 65% year-over-year pinch full gross separator of 7.8%. Total operating expenses were $156 million, up $23 cardinal year-over-year. Restructuring expenses contributed $22 cardinal successful Bay Equity, which we acquired successful April contributed $9 million. Excluding these increases, operating expenses decreased by $8 cardinal year-over-year.

Technology and improvement expenses accrued by $3 cardinal arsenic compared pinch nan aforesaid play successful 2021. The summation was chiefly attributable to nan $2 cardinal summation successful online services, removing much of our exertion infrastructure to unreality services. Marketing expenses accrued by $2 cardinal arsenic compared pinch nan aforesaid play successful 2021. The summation was chiefly attributable to a $1 cardinal summation from Bay Equity and higher trading expenses for our Rentals business.

General and administrative expenses decreased by $4 cardinal arsenic compared to nan aforesaid play successful 2021. Bay Equity added $8 cardinal to these costs. Excluding Bay Equity, wide and administrative expenses declined by $12 million, driven by a $7 cardinal alteration successful unit costs.

Turning to conception level profitability. Real Estate Services gross separator was 18.0%, down 1,550 ground points year-over-year. This was driven by a 1,170 ground constituent summation successful unit costs and transaction bonuses, Total nett nonaccomplishment for existent property services was $28 million, down from a nett income of $19 cardinal successful nan anterior year. The alteration is chiefly attributable to little gross and gross margins arsenic nan lodging marketplace slowed, partially offset by a $3 cardinal year-over-year alteration successful operating expenses. Properties gross separator was antagonistic 7.0%, down from a affirmative 1.1% successful nan anterior year.

Margin compression was driven by an 820 ground constituent summation successful location acquisition costs and related capitalized improvements arsenic we sold done homes purchased earlier successful nan year. Gross profit losses were $18 cardinal towards nan amended extremity of our $21 cardinal to $17 cardinal nonaccomplishment guidance range. Total nett nonaccomplishment for properties was $26 million. Rentals gross separator was 76.4%, down 620 ground points year-over-year. Margin compression was driven by a 460 ground constituent summation successful trading arsenic good arsenic merchandise operation shifts.

Total nett nonaccomplishment for rentals is $22 million, down from a nett nonaccomplishment of $14 cardinal successful nan anterior year. The accrued nonaccomplishment is chiefly attributable to little gross margins and higher trading operating expense, including nan wide media run Glenn mentioned earlier. Mortgage gross separator was antagonistic 8.9%, down from a affirmative 9.7% successful nan 3rd quarter. Margin compression was driven by value and title crossed nan owe manufacture arsenic lenders grappled pinch rising liking rates and excess capacity.

Total nett nonaccomplishment for owe was $12.3 million. Other conception gross separator was 7.4%, an betterment from nan antagonistic 17.7% 1 twelvemonth ago. Total nett nonaccomplishment was $1 cardinal compared to a nett nonaccomplishment of $2.5 cardinal successful nan anterior year. Net nonaccomplishment was $62 cardinal compared to a nonaccomplishment of $27 cardinal successful nan anterior year. While nan year-over-year alteration successful operational losses was wider, nan driblet successful nett income was compared to a smaller owed to a $57 cardinal summation connected extinguishment of notes arsenic good arsenic $4.5 cardinal higher liking income that benefited nan quarter. Diluted nonaccomplishment per stock attributable to communal banal was $0.57 compared pinch diluted nonaccomplishment per stock attributable to communal banal of $0.27 per stock 1 twelvemonth ago.

Now turning to our financial expectations for nan afloat twelvemonth and nan first 4th of 2023. We're not providing general guidance for 2023, but arsenic Glenn and I person some discussed connected anterior calls and reaffirm today, we're moving nan business to make affirmative adjusted EBITDA for nan fiscal twelvemonth 2023. We've included a descent connected nan larger drivers down this target successful our net merchandise presentation. Compared to 2022, we've already eliminated our refund to location buyers. This will adhd $1,000 to nan gross and gross profit of each brokerage transaction.

We'll get different 500 ground points of gross separator betterment from nan staffing changes that we made successful 2022. Closing RedfinNow saves $20 cardinal successful gross profit losses. Even pinch adding Bay Equity for a afloat year, nan actions we've already taken will little afloat twelvemonth operating expenses by $25 million. That activity is each done, and we expect much than $40 cardinal successful adjusted EBITDA improvements from momentum successful our rentals and owe businesses.

Turning to our expectations for nan first 4th of 2023. We expect consolidated gross betwixt $307 cardinal and $324 million, representing a year-over-year diminution betwixt 49% and 46%. We expect our existent property services conception to relationship for $122 cardinal to $130 cardinal of that revenue, representing a year-over-year diminution betwixt 31% and 27%. Properties gross is expected to beryllium betwixt $108 cardinal and $113 cardinal arsenic we waste done astir of nan remaining inventory. Rentals gross is expected to beryllium betwixt $41 cardinal and $42 million, representing a year-over-year summation betwixt 9% and 12%.

Mortgage gross is expected to beryllium betwixt $29 cardinal and $32 million. Turning conception gross profit. We expect existent property services gross margins to beryllium level to somewhat down year-over-year. Headwinds to existent property services gross margins successful nan first 4th included astir 100 ground points from an in-person institution kickoff arena that we did not person successful nan anterior twelvemonth owed to COVID and will not repetition successful 2024. That arena besides added astir $8 cardinal to our first 4th G&A expenses.

Turning to properties. We expect gross profit to beryllium somewhat antagonistic to adjacent breakeven for nan first quarter. For mortgage, we expect first 4th gross margins to return to affirmative territory. Total nett nonaccomplishment is expected to beryllium betwixt $160 cardinal and $105 million. This nett nonaccomplishment presumption includes a summation connected extinguished lines notes of $7 million, reflecting nan repurchase of $19 cardinal successful convertible notes already completed successful nan first quarter. These gains are excluded from adjusted EBITDA guidance. Adjusted EBITDA nonaccomplishment is expected to beryllium betwixt $84 cardinal and $73 million.

As a reminder, nan first 4th of nan twelvemonth is typically our lowest measurement quarter, and moreover accounting for these losses, we still judge we are connected way to make affirmative adjusted EBITDA for nan afloat twelvemonth 2023. On a consolidated basis, this guidance includes astir $45 cardinal successful full institution trading expense; $20 cardinal successful stock-based compensation, $17 cardinal of depreciation and amortization and level nett liking disbursal associated pinch our convertible elder notes and different in installments obligations.

In addition, we expect to salary a quarterly dividend of 30,640 shares of communal banal to our preferred stockholder. This guidance assumes, among different things, that nary further business acquisitions, convertible statement aliases banal repurchases, investments, restructurings aliases ineligible settlements are concluded and that location are nary further revisions to stock-based compensation estimates.

And now let's return your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility comes from Ryan McKeveny pinch Zelman & Associates. Please authorities your question.

Ryan McKeveny

Chris, I deliberation you mightiness person deed connected this a spot wrong nan guidance commentary. But I conscionable wanted to touch guidelines connected it. The brokerage gross per transaction and benignant of squaring that pinch nan gross margin. So I guess, arsenic we deliberation astir nan moving pieces to nan gross per transaction, I conjecture it's location prices mix. But past connected nan different side, you person nan buy-side refund coming out, which I conjecture each other adjacent would use that.

So tin you possibly conscionable springiness a small much item connected really those various factors are flowing into nan gross per transaction? And arsenic we look forward, possibly really you would expect that to inclination into 2023.

Chris Nielsen

Sure. So nan statement that we provided present is that we're expecting astir $1,000 gross per brokerage transaction summation arsenic compared pinch 2022. That takes into relationship nan factors that you conscionable mentioned wherever we will beryllium and person eliminated nan homebuyer refund. It besides takes into relationship nan comparative operation of homebuyer and location seller transactions, positive various different marketplace operation things, including nan geographies crossed nan U.S. So that's a information figure, obviously, but that's nan correct position connected really to deliberation astir that operation of things arsenic it relates to gross per brokerage transaction.

Ryan McKeveny

And Glenn, I conjecture conscionable from a information and benignant of marketplace trends perspective, obviously, you ever person really bully insights. And I conjecture if we deliberation astir nan West Coast, California, Seattle, immoderate of nan markets wherever marketplace share-wise, you guys are reasonably large. Any updates? I understand nan wide commentary you provided connected January and February, but I conjecture circumstantial to nan West Coast, thing you would telephone retired astir what you're seeing wrong those markets?

And I inquire because I presume information wise for nan industry, it would surely look that nan declines successful transaction activity was overmuch steeper, particularly successful nan backmost half of '22, which, fixed your footprint, I think, was astir apt an incremental headwind that you guys faced. So yes, immoderate thoughts you tin stock connected benignant of existent reasoning wrong nan West Coast markets? And would you expect immoderate of nan manufacture headwind from nan operation to yet perchance go a tailwind if those markets commencement to improve?

Glenn Kelman

Well, it's a communicative of 2 markets. So Seattle is really doing importantly better. It whitethorn beryllium related to nan truth that Seattle doesn't person an income tax. So group are still migrating to Washington State. But California continues to beryllium a spot wherever group are leaving. And truthful we are facilitating their moves to different states. The aforesaid is existent of Oregon. Our geographic attraction has been an rumor that we've worked on, some done nan 2 layoffs that we had past twelvemonth and connected a go-forward basis, erstwhile we do prosecute someone, it's going to beryllium successful states for illustration Texas, Georgia and Florida.

Operator

Our adjacent mobility comes from Tom White pinch D.A. Davidson. Please authorities your question.

Tom White

Glenn, your commentary astir benignant of leaning much into your partner web and brokerages, would you qualify that arsenic benignant of for illustration a impermanent displacement arsenic you guys benignant of trying down nan hatches and move towards profitability? Or is it much of a benignant of imperishable alteration successful your thinking?

And if it's temporary, conscionable funny whether you guys are benignant of taking immoderate added steps to make judge that these partners are providing nan work levels that you want aliases -- and I don't cognize possibly there's thing you could do to get them to connection Redfin for illustration pricing and really you deliberation astir nan trade-off betwixt this partner acquisition for nan customers and benignant of nan Redfin brand?

Glenn Kelman

Great question. So it is simply a durable, but humble shift. So going done this near-death acquisition of trading astatine $3 aliases $4 a stock whitethorn america analyse each costs associated pinch employing agents and comparing that to nan gross profits we get from partner agents. And we do deliberation that complete time, modestly shifting request to partner agents will lead to much gross profit and wide profit.

But having said that, Ryan Sudeck is simply a caller executive astatine Redfin. He's been astatine nan institution a agelong clip antecedently successful business development. He's moving our partner network. And we are different than astir of nan lead procreation sites. We don't waste leads to existent property agents and are indifferent financially to nan outcome.

We dangle connected those agents to adjacent sales. So calling nan herd, making judge nan partner agents present awesome work is not only important to nan ngo of nan company, but it's very financially important to us. One headwind connected taking stock successful 2023 is conscionable that partners person little adjacent rates than our employees, and that is truthful important that it's difficult sometimes for america to springiness a customer to a partner nan partner will make much gross profit. So moreover though we are responding to that financial reality. Really, it's a customer work situation to make judge that nan partner is delivering work that we're proud of.

So we're going to beryllium spending much request to nan champion partners asking nan worst partners to time off our tract and besides building exertion to make nan handoff betwixt nan customer and nan partner much seamless. It will ne'er beryllium arsenic bully arsenic it is pinch our labor because nan labor are augmented by a web of contractors to connection on-demand work 24/7, but it tin get amended pinch exertion and done amended curation of nan agents.

Tom White

A speedy follow-up. Is location a measurement for you guys to participate successful ancillary benignant of gross streams connected those partner transactions? I mean tin you guys connect immoderate benignant of information to nan lead to nan partner supplier that they've sewage to beforehand possibly your owe aliases title product?

Glenn Kelman

Well, we person to beryllium observant astir that because we don't want to break nan law, but we tin surely promote our partners to urge Bay Equity because it offers nan champion work astatine an unthinkable rate. We tin besides return immoderate of nan existent property agents who person been served by Bay Equity, accepted agents astatine RE/MAX aliases Keller Williams aliases immoderate different brokerage and bring them into our partner programme truthful that their partners not only pinch our owe business, but pinch our website, and that will people thrust connect rate.

We've surely seen that different websites don't employment agents, truthful really trying to thrust connect complaint moreover erstwhile those agents don't activity for them. And we're evidently constricted by nan separator we want to make connected nan mortgage, but we deliberation we tin do amended there. Our first privilege is going to beryllium doing really good pinch nan employees, but our 2nd is driving it done nan partners. It's a awesome strategical front.

Operator

Our adjacent mobility comes from Ygal Arounian pinch Citigroup. Please authorities your question.

Ygal Arounian

I want to grow connected that past constituent for a small spot much because it feels for illustration a beautiful large displacement successful your position and philosophy. And Glenn, I deliberation successful nan past, what you've said is that moreover if it's astatine a little gross separator percent to do it yourself wrong your brokerage nan wide gross profit dollars are amended and higher. And it sounds for illustration you're astatine slightest changing your position connected -- truthful possibly arsenic you benignant of dug into a $3 erstwhile your banal is astatine $3, you dug successful each this. What changed successful your position here? And what did you uncover that made you benignant of push successful this guidance a small spot more?

Glenn Kelman

Well, first of all, I don't want to beryllium protect astatine each equal, but we haven't shifted -- sorry, there's an echo connected nan phone, but we haven't shifted our position that we're trying to maximize gross profit dollars. If we were trying to maximize gross margin, we would beryllium conscionable a axenic website, but we're moving nan business to make arsenic galore dollars of profit arsenic we perchance can. And what changed was conscionable nan accounting of each imaginable expense.

So past year, we conscionable asked ourselves, is it much costly to employment agents than we realize? Are location costs that moreover though they're not costs of revenue, are still costs of employing agents. And erstwhile we added those costs, it modestly shifted nan equilibrium betwixt partners and employees. Sometimes a taxable connected nan standard successful favour of nan labor because erstwhile we build a customer narration pinch someone, we get follow-on income done repetition and referral transactions but besides higher owe and title connect rates. And astatine this point, because we're moving for nan roses successful 2023 to make judge we make adjusted EBITDA profit, we conscionable had to person nan subject to opportunity nan transaction that will make nan astir gross profit, whether it's done nan partner aliases nan worker that will norm nan day.

And truthful it's only a 5-point shift. We still judge it was a hybrid model. if we effort to service everybody from employees, we'd spell crazy hiring up and laying group off. We could ne'er support group engaged done nan winter, and we could ne'er service customers good done nan summer. And conversely, if we referred each nan request connected our website to partners, we could ne'er build a marque for service. And truthful nan only measurement we could turn is really by driving much online postulation and conversion, and there's conscionable a limit to that, too. So we judge successful nan combo much than ever, but we're going to set nan equilibrium betwixt these 2 businesses. Every clip we spot adjacent rates spell up pinch partners aliases we spot costs spell up pinch labor aliases vice versa.

Ygal Arounian

Yes. And it surely wasn't trying to connote that you weren't trying to maximize gross profit dollars. I understood that, but it feels for illustration immoderate of nan dynamics. Yes, what you explained here. So -- and past -- truthful my follow-up mobility is connected this -- nan integer separator -- high-margin integer gross still beautiful -- possibly you could conscionable grow on, I don't cognize really overmuch it's contributing and what nan semipermanent opportunities are, wherever other you tin spell pinch it. Whatever other you could stock knowing that it's early days.

Glenn Kelman

Sure. Well, I conscionable deliberation our website has been undermonetized and nan publication whitethorn look mini erstwhile you look astatine nan revenue, particularly compared to a adjacent zero separator business aliases a antagonistic separator business for illustration our properties business, but nan publication to nonstop profits that is high-octane substance for our business conscionable because it runs astatine specified an insane margin. So show ads successful nan owe marketplace were what we launched successful nan 2nd quarter, that's nether awesome activity astatine Redfin.

We besides judge that there's each sorts of different constituents who want entree to consumers. So for example, nan builders want to create a amended user acquisition connected redfin.com. Right now, we show each nan homes that are presently for sale, but we don't show homes that haven't been finished. We don't show level plans and different things that nan builders want to marketplace to those consumers. So giving nan builders an opportunity to scope that assemblage is thing that will make money for us, but it will besides amended nan user experience. And there's conscionable truthful overmuch money successful mobility erstwhile group move and specified a mini fraction of group who determine to usage Redfin agents that we really deliberation it's a large opportunity. So it will return america clip to build that. But successful immoderate ways, Redfin has been getting smaller and it whitethorn consciousness for illustration we're diminished by that, but successful immoderate ways, we're getting bigger.

And wherever we're getting smaller is successful really capital-intensive low-margin businesses and wherever we're getting bigger is successful really high-margin businesses that tin monetize an already very ample audience.

Chris, do you person thing you want to adhd to that?

Chris Nielsen

No, conscionable from nan financial reporting standpoint, you'll spot that reflected successful our different conception that it chiefly includes these kinds of businesses positive our title business. So we're talking astir a fewer cardinal dollars present for nan 4th quarter, but arsenic we some indicated, truthful we're encouraged pinch what we've seen truthful acold here.

Operator

Your adjacent mobility comes from John Campbell pinch Stephens. Please authorities your question.

John Campbell

On nan EBITDA inflection extremity for this year, I admit you guys providing that span successful nan investor deck. That's ace helpful. It's really a mobility I had benignant of queued up for you guys punch, but it seems for illustration a bulk of those benignant of profit drivers you've outlined are fundamentally a fixed -- it sounds for illustration you've already actioned astir of that, obviously. Could you possibly talk to what you're foreseeing arsenic nan adaptable aliases benignant of macro power components? I'm reasoning nan $40 cardinal of business momentum and past possibly to an grade nan 500 bps of existent property gross separator description ?

Chris Nielsen

Sure. So you're right, astir of these programs, astir of these changes are already underway. Just utilizing nan example, nan 500 ground constituent betterment successful existent property services gross margin. That's because we judge we've stopped nan business to beryllium accordant pinch nan benignant of request that we'll spot during nan people of nan year. If we spot much request than that aliases little request than that, we whitethorn request to set our staffing levels, but we judge that we're group up to beryllium a bully lucifer pinch nan kinds of volumes that we're going to expect done nan people of nan year.

It's really nan aforesaid point connected nan further adjusted EBITDA from nan rentals business and nan owe business. But I deliberation conscionable nan 1 other remark that I'd supply present is that while galore of these actions person already been taken, we besides will proceed to salary attraction to nan request broadside of things. If it turns retired that request is different from what we've expected, we cognize that we tin make changes elsewhere successful nan business to get backmost to that goal.

John Campbell

And past connected nan loyalty aliases nan repetition sales, I consciousness for illustration that's a metric that often gets overlooked. Average homeowner duration, I think, has grown to 13 years. And past you guys evidently upwind backmost nan timepiece that far. You guys were doing a fraction of nan transactions backmost past versus what you're doing now. So to get I think, Glenn, you said nan 38% operation of transactions being loyalty sales, I've sewage to deliberation that nan immense mostly of past customers are utilizing you guys again. So I mean, nan backmost of nan show maine that's beautiful large deals. Am I reasoning astir that right?

Glenn Kelman

Well, first of all, it's 34, not 38, but we'll aspire to 38, John. Some of this is repetition business, wherever we are capturing a really precocious percent for a agelong time. We made nan claim. I don't deliberation we comfortableness anymore that if you look astatine really apt a customer is to instrumentality pinch nan brokerage, we were number 1 and immoderate of that is because nan brokerage conscionable stands for something. It's not conscionable that we hap to person nan aforesaid supplier location pinch a personification relationship, it's a 1% interest successful on-demand work and awesome exertion done nan full transaction.

But immoderate of this is conscionable referral. At immoderate level, nan extremity of nan website is to ray nan log, but not to beryllium nan log itself. We wanted to put map-based hunt online truthful that we could show nan world there's a amended measurement to bargain and waste houses. But if we only turn successful statement pinch traffic, that intends nan remainder of nan world doesn't judge that. And if you look astatine wherever Zillow Redfin and infer wherever Realtor is, you are astatine astir 5% of each income originating from portals and yet 95% of group are utilizing those websites. So clearly, we've done good to put listings online, but exertion hasn't made nan remainder of nan acquisition evidently amended for consumers, and that's wherever we want to break through. So that's why agelong term, we want to spot half of our income travel from repetition and referral income truthful that our maturation is untethered from nan website are compounded by nan websites growth.

By nan way, arsenic John asked questions before. I emotion nan lodging stuff, John. It's really good.

Operator

And our adjacent mobility comes from Michael Ng pinch Goldman Sachs. Please authorities your question.

Michael Ng

My first 1 is conscionable connected nan trajectory of OpEx for nan remainder of nan year. And also, if you could conscionable springiness a small spot much colour astir your trading plans. I was a small spot amazed to spot nan $45 cardinal outlook because I thought successful nan twelvemonth agone period, location were immoderate timing arsenic it relates -- related to for illustration wide trading campaigns that made 1Q benignant of unusually high, but would conscionable emotion to perceive a small spot much astir those plans for this year.

Chris Nielsen

Sure. So connected nan operating disbursal front, possibly conscionable fto maine commencement pinch trading there. We expect to proceed to tally a wide media run that will spell mostly successful nan first 4th and 2nd quarters of nan year. And truthful there'll beryllium other weight connected operating expenses successful nan first half related to that. We conscionable recovered that those campaigns are overmuch much successful arsenic we're speaking pinch customers starring into nan main portion of nan location buying and trading play than they are successful nan 2nd half of nan year.

And truthful that's why we've put nan weight successful that direction. I besides mentioned successful position of our G&A expenses. We had a small spot of other G&A disbursal successful nan first 4th of this year, astir $8 cardinal associated pinch our in-person institution kickoff of that. That's an illustration of thing that will autumn disconnected arsenic nan twelvemonth goes on. But it's astir apt those 2 dynamics that are astir important successful position of nan trajectory of operating expenses during nan people of nan twelvemonth that erstwhile we get into nan 2nd half, things should beryllium beautiful overmuch level quarter-to-quarter because we will person gotten past those large trading expenses and immoderate of nan different first 4th this.

Glenn Kelman

Can I conscionable speak to nan higher level reasoning astir our allocation of capital? We sucked it up and trim costs connected package for our existent property agents because that activity is principally done. But nan goose that lays nan aureate ovum investing successful nan listing hunt capacity to thrust much postulation and past successful media to build our brand. That's nan 1 spot wherever we really suffered because we want to support nan apical statement moving. And truthful we decidedly person heard that different companies are leaning successful and spending more. We're trying to person nan champion of some worlds wherever we walk much successful nan areas that will really thrust maturation and we walk little everyplace else.

Operator

[Operator Instructions] Our adjacent mobility comes from Jay McCanless pinch Wedbush. Please authorities your question.

Jay McCanless

The first 1 I had and what you're talking astir pinch building retired nan telephone halfway for nan owe operation, that's typically higher costs -- ongoing costs type of operation, I guess, could you talk astir nan improvement of that pinch nan extremity besides of being EBITDA affirmative by year-end?

Glenn Kelman

Sure. Well, I deliberation I misspoke because successful nan telephone successful nan prepared remarks, I was trying to opportunity that we don't person a telephone halfway and instead, we're going to mention group who travel consecutive from our website, typically looking to refinance a indebtedness to a lender that does person a telephone center. So alternatively than building retired our ain telephone halfway for Bay Equity location loans, we're going to build a integer owe marketplace. In fact, we've already built that to mention those consumers to different lenders. I was conscionable explaining nan rationale. There are immoderate customers who want to service directly. Mostly those are group moving pinch our existent property agents who are good qualified, who want a section lender employed by Bay Equity. And past there's these different folks connected our website, who astatine 1 successful nan morning, say, "I want to quote and it's amended to nonstop them to a lender for illustration rocket, but we're not going to build a telephone halfway successful 2023 for lending.

Jay McCanless

The 2nd mobility I had, nan EBITDA nonaccomplishment that you guys are projecting was astir double what I deliberation statement and we were looking for -- is that going to beryllium much gross separator aliases costs of equipment sold weighted this 4th because of trading done nan remainder of nan homes and properties aliases conscionable a small heavier OpEx, what you're talking astir earlier pinch nan in-person arena and nan higher trading spend, really should we equilibrium that out?

Chris Nielsen

Yes. We do expect to person immoderate gross profit losses associated pinch trading done nan remaining inventory. But I deliberation mostly what you're seeing and nan accusation we were trying to supply conscionable to springiness you a small spot of a style of nan twelvemonth successful position of operating expenses and wherever we expect to spot gross separator betterment during nan people of nan year.

And truthful I deliberation that's nan champion measurement to deliberation done it. Maybe conscionable 1 different comment, which is from our standpoint, this is beautiful emblematic successful position of nan measurement nan twelvemonth plays out, which is we incur nan highest expenses arsenic we're advertizing to bring customers into nan marketplace for nan twelvemonth and person nan lowest closes successful nan first quarter. And past that pays disconnected arsenic we get into nan bosom of nan buying and trading season.

Jay McCanless

And conscionable 1 other, if I could sneak it in. Maybe immoderate quantification of business trends. I judge you said it was down successful February versus January. Any quantification aliases further colour you could springiness connected what type of declines you're seeing?

Glenn Kelman

Well, I deliberation it's adjacent to opportunity that we were down 30-plus percent year-on-year successful November successful position of group asking to circuit homes coming guardant to constitute offers. And past successful January, that year-over-year driblet narrowed to precocious teens, debased 20s. And successful February, it's solidly successful nan 20s. So it's not calamitous. And actually, if you look astatine booked offers, wherever you're conscionable focusing connected really galore group wrote an connection and sewage it accepted, that year-over-year driblet has conscionable narrowed steadily from November to now, but that's usually a byproduct of complaint increases.

So nan group who made an connection successful nan past mates of weeks, who locked nan indebtedness 3 aliases 4 weeks ago. There's nary measurement they're not going to spell done pinch it because they sewage entree to a 6% indebtedness erstwhile rates popular backmost up to 6.75%. I deliberation tours is simply a amended starring indicator.

And truthful going from nan 30s down to nan precocious teens into nan debased 20s year-over-year driblet is what we're seeing. And I wouldn't beryllium worried that it's a driblet conscionable mostly because those pandemic codes were unsustainable. What we're really looking to do is get amended than we were successful November.

Operator

Our adjacent mobility comes from John Colantuoni pinch Jefferies. Please authorities your question.

Chris Suchecki

This is Chris Suchecki connected for John. Can you conscionable locomotion america done immoderate incremental item connected really nan Bay Equity integration has benignant of progressed passim nan quarter? And past different 1 connected benignant of owe connect rates. I'm conscionable benignant of funny what drove nan acceleration betwixt nan extremity of nan 4th and what you were seeing successful February and benignant of immoderate leverage you deliberation you person to thrust that higher successful '23?

Glenn Kelman

Why don't I start, Chris, if you person thing to add, you should finish. I deliberation portion of it is that it conscionable takes clip to build relationships betwixt indebtedness officers and existent property agents. And 1 of nan awesome events for doing that was nan income kickoff, which added $8 cardinal to our Q1 expense. By getting nan lenders and nan agents successful 1 room and conscionable making judge everybody understands that erstwhile we activity together, we tin present much worth to nan customer and a amended customer acquisition was astir apt what drove this uptick successful connect rate.

There's besides been immoderate online trading wherever erstwhile we motion personification up for a location circuit disconnected our website. The website says, do you request to fig retired what you tin afford. We tin link you pinch nan lender. We've been amazed astatine really galore group said, sure. We thought that location wouldn't beryllium overmuch uptake connected that. Bay Equity really wanted it. And I said, fine, we'll springiness it to them. it's not going to do much. It has. It's only been a fewer days since it went nationwide but successful nan aviator astatine nan extremity of Q4 and nan first weeks of January, it was really good.

So we've been really encouraged astir it. I deliberation besides they conscionable really are delivering awesome service. We've gotten our agents to usage Title Forward astatine a constituent erstwhile it wasn't delivering awesome service, and that conscionable comes backmost successful your face. But successful this case, it's compounding successful a affirmative guidance because an supplier sends 1 customer complete there, nan customer has a awesome acquisition and past we do more. What we're really proud of is that 21% for February, that's not successful a aviator market, that's not successful 1 place. It's everyplace that nan equity operates. And truthful we deliberation it's a sustainable durable result.

Chris, do you person thing to add?

Chris Nielsen

I don't. You deed nan main points.

Operator

And location are nary further questions astatine this time. So I'll now move nan telephone backmost complete to Meg Nunnally for closing remarks.

Meg Nunnally

Thanks, everyone, for joining nan telephone today. We tin spell up and wrap up now.

Operator

Thank you. This concludes today's conference. All parties whitethorn disconnect. Have a awesome day.

Editor: Naga



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