Redfin to change up agent recruiting, splits as losses continue 

Redfin is looking to recruit a "more traditional kind of agent" to help increase market share and bring the company to profitability, CEO Glenn Kelman said in Thursday's earnings call with investors.

With market share down 8% and revenue off 21% year-over-year in the second quarter, Redfin is looking to make changes to its agent base to help it meet the headwinds of high interest rates and low inventory.

"This is what competitors feared we would do," Kelman said of the pilot program to let partner agents close high-end sales with their own contacts at a higher split, while augmenting those transactions with lower-profit Redfin-sourced sales.

"Entering 2024, we plan to give San Francisco and LA agents the lion's share of the commission on self-sourced sales while keeping for ourselves the high margins on Redfin-sourced sales," Kelman said. If it works in those markets, the plan is to expand it to other high-end coastal markets.

"Usually the trade-off at Redfin is you'll get more Redfin customers but at a lower split," Kelman said of the company's pitch to agents. "Now we're trying to offer the best of both worlds where we allow agents to close sales from personal contacts at a higher split."  

Key numbers

Revenue: $276 million, down 21% over the same period last year and nearly $50 million below Q1.

Cash and cash equivalents: $118.8 million, down from $232.2 million at the end of 2022.

Gross profit: $100.2 million, down 10% year-over-year but nearly double the first quarter's figure of $56 million.

Net loss: $27.4 million, a major improvement over its net loss of $78.1 million a year ago and trending up after losses of nearly $61 million the previous quarter.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization): A loss of $6.93 million, an improvement over a loss of $74.5 million for the same period last year and a loss of nearly $61 million in Q1.

What Redfin had to say

In Thursday's report, Redfin posted revenues in line with their projections, and said some drags on the company's earnings are largely in the rearview mirror. But the sluggish housing market led the company to stretch out the expected timeline for reaching the break-even point.

"We expect to break even on an adjusted-EBITDA basis over the next 12 months rather than in 2023, which is a setback," Kelman acknowledged. "We lost market share due to one-time setbacks from agent layoffs and the closure of RedfinNow, but we expect to return to quarter-over-quarter gains in the second half, as Redfin.com has been competing better for traffic."

Kelman told investors Redfin's share of online traffic rose sharply, coming at the expense of rivals.

"Second-quarter visitors to Redfin.com increased year over year by 9%, compared to a 5% decline for the largest for-sale search site, and a 13% decline for the second-largest," Kelman said. He touted that traffic growth as evidence the company is poised to emerge from the housing slowdown as soon as overall market conditions normalize. 

Pointing to an improvement in gross margins, Kelman said "Redfin is set up for profitable growth." But he also acknowledged that the housing market is "in a jam and it's unlikely to end anytime soon," which has prevented the company from realizing net profitability.

Notable moves

Kelman said agent layoffs forced the company to reassign about a third of its active customers, but anticipates that is behind them now, as is RedfinNow, which sold its last home in the past quarter.

This week, the company announced a partnership with rival Zillow to share exclusive new construction single-family home listings that are not sourced through the MLS. The listings will automatically cross-post from Zillow to Redfin and appear in search results on both sites.