Q4 2019 Earnings Call

Lane upfront. Please go ahead ma'am.

Thank you Brad good afternoon, and welcome to rent in financial results Conference call for the fourth quarter and full year ended December 30, Onest 2019.

Joining me on the call today, our Glenn Kelman, our CEO and Chris Nielsen Our CFO you can find the press release on our website out investors such redfin Dot com.

Before we start note that some of our statements on today's call. Our forward looking we believe our assumptions and expectations related to these forward looking statements are reasonable, but our actual results may turn out to be materially different.

Please read and consider the risk factors in our SEC filings together with the content of today's call.

Any forward looking statements are based on our assumptions today and we don't undertakes to update these statements in light of new information or future events.

During this call the financial metrics will be presented on a GAAP basis and include stock based compensation as well as depreciation and amortization expenses in the event, we discuss any non-GAAP measures today, we'll post the most comparable GAAP measure and a reconciliation on our web sites all compares.

SUNS made in the course of this call our against the same period in the prior year unless otherwise stated.

With that let me turn the call over to Glenn.

Thanks, Selena hi, everyone.

Redskins fourth quarter net loss were better than we projected in our last earnings call revenue was up 88% from the fourth quarter of 2000 $18 million to $233 million and losses narrowed from $12.2 million in the fourth quarter last year to 7.8 million in the fourth quarter of 2019.

And our core business of brokering homes sales through redfin agents and other firms ages working as our partners revenues increased 31% compared to the same quarter last year. This was the fourth straight quarter that year over year revenue growth for real estate services accelerated.

Our share gains also accelerated with the 13 basis point gain over the fourth quarter 2018.

This is an improvement over the 11 point share gains we saw in the third second quarters 2019, and the 10 point gains we saw in each of the two quarters before that.

Redsun now our business of buying and selling homes on our own accounts grew revenues from $22 million in the fourth quarter of 2018 to 99 million in the fourth quarter 2019.

Over that same time, our other businesses, primarily lending and title services grew 67%.

Perhaps most important for the second quarter in a row gross margins improved year over year in all of our segments.

We expect gross margins to keep improving in 2020 because of efficiency gains in many of our businesses, but also because we have now standardize on one mostly higher price for our listing customers.

In the past customers in markets with high home prices paid red and a 1% listing fee and other markets we charge 1.5%.

Starting last December.

In every market listing customers, who choose to buy a home with us pay a 1% listing fee, but otherwise pay 1.5% of the home price.

This is a fee increase for about half of our listing customers.

The decrease for about 20% and no change to the rest.

The reason the new listing fee won't be a change for 30% of our customers is because starting in April 2019, we'd already tested it in seven markets that had previously charged to 1% fee.

The test thesis was that even at the higher 1.5% fee no other broker could off for the full set of Redsun services and then our listing share would keep growing.

This thesis was largely borne out.

In the test markets, we kept growing but more slowly listening demand in the test markets grew several points slower than in comparable markets that still offered a 1% fee.

The impact on share growth would have been higher but the test markets for growing traffic several points faster.

Since the seven test markets already increase listing fees last year and other markets are actually decreasing listing fees this year.

Companywide listing transaction growth in 2020 is likely to be stronger than what we saw in the test markets, that's still slower than in years past.

Even if transaction growth slowed significantly we expect that to be more than offset by the higher fee. The most encouraging findings from last year's pilot markets was that more sellers chose to use regimen for the purchase of their next home.

The customers these customers, who both sell and buys still pay 1% and redfin makes more money by brokering to sales instead of one.

Our ads will keep promoting the 1% fee, while making it clear this depends on using regimen for a purchase and sale.

Weve been careful about increasing prices as Redskins mission to put customer first starts with low feeds.

For years, we kept listing fees in major markets at 1% because home sellers are more careful than buyers about trying a new broker.

But our data shows that our listing service can now compete effectively at a 1.5% fee, especially when many cuts competitors church, 2.5% or 3%.

Because many of our listing customers hired redsun before the price increase only about 60% of the listings to close in the first quarter, we'll be at the new price, we expect about 80% of our listing sales in the second quarter to be at the new products.

The long term source of brokerage gross margin gains wont be further price increases this higher agent productivity.

In the fourth quarter transactions per agent increased 24% year over year.

With some of the gain due to a stronger housing market in 2019 in some due to an increase in the average number of customers served by redfin buyers agent.

Fourth quarter agent productivity also benefited from the timing of agent hiring for 2020.

Coming into the 2019 home buying season, we hired agents in November and December 2018.

Whereas we largely weighted higher agents for 2020 until this January.

For 2020, we expect any gains in productivity for our buyers agents to come from increasing homebuyer success rate success rate as a measure of how many of the homebuyers, we meet by a home through redfin.

It has declined for five straight years.

Some of this decline points to power service needs to improve service because it has gotten harder for many Americans to four to afford a home.

But some of the decline is because we've made it easy for people to Torah home, regardless of how serious they are about buying it.

As Redsun Dot com has attracted more casual visitors to our mobile website and as we've converted more of those visitors into customers through push button request for home tour, the likelihood that a red Centurion customer will end up buying a home whether from redfin or any other brokerage has declined since 2016 by 9%.

And our last call we discuss to 17 market experiment that in November started to qualify the customers to sign up for a home tour.

Weve been careful about customer qualifications, because the ability to see listings whenever you want has made redfin assemble of freedom in real estate.

But this experiment seems to have deterred only the most casual of look you'd lose from touring with redfin, while flattering more serious homebuyers with our interest in their plans.

The projected impact has been a modest and possibly significant increase in the likelihood that the people who sign up for Redfin home tour end up buying a home with minimal harm to our growth.

We've also begun to use our call centers staffed by locally licensed agents to qualify by phone some people who register for a tour.

We only call the people who through their online behavior seem less likely to have understood with a signed up for.

One group seems to appreciate a call explaining our service and other never answers the phone and likely would have been a no show for the tour.

They are tourist canceled.

Early results from this experiment suggests that in person qualification can also increased customers likelihood to buy at home.

These experiments will take until made a rollout companywide by the second quarter. We expect to have made our first broad significant improvement to the quality of the homebuying customers our agents me.

When these customers start to close on sales in the second half of the year, we expect our success rates to improve.

We also hope to see first half improvements and homebuyer success rate, but these will be the result of changes to our field organization that we started planning last summer.

We used our annual kickoff event on January 10 to integrate a new culture of sales performance.

We still emphasize that are redfin agent should always put the customers' interest ahead of a sale.

So we've made it clear to our agents that earning our customers business in finding a way for the customer to win still require energetic salesmanship.

Our field organizations response, so far has been an enthusiastic roar, giving us reason to believe we can execute better than ever in 2020.

Even as we find our field organization for a wave of new customers coming into 2020.

We've also been improving the platform for generating that demand.

Comparing the fourth quarter 2019 to the same period last year. The average monthly visitors to our website and mobile application grew 21% similar to our growth rate of 22% in the third quarter and significantly higher than north America's other major real estate web sites.

To bolster redsun dotcom as an authoritative source of real estate information, we upgraded the redfin estimate our machine learning powered estimate of homes value.

The new median error rate for off market properties is less than 6% compared to a previous rate of 6.3%.

We got these accuracy improvements while broadening the types of properties for which we calculated an estimate to include undeveloped land and multifamily properties.

Covering largely the same properties is other major sites lets us more readily compare the accuracy of home value estimates. The redfin estimate has the lowest published error rate of any major site.

And accurate home value estimate is a foundational competitive advantage for drawing potential customers to our site, but also for deciding how much Reds and now should pay for a property or what the list price should be for home being sold by our brokerage.

We also recognized as the sites only one medium for building awareness of Redskins brokerage on Monday last week, we launched our 2020 mass media campaign with the television AD that shows Redbend dot com, drawing homebuyers to a listing as it by a magnet pulling office workers across conference from tables and dog walkers through parks.

Add highlights our strength that turning online interest and a home into an in person tour.

Headset homebuyers get immediate property access and our listing customers get more buyers viewing their home, which is one reason, we sell homes faster and for more money than our competition.

Many years of advertising have taught us to be visual and literal about what we can do that other brokers can't we tested this year's add against its predecessors from 2018, and 29 team and by a wide margin viewers rated it is more exciting and more persuasive about hiring a redfin agent.

As in 2018, we produced the AD without an agency.

This less issues our own data different driven process for testing concepts at an early stage and leaves us with more money for shooting and placing the at.

Beyond the AD itself, we expect to get more efficient at buying AD placements each year.

Our most expensive media buying experiments on how often to run our TV ads and how broadly ended in 2019.

This lets us focused almost exclusively in 2020 on getting the most bang for our Buck from 29% 2020, we expect to spend about the same amount of money on mass media adds even as awareness of Redsun gross.

Consumers know the names of many brokers, but our opportunity is to build the first iconic real estate brand known by what we stand for to put the consumer first in our pricing and our service and our truth, telling and innovative products.

Well will ultimately make our adds more effective than our competitors is not just the ads creativity or the cleverness of our AD placements, but the products where advertising.

Red said is investing massively in bringing groundbreaking new services to market, giving consumers choices and capabilities no other real estate company has.

The new product were investing in most is redsun now.

Now lets kept growing fast, but our focus is on margins, which improved from negative 4.3% in the fourth quarter of 2018 to negative 1.3% last quarter.

We already discussed on our last call. The October launch of Redfin now in a 13th market Las Vegas.

We don't expect to add many more until at least the second half of 2020, we'll use that time to get better at pricing renovating and selling homes a process that already started in October when we shifted the authority to make an offer from the field to a central set of portfolio managers.

This will let us be more programmatic about our investment decisions.

Our increasing price discipline has led to a decline in offer win rate through the third and fourth quarters of 2019.

Homeowners don't always tell us about competing offers so we don't know how often we get outbid by another institutional buyer.

But among the people who contact us about a red Sun now offer more end up selling to Redsun now and to a competitor.

Sometimes this is because we beat out another buyer, sometimes it's because another institutional buyer hasn't bid.

What makes redsun now year over year fourth quarter revenue growth of 359% remarkable is that we improved margins even as our competitors began what could be a destructive price war.

The purchase activity of all institutional buyers slowed in the second half, but for the full year. The other major by buyers seem to have made more aggressive offers likely narrowing their average gain on a sale.

Brad set us comfortable seeding growth to competitors, if we can't win the home at a price the can be profitable for us as we've emphasized before our disciplined costargo belief that different economic conditions will favor different ways for consumers to sell their home.

Making redfin now a more appealing choice one quarter in a brokered sale better the next.

In today's low rate environment Red said now charges homeowners are relatively low price for immediate liquidity.

Rates are one reason institutional buying is growing quickly overall.

And hot markets sellers choose our concierge service for fixing up homes confident that a move and ready listing can command top dollar.

Meanwhile, brokered sales work for a wider range of situations when customers just want to sell their home for low fee.

This is why a portfolio of listing services is so important when listing customers project to redfin now offer we try to lift their home through our brokerage when redfin listing is selling we sometimes offer concierge upgrade to increase the properties curb appeal at some point in the future when we us when we see a homes. The redfin now doesn't know how to.

At a profit we may let partners like opened or take a crack.

Hi, ready opened doors, helping us satisfy instant offer demand in markets that Red said now hasn't yet reached in December we expanded our opened or partnership from two markets to 11.

This approach lets us capitalize on homeowners curiosity about an instant offer without tying up hall, our money in houses.

The other new business that is expanding rapidly is redfin direct offers an online tool for unrepresented buyers to prepare and submit offers on red 10 listings.

In the fourth quarter, we expanded direct beyond Virginian, Massachusetts to Texas and California.

Prior to the expansion, 6% of Redfin listings supported direct offers that now nearly 30% do.

We still have plenty to do to broaden direct offers appeal, but already are listening customers and direct markets are glad that where theyre ally and recruiting consumers to buy their home directly at a much lower fee.

Our new business investments are just focused on our listing customers. We're also investing in a more complete solution for our home buyers redfin mortgage capped the year, a strong revenue growth and margin gains by expanding in the fourth quarter to Massachusetts, Michigan in Wisconsin.

Nearly 60% of our brokerage customers are now in markets served by redfin mortgage at the start of 2019 Redfin mortgage was available of 45% of our home buying customers.

Redfin agents at this time last year were mostly wary of recommending redfin mortgage instead of longtime lending partners, but 2019 was the year that redfin mortgage largely one our agents trust. We now know that a sale is 20% more likely to close on time, if our homebuying customers borrowed.

Their money from redfin mortgage and close the transaction with our title company titled forward.

The upgrades to our own lender software keep reducing the cost of originating alone and in the fourth quarter. We also improved our process for selling loans, both are direct sales to Fannie Mae and in other ways.

This increase revenue per loan by hundreds of dollars.

Entering 2020 Red set us maturing from a one trick brokerage into a company with the broadest product portfolio and our industry.

We're still tinkering with redfin direct and our concierge service to make sure. Each is the right service being sold at the right price to the right customers.

But other products like redfin now redfin mortgage and our title service are already taking off with strong revenue growth and margin gains.

These businesses are still in their early days, which is why at least through the first half of 2020, we expect our technology development costs to grow faster than revenue, excluding rents and now.

But as we complete the foundation for what can be a much larger company.

Good long term commitment is to limit technology spending to grow more slowly than revenue just as we've already limited spending on marketing and general administration.

Before turning the call over to Chris let's discuss the market.

The number of homes for sale at the end of 2019 in the US was the lowest at at least two decades, 9% below January 2018 levels.

In Seattle at the end of 29 team there was enough demand by every home on the market in three and a half weeks.

52, other major metropolitan areas had less than two months of supply when a typical healthy market has six.

Price pressure that used to be limited to a few cities like San Francisco or Portland is now widespread.

Leaving Americans in search of affordability with fewer places to go than earlier in the housing recovery.

This is why redfin its braced for the most intense season of bidding wars since at least the first half of 2018.

Across the industry homebuyer demand is very strong so the limit on sales growth will be inventory.

And our own business over the last four weeks the number of bidding customers of customers bidding on homes. This far exceeded those who have one.

Redfin agent just told us about a bidding war with 30 other buyers in a far flung area outside of Portland, Oregon. This month.

The property being fought over was a mobile home.

This situation can last longer than most realized as the loss supply and demand for it slowly in real estate agents struggled to put deals together in a rapidly escalating market with buyers looking at sales from earlier months in sellers thinking about how much higher prices could go in the months to calm.

Appraisers initially refused to support higher offers leaving buyers who want a bidding war unable to get alone for the promised amount.

Evil and rising prices entice more sellers to list their home.

Some first take months to fix up their properties others can no longer to get the credit owned two homes at once and get stuff.

And frenzied market they refused to sell their current home before finding a new one to buy account by the new one without cashing out the old ones.

The restrictions we put on consumer credit. After 2008 are now 12 years later limiting housing liquidity.

For all these reasons, we think that the sellers market will last at least through the first half of 2020.

Redfin now as buying homes aggressively.

Our sellers agents are pushing hard to get more money for our listing customers and our buyers agents are making offers left and right that still feel wary about how many will actually stick.

Ought to be a wild ride take it away Chris.

Thanks, Glenn we finished 2019 on a high note delivering another quarter of strong topline growth and improving year over year gross margins in each of our reported segments.

Fourth quarter revenue was $233 million up 88% from a year ago.

Real estate services revenue, which includes our brokerage and partner businesses grew 31% year over year.

Brokerage revenue revenue from home sales close by our own agents was up 32% on a 34% growth in brokerage transactions.

Brokerage revenue per transaction was down 2% year over year, reflecting continued mix shift towards our listing business.

Revenue from our partners was up 14% on an 8% increase in partner transactions.

Revenue per partner transaction was up 6% year over year.

The property segment, which consists of homes sold through our Redfin now program generated $99 million in revenue up from $22 million one year ago.

Our other segment, which includes mortgage title and other services contributed revenue of $4 million, an increase of 67% year over year.

Total gross profit was $40 million up 51% year over year.

Real estate services gross margin was 32.1% up 430 basis points year over year, primarily driven by 340 basis point decrease in personnel costs.

Properties gross margin was minus 1.3% up 300 basis points from a year ago, primarily driven by a 240 basis point decrease in home purchase costs and related capitalized improvements and a 30 basis point decrease in personnel costs, each as a percentage of revenue.

Other segment had a negative gross margin of 24.9% and improvement of 310 basis points from a year ago as our mortgage and title businesses continue to scale.

Total operating expenses increased 20% year over year and represented 20% of revenue down from 31% of revenue one year ago.

Technology and development expenses increased 41% driven by an increase in personnel costs.

We expect technology and development expense growth in the first half of 2020 to remain largely consistent with the fourth quarter as we continue to invest in newer businesses, such as mortgage title and Redsun now.

General and administrative expenses grew 12% year over year and marketing expenses increased less than 1% as we did not writing any brand advertising campaigns and side gains in performance marketing efficiency, leading more customers to try our services with less spending for online ads.

Glenn mentioned earlier that we'll spend about the same amount on mass media in 2020 is in 2019.

In 2020 will be slightly less weighted to the first quarter, though.

Our net loss, including stock based compensation and depreciation was $7.8 million compared to a net loss of $12.2 million in the fourth quarter of 2018.

Diluted loss per share was eight cents compared with a loss of 14 cents per share one year ago.

Before moving to our first quarter outlook I'd like to briefly summarize of our full year 2019 performance.

Our customers booked over $30 billion and real estate transactions.

Compared to 5% Commission, we saved our brokerage customers over $180 million.

We delivered full year revenues of nearly $780 million up 60% year over year.

And gross profit of $144 million up 21% from 2018.

Our total operating expenses grew 37% with at 210% increase and offline marketing expenses.

And net loss for the year increased from nearly $42 million in 2018 to over $80 million in 2019.

Now turning to our financial expectations for the first quarter of 2020.

Revenue is expected to between between $179 million and $188 million representing year over year growth between 63% and 71%.

We expect our property segment to account for $69 million to $74 million of that revenue.

Net loss is expected to be between $72 million and $68 million compared with the $67 million net loss in the first quarter of 2019.

Our guidance includes approximately $9.1 million of stock based compensation and $3.2 million of depreciation and amortization.

It is seamless among other things that no additional business acquisitions investments restructurings or legal settlements are concluded Ed and that there are no further revisions to stock based compensation estimates.

And now we'll open up for your questions.

Thank you at this time, we will open the floor for questions.

If you would like to ask a question. Please signal by pressing star wide on your telephone keypad.

If you are using a speaker phone. Please make sure your mute function, it's turned off to allow your signal to reach our equipment.

And again to ask a question. Please press star one.

We'll take our first question from Jason Jason Helfstein with Oppenheimer.

Thanks, I guess I'll ask to one on I'm ready to now.

And then just.

Model question on real estate gross margin.

Given what is there any way you can talk about cohorts. So obviously, you've been adding markets and that that weighs on the profitability of red for now yet on reported basis, you have been showing improvement.

Are you profitable.

On a unit economic basis in some of the early markets.

We're just any other commentary you can give us on how you're thinking about that longer term and then on gross profit any reason why real estate gross margin should not improve at a similar rate to what we saw this quarter through the third quarter of this year, especially given your comments about the market for the first half of the year. Thank.

Yes.

Hi, Jason I'll comment on Redfin, now and Chris will comment on gross margin.

We do not have cohorts that were publicly discussing for redfin now.

I don't think it's just a matter of time, we have to get better at pricing properties and Thats exactly what we've done over the past two years that gives us confidence that we can continue to do so you make money on almost every property you buy but when you Miss it really cost issue. So the Mrs. Just have to get fuel.

We're in farther between.

I think there's also just some question of how we can get our renovation costs down so that.

We can renovate the home more quickly and.

More cheaply.

And we're confident about that too. So I don't think it's really a question of maturity as much as it is.

A question of just.

Improving our craft.

That's helpful and this is Chris we're not providing guidance on real estate services gross margin. We intend believe the pricing change that Glenn talked about earlier will be a positive for gross margin during the year, if we get the kind about but that we expect from that pricing change.

It will have that effect and then Glenn further talked about some longer term things, we're doing that will drive agent productivity and so we do think that theres, a positive trend, but aren't providing specific guidance there.

Thank you we'll take our next question from Tom White with da Davidson.

Great. Thanks for taking my question Glenn Thanks for the.

Colour on the rationale for unifying the.

Sell side pricing could you maybe comment more sort of quantify maybe the uplift you saw in some of the test markets about when it comes to customers who use redfin for for both sides as opposed to just the sell side after introducing the pricing change and then Chris maybe just clarify on exactly how the occur.

Counting will work.

Will you guys sort of reserve for possible future rebates is that how little.

Work and how is that may be reflected in the first quarter.

Real estate segment revenue guidance.

Yes go ahead and take your second question first so we.

We do you account for the possibility that a customer will have a second transaction in the future. We made that that counting adjustment and reserve for that in the third and fourth quarters 2019, and that's reflected in our guidance for 2020 as well just for what it's worth customers often have those two transactions very close together and so it makes it right.

The easy to require that within our SEC, some customers who have a longer timeframe between those two deals and and that's how we handle up.

And Tom I would expect.

The pricing change to have.

A negative effect on transactions overall so.

We saw a listing decrease that was larger than the increase in homebuyer transactions.

Neither was major and we expect obviously both businesses to grow for other reasons because.

Of higher brokerage awareness and more traffic and all the rest, but if you're trying to pull apart, whether we're going to get enough buyers to offset some of the sellers who are put off by higher price.

My guess is that we won't but the magnitude of both those numbers was similar.

Thank you.

Thank you.

Our next question from John Campbell with Stephens.

Hey, guys congrats on a great quarter.

Hi, Dan Yes, absolutely on the on the brokerage transactions for agent that doesn't really really good number for you guys are for like this corners. Good work. There just just framing that up annually. It looks like you guys have been running kind of in the low to mid Thirtys Ranger show over last few years.

Looks like there's obviously room for that to maybe go higher but I don't know if you can talk to a long term goal. There. If you could maybe help us understand how many deals maybe the upper quadrant of agents are doing I'm, just trying to get a better sense for how much higher that can go.

We don't have any forward looking guidance on agent productivity.

What we discussed is what will drive agent productivity I don't think we're going to increase the number of customers assigned to an agent, but instead, we're going to qualify the customers better improve the quality of service so that.

For the number of customers in agent meets we close Moreover.

Okay that makes sense and then as soon as you guys already felt the 10-K, so Chris good work from a quick turnaround there, but I'm guessing my question is going to answering that following but if you guys had this on hand, what what is what are you in the year at as far as percent of buy side versus listing transaction.

We did include that in the K and around 44% on transactions were on the listing side for 2019, that's up from I think we said just over 40% in the prior year.

That's helpful. Thank you guys.

And big Thanks to that finance team for them.

Hi.

Thank you we'll take our next question from Sigala, Runion with Wedbush Securities.

Hey, guys. Thanks for taking the question I have two.

I want to take into the impact on on the listings and and on the on the buy side.

From the pricing changes and so.

Glenn you noted that.

There there is there is little bit of an impact, but even at 1.5% you're still well below most of most of your peers. So when people are put off by that increased from 1% to 1.5% where or are they going.

What they're going a different brokerages like what's the thought process from not paying 1.5% versus going somewhere else.

And paying more and then why why isn't it driving more loyalty on on the buy side that 50 basis points.

Loyalty rewards seems like it's pretty attractive. So we think that you would get a little bit more.

From the from from the buy side, there and then second question completely different.

Just on a on the competitive environment and remarks, just launched a new their new consumer facing website, an app caliber williams's either they just did or is about two and as they kind of move in the direction of.

Basically.

Creating an offering by at least on the on the website. That's similar to what you guys are doing similar to Zillow and building a portal just your thoughts on how that that can change the competitive environment.

The dynamics around that thanks.

Sure so.

I think on the first question, it's just easier to match the price at 1%. There were very few agents, who are willing to match that price and they're still very few agents, who are willing to match, 1.5% I just wouldn't think about it as a brokerage offering that price across all of its agents all of the time I think about one living room, where you have in.

What you've known for many years, who gets very close to either one or 1.5% and you decide to go with Ham instead of redfin.

That happened at 1%, it'll probably happen a little more often with 1.5%.

But we do feel that the product has reached a level of maturity where people see the yard signs. They know our sales history. They talk to customers who have been successful and we compete at a very strong from a very strong position. So.

We feel like we can charge this price the test show that we can charge this price.

But you can narrow kid yourself when you raised prices, it's going to affect demand and you have to respect to consumer about that and be very careful which is why we went through a nearly year long process to test that.

Yes, sure why it doesn't drive more sell to buy activity.

I think it will.

There are some sellers, who aren't buying you have a customer whose put their parents in a nursing home or someone who is leaving the country or something like that.

But it does take some time for that data to cure because.

At times people sell in one quarter and by the next so Chris commented on how.

Mostly that resolves itself fairly quickly and we can handle it in our accounting.

But I still think theres some upside in that attach rate and then us for re Max and Keller Williams and all of that up those are formidable competitors I think their service.

Is one that.

We try to beat every day.

It's just that on the Internet. There is now such an advantage to incumbency and I don't want to be complacent about that but I think it's really hard to get a high placement in the Google Index, even if you copy our site pixel for pixel, which several brokerages have now tried to do on so we just havent seen a history of those side.

It's gaining traction.

And we think that some of the things we've done with machine learning, especially around recommendations and estimates.

Our just generations ahead of what many other web sites.

Have online today.

Great Thats really helpful. Thank you.

Thanks. Thank you. Our next question comes from Mark Mahaney with RBC.

Okay, Great I want to ask three questions. Please big gross margins in redfin now that look like they're improving but we're still talking negative gross margins. So Chris you want to give us any sort of goal is to where you think those gross margins when they could turn positive and how positive it could actually turn second Glenn on this pricing change.

This is kind of a big step in it sounds very positive I just want to press you a little bit like you tested for almost a year. That's good the seven markets you any color on those seven markets. Just so we can gain some conviction that that's been amply tested in markets that are that are that are whenever representative of the entire country and I guess.

Explanation was that even though you have a small decrease in the transactions on the sell side you had a small increase on the buy side. So net net small increase in transactions, but the net take rate improved and Thats. Why this is going to be accretive I just want make sure I understand it and what those markets were and then maybe the lasting Glenn if I could ask you yours provide very useful color commentary.

Sorry on the market.

What is a good what is the what does a goldilocks market, what's the best market for redfin to be in like when you think about what causes your business to perform best just describe what that market. In addition, once the last time, we actually saw that thanks.

Good day for some of the asked I'll talk about properties gross margin. We've long said, we think this is a low single digit gross margin business. The team is making progress to that I think we are encouraged in the fourth quarter Matta in particular on we had an improvement of 200 state 40 basis points on home purchase cost unrelated cap.

Hi, guys improvements that means we're buying and renovating a home cluster, what we want to sell it for in a big improvement year over year.

That's the commentary I would give there we have not sat out a timeframe to get to that territory that certainly in the last several quarters are encouraging that way.

And I would just add that we prioritize margin over growth and still growing like Crazy. We've got people in the redfin now team coming into our office looking for a license deal where we can compete with other I buyers, who are really aggressive on offer prices and Chris.

And I have been really disciplined about saying the only question about this business isn't whether people want to but whether they want it at a profitable price, where we really priced in the cost of flipping the home.

End of the offer so.

I think growing as fast as we have when their spend that much margin gain is encouraging and we're absolutely committed to finding the size of the market at a profitable price because you can buy growth if you're willing to have an unprofitable price.

So as far as the listing price the markets, where unrepresentative I think we're very disciplined about that obviously conditions can change from one year to the next but in terms of the types of markets, we chose and the length of the experiment.

Another company might have taken a price increase six or nine months earlier than we did and we've just been in this business long enough to know that you need a broad set of markets and you need to left that change propagate through.

On a seller psyche over many months.

So I do feel confident that the signal we got.

I was a clear signal, some 2019 and pretty darn confident that it's going to hold in 2020.

I want to be clear that Didnt decrease transactions in an absolute sense. It's just when you compare the growth rate for markets and a lower price to the growth rate for markets, a higher price that growth rate for markets at the higher price was slightly slower.

And the net effect on transactions was slower growth because even though we saw more sell to buy activity. It did not completely offset.

Some of the headwind on listing transaction growth.

And as her goldilocks market, we just want more inventory.

What I tried to make this point fit I do think redfin has a fairly diversified approach more inventory just makes it easier to match buyers and sellers you can run a more profitable business I think most people when they look at the market.

Our focused on what will drive revenue growth, but I'd say, we're just is focused on what will drive margin because when an agent really struggles with.

Winning an offer we have to submit 567 offers we get one distech.

That affects your margins as much as your revenue growth or more and we're just very margin focused on but the reason I emphasize product diversity is that if I thought rates are going to be low for ever.

I think I would be one step more aggressive about redfin now I think the properties business is an artifact of a very low rate environment and while that environment is likely to continue for some time, we know that the cycle will turn both on interest rates and generally the sellers market and then I'd rather have a brokerage business that.

Less capital intensive less rate sensitive and so I think the way to be prepared for different markets is to have different products.

Okay. Thank you Glenn Thank you Chris.

Thank you well take our next question from topic Khan with Suntrust.

Yes, Thanks a lot.

Glenn you talked about partnership with opened or expanding to 11 markets can you maybe just talk about the strategy. There isn't that it just makes more sense economics tends to have to go to the partnership versus maybe having a refund now every single market or how are you thinking about that and then secondarily if I were to think about.

Core brokerage business for 2020 are there any any initiated than the ones that can contribute to margin gains this year.

On top of what do you already have.

Any new businesses no on real estate services, what can drive margin gave me up pricing and what we talked about.

Okay got it.

So first of all in the open door partnership.

Our two reactions. The first is that our website is still radically under monetized in my view at some point, we're probably going to offer consumers on redfin mortgage today, it's only available to people who use our brokerage.

We know that there are people, who have a cousin who's a real estate agent, who love Red and dotcom and so we just want to offer more products to those people and redfin now can't scale fast enough for us to offer instant offers in every market across the United States.

But the other disciplined to remember as just that we want to be picky about which properties redfin now buys and so that means that to serve customers who want an instant offer sometimes you have to have other players.

Who are willing to bid on those properties. There are different companies have different areas of expertise different appetites for risk. So they may be willing to buy at home and we don't have the expertise to buy at a profit.

And we learn this from running the brokerage and it's so hard to run a brokerage with fixed costs and fixed capacity when demand is so seasonal and cyclical and what has given us the ability to have traffic scale with the internet.

But still run very disciplined.

Margin positive brokerage is that when we get too busy we send demand to our partners and that's true in the brokerage it's true in the buying business.

As far as gross margin initiatives, we really tried to lay out.

The main areas of upside and listening price increase is going to be the first one.

And long term, we think that we're better positioned to improve homebuyer success rates than anyone else because we control the website and the service.

The website qualifies customers to service led to serve them better we can really figure out where the problem as and solve the whole problems because we own every aspect of solving the problems. So I still think that we're going to be more efficient than any other brokerage because we control.

Every part of the transaction in every part of the search.

Thank you. Thank you.

We'll take our next question from Jack Micenko with Susquehanna Financial Group.

Okay.

Hi, I hopped on a little late so.

These recovery apologist.

Glenn the first bullet on the press release talks about market share and I'm curious.

What the pricing change and some of the commentary about a little bit slower activity are you willing to.

Maybe you sacrifice a little bit of market share were slow that market share take down.

At the at the expense of margins that is at the right message.

You should see the agonize look on my phase right.

Well take market share.

But.

I do think that you have to charge the right price for every product the history of consumer companies is littered with businesses that bought share.

At the wrong price and at the wrong margin.

I don't think the tradeoff is going to be significant or we would have flagged. It as such we ran experiment for year across a large number of markets and what we found is that those markets still grew very fast and the markets are talking about are fairly sizable. So you saw share gains accelerate throughout the year.

Even as we were running this price increase across seven of our larger markets.

So.

I don't want to be naive about it and think we can charge whatever price, we won and still take share.

It's like squeezing blood out of an onion getting me to agree to any kind of price increase because I just love saving consumers money whole company does we think we've done this prudently we think we're still going to grow the business.

Very nicely.

Okay Fair enough and then.

As a follow up you know we guided you guided to.

A red properties number.

80, 85 came in at 99, who just trying to understand.

The Delta just did you do widen the buybacks.

They are less competition did you maybe sell more than you thought I think a year ago, you ended up selling more than you bought so the revenue number to me that just just trying to figure out.

What happened on the on that business that the topline came in.

A lot better news expected of three months ago.

The fed dropped rates.

Homebuyer demand shot through the roof, we sold all most of our inventory more quickly than we thought and I think.

We can look back on that and saying that we should have been more bullish buying homes in Q4 than we were but we'll take that every single time.

Yes, if you're betting on macroeconomic conditions, you really should be a repeat.

And instead, we're going to wait to see that demand before we buy homes.

Satisfied so right now redfin now, it's really scrambling to buys many homes as we can because we know it sound like Donkey Kong.

But I think in December we felt like we sold out most of our inventory and we really needed to replenish it.

So that's just what happened is everything we had or nearly everything we had we sold.

Yes.

That's helpful. Thank you.

Thank you we'll take our next question from Brent Phil with Jefferies.

Hi, This is John calling Tony on for Brian.

For the Redfin now business can you to contextualize how much of the improvement in gross margin was the result of operational improvements versus algorithm improvements versus an improvement in the broader housing market.

Also.

Did you alter your approach or strategy to buying and selling homes as home prices moderated earlier in this year to help reduce the impact of a softening market I'm. Just we're just curious whether you feel better equipped to make smart purchasing decisions if there's ever an unexpected downturn in the future. Thanks.

I think most of the margin gains have been around pricing, but not all of that is algorithmic. We talked about this programmatic change where the people who are empowered to bid on homes.

Aren't necessarily in the field.

Some of them are headquarters based and the reason we did that is because when you get in your car and you drive out to house you walk through it with the on R&D understand how desperately needs to sell it.

It's hard to put in an offer that is unlikely to be accepted you've invested your time near emotion in it and having someone who's more investment minded.

Make that decision I think has given us better discipline.

And I used to have the opposite thesis they used to feel that we needed to walk the I'm just to make a good pricing decision.

So.

The improvements in the redfin estimate in all the algorithmic work, we've done to provide better guidance to the people, making those bids is help but also just where those people said and how they're trained and our process for.

Deciding which properties to bid on and how much has also improved.

And then to your second question, we do change.

Our margin of error when the market gets really hot so some of that as seasonal it's hard to own homes.

San October because you know that the selling season has passed Dubai, and it's likely that youre going to have to own and until January.

And then some of that is more cyclical that if you are really nervous about a recession or something like that.

Your appetite for risk goes down so.

In General I would say, we have a lower appetite for risk than almost any other I buyer, you're going to see more volume from them and I hope that the benefit to us is margin, but even within that context I would say.

We are feeling.

More aggressive now than in the past just because demand is so strong in inventory is so low.

Okay, great. Thanks, so much.

Thank you we'll take our next question from Brad Erickson with Needham and company.

Thanks, just to follow up one you said to the unit growth sounds like we'll take a step down here starting out the year because of a price increase also I guess the inventory situation doesn't really help that agenda guess kind of which the bigger contributor is to to any unit growth deceleration we might see in 2020 between.

The price increase in on the inventory situation.

Kind of which one is bigger and then second just for Chris on the cash flow statement looks like you saw some working capital headwinds reverse in the quarter cash flow from ops was positive something like 25 million.

Can you unpack that number between kind of the core real estate business versus the properties business in the respective contributions. Thanks.

I'm worried that the assumption behind the first question.

Around decelerating transaction growth is too bearish I want to be careful here because.

I don't want to promise you in Rose Garden.

Our guidance is when it is and we've carefully considered it and I don't need to add much more color to it.

But we didn't come into the year worried about.

Transaction growth and a significant way because of the pricing just based on.

The experiments we ran.

Yes, there'll be probably a moderate headwind on listening transaction growth, but I, just don't want to make more of it than that.

And.

The inventory shortages pretty significant.

Right now.

Our buyers are really frustrated already and it's just early for them to feel that way.

On the on cash flow, probably the biggest change from the last quarter was that the inventory continued to drive down in our homes business, so that $5 back onto the balance sheet added inventory at the into cash.

Probably the biggest change you're seeing there.

Hi, Thanks.

And we'll take our next question from Ryan Mckeveny with Zelman and associates.

Hi, Thanks, so much and nice job on the quarter.

One question on the agent count side of things since the second quarter number that we've seen a sequential decline and I know you mentioned.

Some of the hiring patterns.

This year starting in January as opposed to November December.

So you can talk about the other side of things on the performance standards that you you mentioned last quarter.

Is that a function of this as well.

Any sense of how chemicals performance standards side of things is going.

And then and then likewise I know you won't give specific guidance on agent count into 2020.

So when thinking about where we are like the hiring patterns, let's say January.

Should we expect agent count to be up in one Q 20 versus Splunk Q4 key 19.

Oh, Yeah, we've been hiring agents left and right. This is the part of the year when we really bulk up so we host all these home tours in the first quarter and then we really start closing sales in the second corner, which makes.

Our business quite seasonal, especially in gross profit.

The performance standards have nothing to do with.

Each in head count in Q4 involuntary attrition has increased in the first quarter.

And we expect that to be more significant in the second quarter.

It's not a massive impact.

We said before that about 20% of our agents are being affected by those standards, but you shouldn't think that 20% of them are going to get fired our resign ahead of being fired.

Because most of them are really trying to figure out a way to improve their performance and they do so involuntary attrition will be up but it's only going to be a few points.

[music].

And we're still able to recruit quite effectively so.

When we have demand, we're going to able to serve those customers.

Got it that's that's very helpful. And then one other question.

Any update you can get on Canada.

Where things stand as far as.

On a rolling out the brokerage operations any any incremental partnership opportunities, we'll just kind of high level, where things stand and and and where that can kind of go in 2020.

Well, it's almost exactly the one year anniversary of launch in Canada.

I just don't thank you can expect those markets to be financially significant it takes time.

To build website traffic to build a brokerage.

We really love the team in both Toronto and Vancouver, They have been resourceful day of serve customers well, we are proud of what we've done there.

But we still are going to take some time to build the business.

Got it thanks, so much.

Thank you and we'll take our next question from Stephen Sheldon Both William Blair.

Thanks, everyone. This actually Josh on for Stephen.

Hi, I know, it's still the early days for the ancillary services, but.

Since you talked about the expansion and new markets and broader customer representation and I'll buy ins from the agent.

Im just wondering if you could give us a sense of sort of the.

Early on attach rates for some of those surfaces.

And then sort of anecdotally discussed maybe where that can go and our peer represent a quarter or if you're transactions are being 50% your transactions are more.

Thanks.

Sure So I think thats.

Probably the biggest story of 29 team those businesses were eating it a year ago attach rates were really low gross margins were terrible.

And we really had a crisis of faith about them a year ago and now they are the mouse that roared.

So mortgage has done very well hitting our attach rate goals competing effectively on price.

And then title has really broken into the black and a serious way, where we were running that business.

Barely making any money and now it's making significant money. So the attach rate on title is going to be higher than mortgage because the consumer is always going to shop price on mortgage.

We think that we're going to be effective on price because we don't have customer acquisition costs in mortgage.

But there's still going to be times, when wells Fargo or some other lender is willing tab.

Take lower margins than us or even by the business just because they have idle idle hands.

So.

Part of it it's going to be that.

We're going to get a high attach rate on the brokerage and part of it is at least with mortgage at some point I do think we're going to end up offering consumers.

A mortgage who don't user Redfin Asia.

Tom.

As we said the website is just under monetized in our people who use our website and never give us a penny because they end up working with a different agent, but they can still higher rent and mortgage because our prices are so good.

So I don't have forward looking guidance on exactly what we think attach rates can be for those two products or what the mix will be three years from now.

But the reason we.

We really spent so much money and research and development to build our on loan origination system is because we think those businesses can be significant.

Yes.

Thank you.

And ladies and gentlemen at this time I would like to turn the conference back to a lineup hall for closing remarks.

Thank you Brad and thanks, everyone for joining us today. We appreciate your interest in Red Bend and look forward to speaking with you again next quarter. Thanks, Hi, Thank you ladies and gentlemen. This concludes today's call. We thank you for your attendance and participation and you may now disconnect.

[music].

[music].

[music].

Thanks.

[music].

Good day and welcome to the Redfin Corporation Q4, 2019 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Atlanta prop. Please go ahead ma'am.

Thank you Brad good afternoon, and welcome to rent and financial results conference call for the fourth quarter and full year ended December 31st 2019.

Joining me on the call today, our Glenn Kalman, our CEO and Chris Nielsen Hi, CFO, you can find the press release on our web site at Investor Dot.

Before we start note that some of our statements on today's call. Our forward looking we believe our assumptions and expectations related to these forward looking statements are reasonable.

Actual results may turn out to be materially different.

Ladies or even consider their risk factors in our SEC filings together with the content of todays call.

Any forward looking statements are based on our assumptions today and we don't undertakes no update these statements in light of new information or future event.

During this call the financial metrics will be presented on a GAAP basis and includes stock based compensation as well as depreciation and amortization expenses.

In the event, we discuss any non-GAAP measures today, we'll post the most comparable GAAP measure and a reconciliation on our website.

All comparisons made in the course of this call our against the same period in the prior year unless otherwise stated with that let me turn the call over to black.

Thanks, Elena Hi, everyone.

Red fence fourth quarter, and net loss were better than we projected in our last earnings call revenue was up 88% from the fourth quarter of 2000 $18 million to $233 million and losses narrowed from $12.2 million in the fourth quarter last year to 7.8 million in the fourth quarter of 2019.

And our core business of brokering home sales through redfin agents and other firms agents working as our partners revenues increased 31% compared to the same quarter last year. This was the fourth straight quarter that year over year revenue growth for real estate services accelerated.

Our share gains also accelerated with the 13 basis point gain over the fourth quarter 2018.

This is an improvement over the 11 point share gains we saw in the third second quarters 2019, and the 10 point gains we saw in each of the two quarters before that.

Redsun now our business of buying and selling homes on our own account grew revenues from $22 million in the fourth quarter of 2018 to 99 million in the fourth quarter 2019.

Over that same time or other businesses, primarily lending and title services grew 67%.

Perhaps most important for the second quarter in a row gross margins improved year over year in all of our segments.

We expect gross margins to keep improving in 2020 because of efficiency gains in many of our businesses, but also because we've now standardize on one most the higher price for our listing customers.

In the past customers in markets with high home prices paid red and a 1% listing fee and other markets we charged 1.5%.

Starting last December.

Every market listening customers, who choose to buy a home with us pay a 1% listing fee, but otherwise pay 1.5% of the home price.

This is a fee increase for about half of our listening customers fee decrease for about 20% and no change to the rest.

The reason the new listing fee won't be a change for 30% of our customers is because starting in April 2019, we'd already tested it in seven markets that had previously charged to 1% fee.

The test thesis was that even at the higher 1.5% fee no other broker cut off for the full set of Redsun services and then our listing share would keep growing.

This thesis was largely borne out.

In the test markets, we kept growing but more slowly listening demand in the test markets grew several points slower than in comparable market, there's still offered a 1% fee.

The impact on share growth would have been higher but the test markets are growing traffic several points faster.

Since the seven test markets already increased listing fees last year and other markets are actually decreasing listing fees this year.

Companywide listing transaction growth in 2020 is likely to be stronger than what we saw in the test markets thats still slower than in years past.

Even if transaction growth slowed significantly we expect that to be more than offset by the higher fee.

Most encouraging findings from last year's pilot markets was that more sellers chose to use redfin for the purchase of their next tone.

The customers these customers, who both sell and by still pay 1% and Redsun makes more money by brokering to sales instead of one.

Our ads will keep promoting the 1% fee, while making it clear this depends on using redsun for a purchase and sale.

Weve been careful about increasing prices as Redskins mission to put customer first starts with low fee.

For years, we kept listing fees in major markets at 1% because home sellers are more careful than buyers about trying a new broker.

But our data shows that our listing service can now compete effectively at a 1.5% feet, especially when many competitors church, 2.5% or 3%.

Because many of our listing customers hired redsun before the price increase only about 60% of the listings that closed in the first quarter, we'll be at the new price, we expect about 80% of our listing sales in the second quarter to be at the new price.

The long term source of brokerage gross margin gains wont be further price increases as higher agent productivity.

In the fourth quarter transactions per agent increased 24% year over year.

With some of the gain due to a stronger housing market and 29 team in some due to an increase in the average number of customers served by redfin buyers agent.

Fourth quarter agent productivity also benefited from the timing of agent hiring for 2020.

Coming into the 2019 home buying season, we hired agents in November and December 2018.

Whereas we largely weighted higher agents for 2020 until this January.

For 2020, we expect any gains in productivity for our buyers agents to come from increasing homebuyers success rate.

Success rate as a measure of how many of the homebuyers, we meet by a home through Redsun.

It is decline for five straight years.

Some of this decline points to our service needs to improve some is because it has gotten harder for many Americans to four to afford a home.

But some of the decline is because we've made it easy for people to Torah home, regardless of how serious they are about buying it.

As Redsun Dot com has attracted more casual visitors to our mobile website and as we've converted more of those visitors into customers through push button request for home tour, the likelihood that a red Centurion customer will end up buying a home whether from redfin or any other brokerage has declined since 2016 by 9%.

And our last call we discuss to 17 market experiment that in November started to qualify the customers to sign up for a home tour.

Weve been careful about customer qualification and because the ability to see listings. Whenever you want has made redfin a symbol of freedom in real estate.

But this experiment seems to have deterred only the most casual of look you lose from touring with redfin, while flattering more serious homebuyers with our interest in their plans.

The projected impact has been a modest and possibly significant increase in the likelihood that the people who sign up for Red been home tour end up buying a home with minimal harm to our growth.

We've also begun to use our call centers staffed by locally licensed agents to qualify by phone some people who register for a tour.

We only call the people who through their online behavior seem less likely to have understood what they signed up for.

One group seems to appreciate a call explaining our service another never answers the phone and likely would have been a no show for the tour.

Their tourists council.

Early results from this experiment suggests that in person qualification can also increased customers likelihood to buy home.

These experiments will take until made a rollout companywide by the second quarter. We expect to have made our first broad significant improvement to the quality of the homebuying customers our agents me.

When these customers start to close on sales of the second half of the year, we expect our success rates to improve.

We also hope to see first half improvements and homebuyer success rates, but these will be the result of changes to our field organization that we started planning last summer.

We used our annual kickoff event on January tend to integrate a new culture of sales performance.

We still emphasize that a redfin agent should always put the customers' interest ahead of a sale.

So we've made it clear to our agents that earning our customers business in finding a way for the customer to win still require energetic salesmanship.

Our field organizations response, so far has been an enthusiastic roar, giving us reason to believe we can execute better than ever in 2020.

Even as we find our field organization for a wave of new customers coming into 2020.

We've also been improving the platform for generating that demand.

Comparing the fourth quarter 2019 to the same period last year. The average monthly visitors to our website and mobile application grew 21% similar to our growth rate of 22% in the third quarter and significantly higher than north America's other major real estate web sites.

To bolster redsun dotcom as an authoritative source of real estate information, we upgraded the Redsun estimate our machine learning powered estimate of homes value.

The new median error rate for off market properties is less than 6% compared to a previous rate of 6.3%.

We got these accuracy improvements what broadening the types of properties for which we calculated an estimate to include undeveloped land and multifamily properties.

During largely the same properties is other major sites lets us more readily compare the accuracy of home value estimates. The redfin estimate has the lowest published error rate of any major site.

And actually at home value estimate is a foundational competitive advantage for drawing potential customers through our site, but also for deciding how much Reds and now should pay for a property or what the list price should be for home being sold by our brokerage.

We also recognized as the sites only one medium for building awareness of Redskins brokerage on Monday last week, we launched our 2020 mass media campaign with the television AD that shows Redbend dot com dry homebuyers to a listing as if by a magnet pulling office workers across conference from tables and dog walkers through parks.

Add highlights our strength that turning online interest in home into an in person tour.

Redfin homebuyers get immediate property access and our listing customers get more buyers viewing their home, which is one reason, we sell homes faster and for more money than our competition.

Many years of advertising have taught us to be visual and literal about what we can do that other brokers can't we tested this year's add against its predecessors from 2018, and 29 team and by a wide margin viewers rated it is more exciting and more persuasive about hiring a redfin Asia.

As in 2019, we produced the AD without an agency.

Lets us use our own data different driven process for testing concepts at an early stage and leaves us with more money for shooting and placing the AD.

Beyond the AD itself, we expect to get more efficient at buying on placements each year.

Most expensive media buying experiments on how often to run our TV ads and how broadly ended in 2019.

This lets us focused almost exclusively in 2020 on getting the most bang for our Buck from 2019 to 2020, we expect to spend about the same amount of money on mass media adds even as awareness of Redsun gross.

Consumers know the names of many brokers, but our opportunity is to build the first iconic real estate brand known by what we stand for to put consumer first in our pricing and our service in our truth, telling in innovative products.

Well will ultimately make our adds more effective than our competitors is not just the EPS creativity or the cleverness of our AD placements, but the products where advertising.

Red said is investing massively in bringing groundbreaking new services to market, giving consumers choices and capabilities no other real estate company has.

The new product, we're investing in most is redsun now.

Now lets kept growing fast, but our focus is on margins, which improved from negative 4.3% in the fourth quarter 2018 to negative 1.3% last quarter.

We already discussed on our last call. The October launch of Redfin now in a 13th market Las Vegas.

We don't expect at many more until at least the second half of 2020, we'll use that time to get better at pricing renovating and selling homes a process that already started in October when we shifted the authority to make an offer from the field to a central set of portfolio managers. This will let us be more programmatic about our investment decisions.

Our increasing price discipline has led to a decline and offer win rate through the third and fourth quarters of 2019.

Homeowners don't always tell us about competing offers so we don't know how often we get outbid by another institutional buyer.

But among the people who contact us about a redfin now offer more end up selling to redsun now into a competitor.

Sometimes this is because we beat out another buyer, sometimes it's because another institutional buyer hasn't been.

What makes redfin now year over year fourth quarter revenue growth of 359% remarkable is that we improved margins even as our competitors began what could be a destructive price war.

The purchase activity of all institutional buyers slowed in the second half, but for the full year. The other major by buyers seem to have made more aggressive offers likely narrowing their average gain on a sale.

Retsinas comfortable seeding growth competitors, if we can't when the home at a price that can be profitable for us as we've emphasized before our disciplined costargo belief that different economic conditions will favor different ways for consumers to sell their home.

Making redfin now a more appealing choice one quarter in a brokered sale better the next.

In today's low rate environment Redsun now charges homeowners are relatively low price for immediate liquidity.

Rates are one reason institutional buying is growing quickly overall.

In hot markets sellers choose our concierge service for fixing up homes confident that a move and ready listing can command top dollar.

Meanwhile, brokered sales work for a wider range of situations when customers just want to sell their home for low fee.

This is why a portfolio of listing services is so important when listening customers projected redfin now offer we try to lift their home through our brokerage when redfin listing is selling we sometimes offer concierge upgrade to increase the properties curb appeal at some point in the future when we us when we see a home the redfin now doesn't know how to buy at a price.

But we may let partners like opened or take a crack.

Hi, ready opened doors, helping us satisfy instant offer demand in markets that Redsun now hasn't yet reached in December we expanded our opened or partnership from two markets to 11.

This approach lets us capitalize on homeowners curiosity about an instant offer without tying up hall, our money in houses.

The other new business, it's expanding rapidly is redfin direct offers an online tool for unrepresented buyers to prepare and submit offers on rents and listings.

In the fourth quarter, we expanded direct beyond Virginian, Massachusetts to Texas and California.

Prior to the expansion, 6% of Redfin listings supported direct offers but now nearly 30% do.

We still have plenty to do to broaden direct offers appeal that already our listing customers and direct markets are glad that where their ally and recruiting consumers to buy their home directly at a much lower fee.

Our new business investments aren't just focused on our listing customer. We're also investing in a more complete solution for our homebuyers redfin mortgage CAFTA year, a strong revenue growth and margin gains by expanding in the fourth quarter to Massachusetts, Michigan and Wisconsin.

Nearly 60% of our brokerage customers are now in markets served by Redsun mortgage at the start of 2019, Redsun mortgage was available of 45% of our home buying customers.

Redfin agents at this time last year were mostly wary of recommending redfin mortgage instead of longtime lending partners, but 2019 with the year that redfin mortgage largely one our agents trust. We now know that a sale is 20% more likely to close on time, if our homebuying customers.

Their money from redfin mortgage and close the transaction with our title company titled forward.

Upgrades to our own lender software keep reducing the cost of originating alone and in the fourth quarter. We also improved our process for selling loans, both are direct sales to Fannie Mae and in other ways.

This increase revenue per loan by hundreds of dollars.

Entering 2020 red bed as mature right from a one truck brokerage into a company with the broadest product portfolio in our industry.

We're still tinkering with redfin direct and our concierge service to make sure. Each is the right service being sold at the right price to the right customers.

But other products like redfin now redfin mortgage and our title service are already taking off with strong revenue growth and margin gains.

These businesses are still in their early days, which is why at least through the first half of 2020, we expect our technology development costs to grow faster than revenue, excluding rents and now.

But as we complete the foundation for what can be a much larger company. Our long term commitment is to limit technology spending to grow more slowly than revenue just as we've already limited spending on marketing and general administration.

Before turning the call over to Chris let's discuss the market.

The number of homes for sale at the end of 2019 in the US was the lowest at at least two decades, 9% below January 2018 levels.

In Seattle at the end of 29 team there was enough demand by every home on the market in three and a half weeks.

52, other major metropolitan area said less than two months of supply when a typical healthy market has six.

Price pressure that used to be limited to a few cities like San Francisco or Portland is now widespread leading Americans in search of affordability with fewer places to go than earlier in the housing recovery.

This is why redfin its braced for the most intense season of bidding wars sits at least the first half of 2018.

Across the industry homebuyer demand is very strong so the limit on sales growth will be inventory.

And our own business over the last four weeks the number of bidding customers of customers bidding on homes. This far exceeded those who have one.

Resonates and just told us about a bidding war with 30 other buyers in a far flung area outside of Portland, Oregon. This month.

The property being fought over was a mobile home.

This situation can last longer than most realize as the law supply and demand fourq slowly in real estate agents struggled to put deals together in a rapidly escalating market with buyers looking at sales from earlier months in sellers thinking about how much higher prices could go in the months to calm.

Appraisers initially refused to support higher offers leaving buyers who want a bidding war unable to get alone for the promise them out.

Even though in rising prices entice more sellers to list their home.

Some first take months to fix up their properties others can no longer get the credit owned two homes at once and get stuff and a frenzied market. They refused to sell their current home before finding a new one to buy the capped by the new one without cashing out the old one.

The restrictions we put on consumer credit. After 2008 are now 12 years later limiting housing liquidity.

For all these reserves, we think that the sellers market will last at least through the first half of 2020.

Redfin now as buying homes aggressively.

Or sellers agents are pushing hard to get more money for our listen customers and our buyers agents are making offers left and right thats still feel wary about how many will actually stick you got to be a wild ride take it away Chris.

Thanks, Glenn we finished 2019 on a high note delivering another quarter of strong topline growth and improving year over year gross margins in each of our reported segments.

Fourth quarter revenue was $233 million up 88% from a year ago.

Real estate services revenue, which includes our brokerage and partner businesses grew 31% year over year.

Brokerage revenue revenue from home sales close by our own agency was up 32% on a 34% growth in brokerage transactions.

Brokerage revenue per transaction was down 2% year over year, reflecting continued mix shift towards our listing business.

Revenue from our partners was up 14% on an 8% increase in partner transactions.

Revenue per partner transaction was up 6% year over year.

The property segment, which consists of homes sold through our Red set now program generated $99 million in revenue up from $22 million one year ago.

Our other segment, which includes mortgage title and other services contributed revenue of $4 million, an increase of 67% year over year.

Total gross profit was $40 million up 51% year over year.

Real estate services gross margin was 32.1% up 430 basis points year over year, primarily driven by 340 basis point decrease in personnel costs.

Properties gross margin was minus 1.3% up 300 basis points from a year ago, primarily driven by a 240 basis point decrease in home purchase costs and related capitalized improvements and a 30 basis point decrease in personnel costs, each as a percentage of revenue.

Other segment had a negative gross margin of 24.9% and improvement of 310 basis points from a year ago as our mortgage and title businesses continue to scale.

Total operating expenses increased 20% year over year and represented 20% of revenue down from 31% of revenue one year ago.

Technology and development expenses increased 41% driven by an increase in personnel costs.

We expect technology and development expense growth in the first half of 2020 to remain largely consistent with the fourth quarter as we continue to invest in newer businesses, such as mortgage title and Redsun now.

General and administrative expenses grew 12% year over year and marketing expenses increased less than 1% as we did not writing any brand advertising campaigns and saw gains in performance marketing efficiency, leading more customers to try our services with less spending for online ads.

Glenn mentioned earlier that we'll spend about the same amount on mass media in 2020 is in 2019.

In 2020 will be slightly less weighted to the first quarter, though.

Our net loss, including stock based compensation and depreciation was $7.8 million compared to a net loss of $12.2 million in the fourth quarter of 2018.

Diluted loss per share was eight cents compared with a loss of 14 cents per share one year ago.

Before moving to our first quarter outlook I'd like to briefly summarize up our full year 2019 performance.

Our customers booked over $30 billion and real estate transactions.

Compared to 5% Commission, we saved our brokerage customers over $180 million.

We delivered full year revenue at nearly $780 million up 60% year over year.

Gross profit of $144 million up 21% from 2018.

Our total operating expenses grew 37% with a 210% increase in offline marketing expenses.

And net loss for the year increase from nearly $42 million in 2018 to over $80 million in 2019.

Now turning to our financial expectations for the first quarter of 2020.

Revenue is expected to between between $179 million and $188 million representing year over year growth between 63% and 71%.

We expect our property segment to account for $69 million to $74 million, but that revenue.

Net loss is expected to be between $72 million and $68 million compared with the $67 million net loss in the first quarter of 2019.

Our guidance includes approximately $9.1 million of stock based compensation at $3.2 million of depreciation and amortization.

It assumes among other things that no additional business acquisitions investments restructurings or legal settlements are concluded that there are no further revisions to stock based compensation estimates.

And now we'll open up for your questions.

Thank you at this time, we will open the floor for questions. If you would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

And again to ask a question. Please press star one.

We'll take our first question from Jason Jason Helfstein with Oppenheimer.

Thanks, I guess I'll ask to one on I'm ready to now.

And then just.

Model question on real estate gross margin.

Given given what is there any way you can talk about cohorts. So obviously, you've been adding markets and that that weighs on the profitability of red for now yet you on reported basis, you have been showing improvement.

Are you profitable.

On a unit economic basis in some of the early markets I'm. We're just any other commentary you can give us on how you're thinking about that longer term and then on gross profit any reason why real estate gross margin should not improve at a similar rate to what we saw this quarter through the third quarter of this year.

Actually given your comments about the market for the first half of the year. Thank you.

Hi, Jason I'll comment on Redfin, now and Chris will comment on gross margin.

We do not have cohorts that were publicly discussing for redfin now.

I don't think it's just a matter of time, we have to get better at pricing properties and Thats exactly what we've done over the past two years that gives us confidence that we can continue to do so you make money on almost every property you buy but when you Miss it really cost you.

So the Miss is just have to get fewer and farther between.

I think there's also just some question of how we can get our renovation costs down so that.

We can renovate the home more quickly and.

More cheaply.

And we're confident about that too so I don't think Thats really a question of maturity as much as it is.

A question of just.

Improving our craft.

That's helpful and this is Chris we're not providing guidance on real estate services gross margin. We can't believe the pricing change that Glenn talked about earlier will be a positive progress margin during the year, if we get the kind about but that we expect from that pricing change.

It will have that effect and then Glenn for other talked about some longer term things, we're doing that will drive agent productivity on so we do think that theres, a positive trend, but aren't providing specific guidance there.

Thank you we'll take our next question from Tom White with da Davidson.

Great. Thanks for taking my question Glenn Thanks for the.

Colour on the rationale for unifying the.

Sell side pricing could you maybe comment more sort of quantify maybe the uplift you saw in some of the test markets about when it comes to customers who use redfin for for both sides as opposed to just the sell side after introducing the pricing change and then Chris maybe just clarify on exactly how they occur.

Accounting will work.

Will you guys sort of reserve for possible future rebates is that how little.

Work and how is that may be reflected in the first quarter.

Real estate segment revenue guidance.

Yeah go ahead and take your second question first so we.

We do you account for the possibility that a customer will have a second transaction in the future. We made that accounting adjustment and reserve for that in the third and fourth quarters 2019, and that's reflected in our guidance for 2020 as well just for what it's worth customers often have those two transactions very close together and so it makes a real.

The easy to record that within our SEC, some customers who have a longer timeframe between those two deals and and that's how we handle it.

And Tom I would expect.

The pricing change to have.

A negative effect on transactions overall so.

We saw a listing decrease that was larger than the increase in homebuyer transactions.

Neither was major and we expect obviously both businesses to grow for other reasons because.

Of higher brokerage awareness and more traffic and all the rest, but if you're trying to pull apart, whether we're going to get enough buyers to offset some of the sellers who were put off by higher price.

My guess is that we won't but the magnitude of both those numbers was similar.

Thank you.

Thank you we'll take our next question from John Campbell with Stephens.

Hey, guys congrats on a great quarter.

Hi, Dan Yes, absolutely on the on the brokers transactions for agent that that was a really really good number for you guys are for like this quarter. So good work there just just framing that up annually. It looks like you guys have been running kind of in the low to mid Thirtys Ranger show over last years. It looks like there's obviously room for that to maybe go higher but I don't know if you can talk to a long term.

Goal there if you could maybe help us understand how many deals maybe the upper quadrant of agents are doing I'm, just trying to get a better sense for how much higher that can go.

We don't have any forward looking guidance on agent productivity.

What we discussed is what will drive agent productivity.

I don't think we're going to increase the number of customers assigned to an agent, but instead, we're going to qualify the customers better improved the quality of service so that.

The number of customers in agent meets we closed Moreover.

Okay that makes sense and then I actually did you guys already filed the 10-K, so Chris good work from a quick turnaround there, but I'm guessing my question is going to answering that following but if you guys had this on hand, what is what did you end the year at as far as percent of buy side versus listing transactions.

We did and say that in the K and around 44% of transactions, where I know listing side for 2019, that's up from I think we said just over 40% in the prior year.

Okay. That's helpful. Thank you guys.

And big banks to that finance team for them.

Hi.

Thank you we'll take our next question from Sigala, Runion with Wedbush Securities.

Hey, guys. Thanks for taking the question I have two.

I wanted to dig into the impact on on the listings and and on the on the buy side from from the pricing changes and so.

Glenn you noted that.

There there is there is little bit of an impact, but even that 1.5% you're still well below most of most of your peers. So when people are are put off by.

That increased from 1% to 1.5% where where are they going.

We hope what they're going a different brokerages like what's the thought process from not paying 1.5% versus going somewhere else and and paying more and then why why isn't it driving more loyalty on on the buy side that 50 basis points.

Loyalty reward seems like it's pretty attractive. So I would think that you would get a little bit more.

From the from from the buy side, there and then second question completely different.

Just on the competitive environment and remarks, just launched a new their new kind of consumer facing website, an app Keller williams's either they just did or is about two and has that kind of moving in the direction of basically.

Creating an offering by at least on the on the website. That's similar to what you guys are doing similar to Zillow and building a portal just your thoughts on how that that can change the competitive environment.

The dynamics around that thanks.

Sure so.

I think on the first question, it's just easier to match the price at 1%. There were very few agents, who are willing to match that price and there is still very few agents, who are willing to match, 1.5% I just wouldn't think about it as a brokerage offering that price across all of its agents all of the time I think about one living room, where you have.

In Asia, you've known for many years, who gets very close to either one or 1.5% and you decide to go with him instead of redfin.

That happened at 1%, it'll probably happened a little more often with 1.5%.

But we do feel that the product has reached a level of maturity where people see the yard science. They know our sales history. They talk to customers who have been successful and we compete at a very strong from a very strong position. So.

We feel like we can charge this price the test show that we can charge this price.

But you can narrow kid yourself when you raise prices, it's going to affect demand and you have to respect consumer about that and be very careful which is why we went through a nearly year long process. So tessa.

Yes, sure why it doesn't drive more sell the by activity.

I think it will.

There are some sellers, who aren't buying you have a customer whose put their parents in the nursing home or someone who is leaving the country or something like that.

But it does take some time for that data to cure because.

At times people sell in one quarter and by the next so Chris commented on how.

Mostly that resolves itself fairly quickly and we can handle it in our accounting.

But I still think theres, some upside in that attach rate and that us for re Maxim Keller Williams and all of that up those are formidable competitors I think theres service.

Is one that.

We try to beat every day.

It's just that on the Internet. There is now such an advantage to incumbency and I don't want to be complacent about that but I think it's really hard to get a high placement in the Google Index, even if you copy our site pixel for pixel, which several brokerage as of now tried to do so we just havent seen a history of those site.

It's gaining traction.

We think that some of the things we've done with machine learning, especially around recommendations and estimates.

Our just generations ahead of what many other web sites.

I have online today.

Great that's really helpful. Thank you.

Thanks. Thank you. Our next question comes from Mark Mahaney with RBC.

Okay, Great I want to ask three questions. Please big gross margins in redfin now that looks like they're improving but we're still talking negative gross margins. So Chris you want to give us any sort of goal is to where you think those gross margins when they could turn positive and how possibly could actually turn.

Second blend on this pricing change this is kind of a big step in it sounds very positive I just want to press you a little bit like you tested for almost a year. That's good the seven markets any color on those seven markets. Just so we can gain some convictions that that's been amply tested in markets that are that are that are whenever representative of the.

Entire country and I guess your explanation was that even though you have a small decrease in the transactions on the sell side you had a small increase on the buy side. So net net small increase in transactions, but the net take rate improved and that's why this is going to be accretive I just want make sure I understand that and what those markets were and then maybe the lasting Glenn if I could ask you yours.

Provide very useful color commentary on the market what is a good what is the what does the goldilocks market, what's the best market for redfin to be in like when you think about what causes your business to perform best just describe what that market. In addition, once last time, we actually saw that thanks.

Hi, guys, who for some risk, yes, I'll talk about properties gross margin. We've long said, we think this is a low single digit gross margin business. The team is making progress to that I think we were encouraged in the fourth quarter by the in particular, and we had an improvement of 200 fade 40 basis points on home purchase cost and related capital.

As improvements that means we're buying and renovating the home cluster, what we want to sell it for a big improvement year over year. So that's the commentary I would give there we have not sat out a timeframe to get to that territory at that certainly in the last several quarters are encouraging that way.

And I would just add that we prioritize margin over growth and still growing like Crazy. We've got people in the redfin now team coming into our office looking for a license deal where we can compete with other I buyers, who are really aggressive on offer prices and Chris.

And I have been really disciplined about saying.

The only question about this business isn't whether people want it whether they want it out a profitable price, where we really priced in the cost of flipping the home.

Into the offer so.

I think growing as fast as we have when there has been not much margin gain is encouraging and we're absolutely committed to finding the size of the market at a profitable price because you can buy growth if you're willing to have an unprofitable price.

So as far as the listing price the markets, where representative I think we're very disciplined about that obviously conditions can change from one year to the next but in terms of the types of markets, we chose and the length of the experiment.

Another company might have taken a price increase six or nine months earlier than we did and we've just been in this business long enough to know that you need a broad set of markets and you need to left that change propagate through.

The seller psyche over many months.

So I do feel confident that the signal we got.

I was a clear signal from 2019 and pretty darn confident that it's going to hold in 2020.

I want to be clear that Didnt decrease transactions in an absolute sense. It's just when you compare the growth rate for markets at a lower price to the growth rate for markets, a higher price that growth rate for markets at the higher price was slightly slower.

And the net effect on transactions was slower growth because even though we saw more sell to buy activity. It did not completely offset.

Some of the headwind on listing transaction growth.

Now lets her goldilocks market, we just want more inventory.

What I tried to make this point fit I do think redfin has a fairly diversified approach more inventory just makes it easier to match buyers and sellers you can run a more profitable business I think most people when they look at the market.

Our focused on what will drive revenue growth, but I'd say, we're just is focused on what will drive margin because when an agent really struggles with.

Winning an offer we have to submit 567 offers to get one distech.

And that affects your margins as much as your revenue growth or more we're just very margin focused.

But the reason I emphasize product diversity is that if I thought rates are going to be low for out her.

I think I would be one step more aggressive about rents and now I think the properties business is an artifact of a very low rate environment and while that environment is likely to continue for some time, we know that the cycle will turn both on interest rates and generally the sellers market and then I'd rather have a brokerage business. This.

Less capital intensive less rate sensitive and so I think the way to be prepared for different markets is to have different products.

Okay. Thank you Glenn Thank you Chris.

Thank you well take our next question from novel Khan with Suntrust.

Yes, Thanks a lot.

Glenn you talked about partnership with opened or expanding to 11 markets getting maybe just talk about the strategy. There isn't that it just makes more sense economic sense to have to go to the partnership versus maybe having right now in every single market or how are you thinking about that and then secondarily if I were to think about.

Core brokerage business for 2020 are there any any initiated the ones that can contribute to margin gains this year.

On top of what are you already have.

Any new businesses.

No on real estate services, what can drive margin gave me up pricing and what we talked about.

Okay got it.

So first of all the open door partnership.

Our two reactions. The first is that our website is still radically under monetized in my view at some point, we're probably going to offer consumers on resin mortgage today, it's only available to people who use our brokerage.

We know that there are people, who have a cousin who's a real estate agent, who love Red and Dot com and so we just want to offer more products to those people and redfin now can't scale fast enough for us to offer Ensign offers in every market across the United States.

But the other disciplined to remember, it's just that we want to be picky about which properties redfin now buys and so that means that to serve customers who want an instant offer sometimes you have to have other players.

Who are willing to bid on those properties. There are different companies have different areas of expertise different appetite for risk. So they may be willing to buy at home and we don't have the expertise to buy at a profit.

And we learn this from running the brokerage and it's so hard to run a brokerage with fixed cost and fixed capacity when demand is so seasonal and cyclical and what has given us the ability to have traffic scale with the internet.

Lets still run very disciplined.

Margin positive brokerage is that when we get too busy we send demand to our partners and that's true in the brokerage it's true in the buying business.

As far as gross margin initiatives, we really tried to lay out.

The main areas of upside and listening price increase is going to be the first one and long term, we think that we're better positioned to improve homebuyer success rates than anyone else because we control the website and the service.

Website qualifies customers the service led to serve them better we can really figure out where the problem as and solve the whole problems because we own every aspect of solving the problems. So I still think that we're going to be more efficient than any other brokerage because we control.

Every part of the transaction in every part of the search.

Thank you. Thank you.

Well take our next question from Jack Micenko with Susquehanna Financial Group.

Hi, I hopped on a little late so.

These recovery apologist.

Glenn the first bullet on the press release talks about market share and I'm curious.

What the pricing change and some of the commentary about a little bit slower activity are you willing to.

Maybe sacrifice a little bit a market share were slow that market share take down.

At the at the expense of margins at this at the right message.

You should see the agonize look up my face right.

Taking market share.

But.

I do think that you have to charge the right price for every product the history of consumer companies is littered with businesses that bought share.

At the wrong price and at the wrong margin.

I don't think the tradeoff is going to be significant or we would have flagged as such we rata experiment for year across a large number of markets than what we found is that those markets still grew very fast and the markets are talking about are fairly sizable. So you saw share gains accelerate throughout the year.

Even as we were running this price increase across seven of our larger markets.

So.

I don't want to be naive about it and think we can charge whatever price, we won and still take share.

It's like squeezing blood out of an onion getting me to agree to any kind of price increase because I'd just love saving consumers money. The whole company does we think we've done this prudently we think we're still going to grow the business.

Very nicely.

Okay Fair enough and then.

As a follow up you know we guided you guided to.

A red properties number of 80 85. It came in at 99, who just trying to understand.

The Delta as you did you do widen the by box is they are less competition did you maybe sell more than you thought I think a year ago. You ended up selling more than you bought so the revenue number to me that just just trying to figure out.

What happened in other on that business that the topline came in.

A lot better news expected three months ago.

The fed dropped rates.

Homebuyer demand shop through the roof, we sold all most of our inventory more quickly than we thought and I think.

We can look back on that and saying that we should have been more bullish buying homes in Q4 than we were.

We'll take that every single time.

If you're betting on macroeconomic conditions, you really should be right.

And instead, we're going to wait to see that demand before we buy homes.

Satisfied so right now redfin now, it's really scrambling to buys many homes as we can because we know it sound like Donkey Kong.

But I think in December we felt like we sold out most of our inventory and we really needed to replenish it.

So that's just what happened is everything we had or nearly everything we had we sold.

That's helpful. Thank you.

Thank you well take our next question from Brent Phil with Jefferies.

Hi, This is John calling Tony on for Brian.

For the Redfin now business can you contextualize how much of the improvement in gross margin was the result of operational improvements versus algorithm improvements versus an improvement in the broader housing market.

Also.

Did you alter your approach or strategy to buying and selling homes as home prices moderated earlier in this year to help reduce the impact of a softening market Im just we're just curious whether you feel better equipped to make smart purchasing decisions if there's ever an unexpected downturn in the future. Thanks.

I think most of the margin gains have been around pricing, but not all of that as algorithmic. We talked about this programmatic change where the people who are empowered to bid on homes.

Aren't necessarily in the field.

Some of them are headquarters based and the reason we did that is because when you get in your car and you drive out the house you walk through it with the on R&D understand how desperately needs to sell it.

It's hard to put in an offer that is unlikely to be accepted you've invested your time and your emotion on it and having someone who's more investment minded.

Make that decision I think has given us better discipline.

And I used to have the opposite thesis I used to feel that we needed to walk the home just to make a good pricing decision.

So.

The improvements in the redfin estimate in all the algorithmic work, we've done to provide better guidance to the people, making those bids as help but also just where those people said and how they're trained and our process for.

Deciding which properties to bid on and how much has also improved.

And then to your second question, we do change.

Our margin of error when the market gets really hot so some of that as seasonal it's hard to own homes.

Say in October because you know that the selling season has passed Dubai, and it's likely that youre going to have to own at until January.

And then some of that as more cyclical that if you are really nervous about a recession or something like that.

Your appetite for risk goes down so.

In General I would say, we have a lower appetite for risk than almost any other I buyer, you're going to see more volume from them and I hope that the benefit to us is margin, but even within that context I would say.

We are feeling.

More aggressive now than in the past just because demand is so strong in inventory is so low.

Great. Good thanks, so much.

Thank you we'll take our next question from Brad Erickson with Needham and company.

Thanks, just two to follow up one you said to the unit growth sounds like we'll take a step down to your starting out the year because of the price increase also I guess the inventory situation doesn't really help that if you had to guess kind of which the bigger contributor is to any unit growth deceleration we might see in 2020 between.

But the price increase in than the inventory situation.

Kind of which one is bigger and then second just for Chris on the cash flow statement looks like you saw some working capital headwinds reverse in the quarter cash flow from ops as positive something like $25 million.

Can you unpack that number between kind of the core real estate business versus the properties business in the respective contributions. Thanks.

I'm worried that the assumption behind the first question.

Around decelerating transaction growth is too bearish I want to be careful here because.

I don't want to promise you and rose garden.

Our guidance is what it is and we've carefully considered it and I don't need to add much more color to it.

But we didn't come ended the year worried about.

Transaction growth and a significant way because of the pricing just based on.

The experiments we ran.

Yes, there'll be probably a moderate headwind on listing transaction growth, but I, just don't want to make more of it than that.

And.

The inventory shortages pretty significant.

Right now.

Our buyers are really frustrated already and it's just early for them to feel that way.

And the on cash flow, probably the biggest change from the last quarter was that the inventory continued to drive down in our homes business, so that $5 back onto the balance sheet out of inventory at into cash.

That's probably the biggest change you're seeing there.

Hi, Thanks.

And we'll take our next question from Ryan Mckeveny with Zelman and associates.

Hi, Thanks, so much and nice job on the quarter.

One question on the agent count side of things since the second quarter neuro that we've seen a sequential decline and I know you mentioned.

Some of the hiring patterns.

This year starting in January as opposed to November December.

Curious if you can talk about the other side of things on the performance standards that you you mentioned last quarter.

Is that assumption at this as well.

Just any sense of how.

A formal standard side of things is going.

And then likewise I know you won't give specific guidance on the agent count into 2020.

Well when thinking about where we are like the hiring patterns, let's say January.

Should we expect agent count to be up in one Q 20 versus for Q4 key 19.

Oh, Yeah, we've been hiring agents left and right. This is the part of the year when we really bulk up so we host all these home tours in the first quarter and then we really start closing sales in the second quarter, which makes.

Our business quite seasonal, especially in gross profit.

The performance standards have nothing to do with.

Agent headcount in Q4 involuntary attrition has increased in the first quarter.

We expect that to be more significant in the second quarter.

It's not a massive impact.

We said before that about 20% of our agents are being affected by those standards, but you shouldn't think that 20% of them are going to get fired our resign ahead of being fired.

Because most of them are really trying to figure out a way to improve their performance and they do so.

So involuntary attrition will be up but it's all going to be a few points.

And we're still able to recruit quite effectively so.

When we have demand, we're going be able to serve those customers.

Got it that's very helpful. And then one other question.

Any update you can give on Canada.

Where things stand as far as.

On a rolling out the brokerage operations any any incremental partnership opportunities, we'll just kind of high level, where things stand in and where that can kind of go in 2020.

Well, it's almost exactly the one year anniversary of launch in Canada.

I just don't thank you can expect those markets to be financially significant it takes time.

To build website traffic to build a brokerage.

We really love the team in both Toronto and Vancouver, They have been resourceful day of serve customers well, we are proud of what we've done there.

But we still are going to take some time to build the business.

Got it thanks, so much.

Thank you and we'll take our next question from Stephen Sheldon with William Blair.

Thanks, everyone Thats actually Josh on for Stephen.

Hi, I know, it's still the early days for the ancillary services, but.

Since you talked about the expansion and new markets and broader customer representation and I'll buy ins from the age and.

Im just wondering if you could give us a sense of sort of the.

Early on attach rates for some of those surfaces.

And then sort of anecdotally discussion, maybe where that can go and our peer represent a quarter or if you're transactions are being 50% year transactions are more.

Thanks.

Sure So I think thats.

Probably the biggest story of 29 team those businesses were eating it a year ago attach rates were really low gross margins were terrible.

And we really had a crisis of faith about them a year ago and now they are the mouse that roared.

So mortgage has done very well hitting our attach rate goals competing effectively on price.

And then title has really broken into the black and a serious way, where we were running that business.

Barely making any money and now it's making significant money. So the attach rate on title is going to be higher than mortgage because the consumer is always going to shop price on mortgage.

We think that we're going to be effective on price because we don't have customer acquisition costs and mortgage.

But there's still going to be times from wells Fargo or some other lender is willing to.

Take lower margins than us or even by the business just because they have idle idle hands.

So.

Part of it it's going to be that.

We're going to get a high attach rate on the brokerage and part of it is at least with mortgage at some point I do think we're going to end up offering consumers.

A mortgage who don't user redfin each yet.

As we said the website is just under monetized our people who use our website and never give us a penny because they end up working with the different agent, but they can still higher rent and mortgage because our prices are so good. So I don't have forward looking guidance on exactly what we think attach rates can be for those two products.

Or what the mix will be three years from now.

But the reason we.

We really spent so much money and research and development to build our on loan origination system is because we think those businesses can be significant.

Thank you.

And ladies and gentlemen at this time I would like to turn the conference back to Atlanta, Paul for closing remarks.

Thank you Brad and thanks, everyone for joining us today. We appreciate your interest in rent then and look forward to speaking with you again next quarter. Thanks, Hi, Thank you ladies and gentlemen. This concludes today's call. We thank you for your attendance and participation you may now disconnect.