On a mixed Q1 earnings call where his company beat revenue targets while also seeing its net losses continuing to grow, and in the shadow of a recently settled lawsuit related to alleged fair housing violations, Redfin CEO Glenn Kelman was fired up yesterday. He pushed back against critics and defended his company’s practices, despite a $4 million payment over accusation its policies excluded non-white communites.
While Redfin reported that the company exceeded revenue guidance by almost $30 million, growing 123% year-over-year at $597.3 million, the $90.8 million net loss increased proportionally to revenue. Redfin also reported a 10.6% drop in real estate service gross margins, attributable to an increase in personnel and transaction expenses in a lower inventory market, according to CFO Chris Nielsen.
In the conference call following the earnings report, Kelman used the analogy of a marathon, admitting that Redfin investors have seen some tough times recently (the company’s stock is down 70% this calendar year) but that adversity is where they will thrive.
“The point of maximum suffering is when those best prepared for it will win,” he promised.
Against a more “volatile phase” of the housing market, Kelman said the company would be diversifying and becoming more disciplined, aiming for “major net income improvements—not in the distant future, but now.” That translates to profitability or break-even this year, and net income in 2024.
The company, he claimed, is best positioned to weather the storm and come out on top, saying that most of its leadership came together in the shadow of the 2008 financial crisis.
“We were fashionable, and now we’re unfashionable,” he said. “As we reminded you on the day of our IPO, we are used to that, in a way that probably none of competitors are. Our executive team came together in the depths of the great financial crisis and built their business on the certainty that another downturn could come.”
Redfin’s stock was up more than 5% Friday morning amid a broader market selloff.
A question from an investor late in the call asked Kelman to respond to the lawsuit Redfin recently settled, where the company agreed to change how it uses price points to decide what kind of services to offer a given area. Fair housing advocates who spearheaded the lawsuit compared the policies to redlining—referring to the now illegal racial discrimination perpetuated by federal agencies and the housing industry for decades.
Kelman defended the practice, even as his company agreed to modify how it implemented these price policies and take significant steps to combat racism and increase diversity within the company.
“We feel that it’s very clear across the free market that price is the only fair way to decide which customers you can and can’t serve,” he said in response during the call. “If a customer walks into a grocery store with 89 cents they can buy a can of beans, if they don’t have the 89 cents, they can’t. It has nothing to do with the color of their shirt or the color of their skin.”
“If I sound pugnacious about it, I am,” he added. “I care very much about the mission of this company. Part of the mission is to make housing more fair.”
Advocates contended that the price-point policy became “a proxy” for race-based discrimination, intentional or not, in violation of federal laws, and that it had a “substantial adverse impact on buyers and sellers of homes in predominately non-white communites based on race and national origin.”
Kelman admitted that the policy changes due to the lawsuit would result in the company selling more homes at a loss, but added that it would not “change the economics of the business much.”
“It’s a good thing to suck it up for a more just society, but we just have to be careful about how much we suck it up because we’re also trying to make money!” he exclaimed.
Looking at other recent developments for the company, Kelman highlighted a “blow-out quarter” for Redfin’s iBuying arm, RedFin Now, which sold 617 homes last quarter compared to just 171 in Q1 2021, and brought in $83,086 more revenue per home. As an iBuyer that also functions as a brokerage and data platform, Kelman said the company views that service as integrated part of its model that can bring in customers and revenue indirectly, connecting them to agents if they don’t choose the iBuyer service.
The number of people who started with RedFin now but scheduled a listing consultation with a Redfin agent rose 17% since last year, according to Kelman. At the same time, they are remaining disciplined with iBuying scaled, he said, and calling it a “fool’s gambit” to try and predict home prices through the spring and summer this year.
“Our goal isn’t to own more homes than pure play iBuyers,” he said. “By making money from the service we offer customers not from big bets on home price appreciation, we hope to earn investor trust that Redfin Now can become a steady source of net income.”
Kelman was also asked by an investor to give his opinion on whether the real estate market is in “bubble-type territory,” answering that a ”step back” is almost certain but any collapse would be “very surprising.”
“When people talk about a bubble, they talk about speculation where you’re not buying the asset because you actually want it,” he said. “This is not a bubble in that strict sense because the need for housing is profound, emotional and deep. People want to live in their own homes, these are not investors buying a house. I don’t think people are over their skis on their mortgages.”