Q1 2023 Redfin Corp Earnings Call
[music].
Greetings and welcome to the Redfin Corporation Q1, 2023 earnings Conference call.
At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host make Mcdonough Lee head of Investor Relations. Thank you you may begin.
Thanks, Latoya, good afternoon, and welcome to Red and financial results Conference call for the first quarter ended March 31, 2023, Meg Natalie President head of Investor Relations. Joining me on the call today is Glenn Kelman, our CEO and Chris Nielsen our CFO before.
Before we start note that some of our statements on today's call are 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 undertake to update these statements in light of new information or future events.
On this call we will present non-GAAP measures when discussing our financial results. We encourage you to review today's earnings release, which is available on our website at investors that redfin dot com for more information related to our non-GAAP measures, including the most directly comparable GAAP financial measure and related reconciliation.
All comparisons made in the course of this call are against the same period in the prior year unless otherwise stated.
Lastly, we will be providing a copy of our prepared remarks on our website by the conclusion of today's call and a full transcript and audio replay will also be available soon after the call with that I will turn the call over to Glenn.
Thanks, Meg and hi, everyone in.
In the first quarter of 2023, redfin generated $326 million in revenue exceeding the $307 million to $324 million guidance. We gave on our last call largely on the strength of better than expected mortgage and rentals revenues.
Our losses were also better than expected with net income buoyed by a $42 million gain from buying a $152 million of our own debt at a discount.
Aside that purchase profits still exceeded our guidance due to stronger mortgage gross profits and lower marketing spending first quarter. Adjusted EBITDA was negative $67 million when our guidance for that loss had been $73 million to $84 million.
Coming out of the first quarter with profits ahead of our plan, we still expect our full year adjusted EBITDA to be breakeven or better in 2023, an improvement of roughly $190 million over 2022.
We just have a lot of hay to make when the Sun shines redfin almost always spends more on the spring on ads, telling customers about redfin and on agents to serve those customers.
Many of those customers take until the summer to close.
With homebuyers nervous about the economy and so many starving agents trying to poach our clients, we can't count on these closings until they come through.
We will stay vigilant about the bottomline from week to week.
The seasonality of our core business is only one reason, we expect profits to improve over the remainder of 2023.
Pay equity earnings should continue to strengthen as we complete our adjustment to sharp rate increases. We also expect rent profits to improve as we recognize revenues from the last nine months of increased bookings and due to declining marketing expenses through 2023.
<unk> as a whole will in future quarters get the full benefit of cost reductions that have continued through April we.
We expect second quarter, adjusted EBITDA to be between $9 million loss and a $1 million profit in third quarter, adjusted EBITDA to be much higher than that.
Between the end of the third quarter of 2022 in the first quarter of 2023, our competitive position has significantly improved we retired $295 million in debt and reduced redfin now inventory by $291 million.
Demand for the agents on our site has strengthened as we've drawn online visitors away from arrivals and more recently increased the rate at which those visitors ask an agent for service.
We expect real estate services gross margins to improve year over year for the first time since the second quarter of 2021, and overall monetization to improve even more as we generate additional profit from redfin dot com traffic through rent and from brokerage customers through by equity.
We've lowered our cost to breakeven.
At our current market share, but significant long term profits depend on returning to market share gains.
Counting for the sales closed by our own agents and from the customers. We introduced to our partner agents our share of U S homes sales declined by one basis point in the first quarter of 2023.
By comparison, we lost two basis points of share in the fourth quarter of 2022.
Before then read Tennant reported year over year share gains every quarter since our 2017 public offering we expect to return to share gains in the second half of 2023, as we recover from layoffs and the closure of Redfin now.
Of the five redfin now homes, we still own all are under contract to sell by June .
Another reason for optimism about share as traffic to redfin Dot com, which is taking visitors from online rivals and now converting more of those visitors into customers who meet our agents.
<unk> score, which lets us compare robinsons online visitors to those visiting other sites reported a 4% first quarter increase for redfin compared to a 17% decline for realtor dot com and a 4% decline for Zillow.
As a further point of comparison, Google searches on homes for sale declined 20% in the first quarter.
This tells us that though there are fewer people looking online Ah ha.
A higher proportion are using redfin.
Over the last half of 2022, we had an advantaged against realtor not zillow, but for the time being at least we seem to be competing well against both.
These traffic gains should produce more sales.
The fraction of our online visits that lead to an agent inquiry had been declining since last spring, but that trend reversed in March 2023. After we increase the pace of online optimization to drive demand.
We also redesigned our website and mobile applications to promote redfin premier service to luxury homebuyers.
This redesign launched on February 15th and since then the growth rate in luxury inquiries to buy a home has been significantly higher than growth in overall demand.
This gives us confidence that we can increase demand more broadly through similar design improvement highlighting the top producing agents on demand service and low fee of our standard service.
Our website and mobile applications. The most immediate source of new customers, but the long term arbiter of our success is the quality of our service, which depends on turn on retaining and recruiting the best agents.
To that end, we're focusing more of our resources on the salespeople who directly serve our customers.
On April 11, we laid off approximately 200 employees, mostly in the brokerage support organization.
June 32022 to April 32023, the ratio of brokerage managers to lead agents declined by 28% the ratio of support staff to lead agents declined by 15% and the ratio of trainers delete agents declined by 55%.
Eliminating our photography department in favor of vendors. We also project that will reduce our cost of photograph of listing by 17% in aggregate for 2023. These structural changes should reduce our cost to close the transaction, so and even 10% excluding the money spent on our lead agents and on the contractor network.
A associate agents for hosting tours and open houses.
Coupling these cost reductions with increases in revenue per transaction will improve real estate services profitability this year and long term.
Because it can take months to close on a home, especially if its still being built it won't be until the summer. So we get the full benefit of our December one 2022 decision to eliminate the commission refund we once offered homebuyers.
Another way to increase revenue per brokerage transactions by more narrowly focusing our agents on the transactions that drive the most profit, leaving the rest of our partners. This is part of a larger strategic shift toward revenues with the digital margin, where redfin doesn't bear many personnel costs.
Redfin dot com routed 40% of customers first quarter request for service to our partner agents compared to 39% in the first quarter of 2022.
Since we usually ship demand partners in a boom not a small shift toward partners now should get much bigger as the market recovers.
This shift will improve red fence corporate income and we hope our agents' personal income.
Already among the U S. It's top 20 largest brokers redfin rose from number four and agent retention in the FERC.
In the fourth quarter of 2020 to number two in the first quarter of 2023, what makes this comparison, especially impressive is that at times about 20% of the redfin agents, who leave are asked to do so for performance reasons, which is unheard of at many traditional brokers.
And even though we've mostly stopped hiring agents until the housing market recovers, we launched a new program to hire at least 50 experienced agents over the course of 2023, each with 20 or more sales in the last two years or 50 lifetime sales.
Learning how to compete for the most sought after salespeople in our industry can in future years, let us hire hundreds of agents, who can quickly drive profits as of May one we've hired 39 agents at this level of seniority.
The increasing quality of our sales force. It's one reason that for the fourth quarter in a row, we've had year over year gains in customer attention of the redfin customers, who started with redfin in the fourth quarter of 'twenty, two and went on to buy a home we projected about one in three stuck with redfin for the purchase when a year before that number have been closer to one in four.
Or the.
The sales impact of this service improvement has been offset by market driven factors like longer sales cycles, and more customers, who have had to give up their home search due to high rates.
For customer excuse me, but customer retention is the best measure we have of improving sales execution in a deteriorating market. These gains should improve gross margins as the market stabilizes.
Our first quarter sales execution improved on one other crucial fronts.
The rate at which our brokerage homebuyers use pay equity for a mortgage increased from 17% in the fourth quarter of 2022% to 20% in the first quarter of 2023.
Catch rates have now increased in three out of the last four quarters, what's even more encouraging is bay equities improving margins from the fourth quarter of 2022 to the first quarter of 2023 gross margins improved from negative 9% to 20% and net income improved from negative $12 million to negative $1 million when all.
All of these measures had declined from quarter to quarter throughout the 2022 downturn.
Part of the reason for improving profits as Bay equities expense reductions carried out every quarter since the acquisition closed on April 4th more recently competition has started to ease, especially for mid market banks, which can no longer afford to offer jumbo loans at a loss in order to acquire high net worth customers we have.
Expect bay equity to earn full year net income in 2023 and to become a major source of profit from future years.
Our title business has had similar improvements with year over year revenue growth of 51% in the first quarter and rising margins.
Our larger ambition is to increase the gross profit we earn from each online visits to our websites and mobile applications.
This depends not only on improving monetization from redfin brokerage customers, but also on building new digital businesses in the past year, we've launched ads on redfin dot com and built our mortgage marketplace for redfin dot com visitors to meet direct to consumer lenders. These new digital businesses doubled year over year.
Albeit off a still small base.
The centerpiece of our strategy to improve online monetization is rent, which in the fourth quarter of 2022 at its first quarter of year over year revenue growth since 2012.
That year over year growth accelerated from 5% in the fourth quarter of 2022% to 13% in the first quarter of 2023 and we now.
We anticipate second quarter revenues to grow at a rate between 18% and 20%.
Revenue gains can be slow to reflect the value of new longer term contracts. So the best measure of our sales momentum as net bookings, which are the annualized revenues rent added through sales to new customers less the annualized revenues lost from departing customers from the fourth quarter of 2022 to the first.
Quarter of 2023, net bookings increased 18%.
In the year spanning the first quarter of 2022 to the first quarter of 2023 net bookings grew by a factor of 10.
We expect sales to keep growing on the strength of products for property managers to market to communities on Google Facebook and Tic Toc, but also because our new partnership with realtor Dot com has broadened the reach of our own marketplace.
Our rental listings went live February 28 on realtor Dot com. According to Comscore data our March rentals traffic was 39% higher than it would've been without realtor dot com <unk> Dot coms rentals audience was already well established from its long Costar partnership.
Which ended in 2022.
The rent partnership with rent realtor Dot com showed increased sales as our property management customers have expressed early excitement about accessing a broader audience.
Surfacing listings from rent on the Redfin Dot Com has already increased the average number of online visits we can deliver to our customers listing.
Even with Realtors excuse me, even without realtor dot coms contribution rent in redfin together grew rental traffic, 29% from the fourth quarter of 2022 to the first quarter of 2023 per Comscore data.
This was faster growth than any major listings marketplace as rent revenues accelerate through 2023, we expect the losses from the rental segment to narrow in each of the next three quarters, leading to positive adjusted EBITDA for the rental segment in the fourth quarter of 2023.
Before I turn the call over to Chris, let's discuss the housing market when.
When we last spoke we said that sales volume with declined significantly from 5.0 million existing home sales in 2022 to $4 3 million in 2023, but that prices would hardly decline at all our overall outlook is unchanged and March sales volume fell 22% year over year.
For an annualized rate of four 4 million existing home sales in the median home price dropped only 3%.
Inventory increased by about 5% compared to the calamitous low levels of March 2022.
But is it roughly two thirds the levels from this time of year in 2016 2017 2018 in 2019.
Homeowners have been careful about giving up a 30 year mortgage below 3% some couldnt afford to buy the home. They live in now let alone a larger home.
Others don't want to sell when so few so few homes are available to buy one.
One of Red sense, la customers delisted, our home after getting a full priced offer because she couldnt find another home to buy low inventory b gets low inventory.
The unsurprising result sales are slow in bidding wars are still common in many parts of the country, especially the southeast demand from both buyers and sellers modestly improved in April but most of this is seasonal our experience from past housing downturns.
Is that the public usually sours on housing altogether, but this time around it seems that folks want to move.
Demand for affordable turnkey homes is the one constant in the U S housing market.
If rates fees by late in the year without causing a recession, we may see a break in the stalemate between buyers and sellers.
One of our Boise Asia, Shawn Pendleton said that if rates in one week down buyers come out of the woodwork, but if rates pick up the next week buyers just disappear.
Right now there is no seasonality scientists that all activity is based on rates.
And isn't planning for a second spring and the fall, especially since bank failures, the debt ceiling and consumer confidence are this year's or this economies Lions Tigers and bears.
But it is common now for our managers to talk to their teams about being ready for rebound whenever it may come whereas in the winter, we were mostly non on bone and worrying about our survival. It's good to be alive. It will be even better to go back on the attack leaner hungrier and in many ways better than ever taken away Chris.
Thanks, Glenn first quarter financial results were better than we planned giving us confidence we've taken the right steps in what continues to be a choppy housing market.
First quarter revenue was $326 million down 45% from a year ago.
Total gross profit was $56 million down 23% year over year with total gross margins of 17, 3% I'm going to walk through our results by segment before turning back to consolidated results for the second quarter guidance.
Real estate services revenue, which includes our brokerage and partner businesses generated $127 million in revenue down 28% year over year.
Brokerage revenue or revenue from home sales closed by our own agents was down 29% on a 31% decrease in brokerage transactions and a 3% increase in brokerage revenue per transaction with the elimination of our Homebuyer Commission refund more than offsetting an 8% decrease in average selling prices for brokerage transactions.
Revenue from our partners decreased 14% on a 7% decrease in transactions and mix shift to lower value houses.
Partner transactions represented 24% of total real estate services transactions in the quarter.
Up from 19% in the first quarter of 2022.
The mix shift towards partners is impacted by increased collections from partners without this partner transactions would have represented 21% of the total end market share would've declined three basis points compared to the first quarter of 2022.
Real estate services gross margin was 12, 4% down 100 basis points year over year.
This was driven by a 230 basis point increase in cost from our in person company of that offset by a 130 basis point decrease in personnel costs and transaction bonuses.
We have already made several changes to the business that will result in improved profitability as we move through 2023, including eliminating the refund we provide to homebuyers and right sizing the business to match brokerage staff with demand.
Beyond the layoffs previously announced in June and November of 2022, we laid out for an additional 200 employees in April 2023, which represented 4% of total employees.
April lay up obviously it did not have an impact on first quarter results reflects our commitment to running the business for full year profitability.
Thanks.
Total net loss for real estate services in the first quarter was $58 million down from a net loss of $57 million from the prior year and adjusted EBITDA loss was $44 million down from $43 million in the prior year.
The decrease was primarily attributable to lower revenue and gross margins, partially offset by $7 million.
Year over year decrease in operating expenses.
Our property segment, which consists primarily of homes sold through redfin now generated $113 million in revenue down 70% year over year.
Winding down this segment gross profit losses were $2 million slightly below our guidance of flat gross profit.
Total net loss was $3 million and adjusted EBITDA loss was $3 million.
We're making excellent progress on the wind down of Redfin now as of the first week in May we have just five homes remaining in inventory and all are under contract to sell.
Glen mentioned, we've been applying excess cash from the sale of redfin now inventory to reduce our convertible debt.
During the first quarter, we reduced the aggregate principal amount on our 2025 convertible notes from $519 million to $367 million.
Another step on our path to profitability as momentum in our rentals and mortgage businesses and we're pleased with the progress we made in the first quarter rent.
Rentals posted double digit revenue growth of 13% with revenue of $43 million.
Total net loss for rentals is $23 million slightly worse than the net loss of $18 million from the prior year as higher gross profit was offset by higher operating expenses total adjusted EBITDA for the first quarter was negative $10 million and we still expect our rentals business to generate positive adjusted EBITDA by the fourth quarter of 2023.
Okay.
Our mortgage segment generated $36 million in revenue in the first quarter compared to $3 million in the prior year.
The increase was due to the acquisition of day equity, which occurred last April .
Result was better than our guidance range of $29 million to $32 million.
Mortgage gross margin was 19, 9% up from a negative 89, 1% a year ago.
It reflects the performance based equity in contrast to our legacy legacy mortgage business as well as stabilizing fundamentals in the mortgage industry.
Total net loss for mortgage was $1 million in total adjusted EBITDA was $1 billion, there's still a long way to go to get back to a normalized environment. It's reassuring to see the great work. The team has done increasing attach rates and aggressively scaling the business, having an impact on bottom line results.
The second segment that generated positive adjusted EBITDA in the first quarter was our other segment. This segment includes title in digital revenue and other services segment generated revenue of $7 million in the first quarter compared to $4 million in the prior year.
Both our title segment display AD business Grill.
The other segment gross margin was 26, 3% up from a negative six 9% a year ago.
Total net loss was <unk> $2 million compared to a net loss of $2 million in the prior year and adjusted EBITDA was positive <unk> 4 million compared to a negative $1 5 million in the prior year.
Turning back to consolidated results total operating expenses were $160 million up $2 $5 million year over year.
<unk>, which we acquired last April contributed $8 million. Excluding this operating expenses decreased by $6 million year over year.
The decrease was primarily attributable to $4 $5 million and lower personnel expenses, $3 7 million and lower marketing expenses, and $4 7 million and lower restructuring expenses.
These reductions were offset by $5 $9 million and costs associated with the in person company event, which we held in the first quarter of 2023, but did not hold in 2022 and do not expect to hold next year.
Total net loss for Red fan of $61 million beat the better end of our $116 million to $105 million guidance range.
Net loss includes a $42 million gain on the extinguishment of notes and only $7 million of this was anticipated in our guidance.
Our adjusted EBITDA of negative $67 million was better than the high end of our negative $84 million to negative $73 million guidance range.
Diluted loss per share attributable to common stock was 55 compared with diluted loss per share attributable to common stock of 86 cents one year ago.
Now turning to our financial expectations for the second quarter of 2023.
We expect total revenue between $268 million from $281 million.
Representing a year over year decline between 24% and 20% compared to the second quarter of 2022.
Within total revenue, our real estate services revenue between $175 million and $183 million.
Rentals revenue between $45 million $46 million mortgage revenue between $38 million from $41 million and other revenue between $10 million and $11 million.
We expect to report our properties segment as discontinued operations in the second quarter.
And these results are not included in total revenue.
It's also worth noting that real estate services revenue includes $5 million in <unk> revenue and new activity within our brokerage business that helps customers fix up their home prior to listing.
This offering attracts listing customers and adds incremental revenue per transaction that has low incremental gross margins as.
As such we expect concierge activity to be a 2.0% tailwind on real estate services revenue growth in the second quarter, and a 100 basis point headwind on gross margins.
Even with this headwind, we still expect real estate services gross margins to increase by 100 to 250 basis points as compared with the second quarter of 2022.
Total net loss is expected to be between $44 million and $35 million compared to a net loss of $78 million in the second quarter of 2022.
Discontinued operations are included in that loss, but are expected to have no impact on the total.
This guidance includes approximately $31 million in total marketing expenses down from $57 million in the second quarter of 2020 to the.
The decrease reflects our decision to pull back on the mass media campaign typically runs in the first half of the year.
Our guidance also includes $17 million of stock based compensation $17 million of depreciation and amortization and $5 million in restructuring expenses and $4 million of gains on extinguishment of convertible senior notes the gain assumption reflects the repurchase of $17 million of convertible note.
It's already completed in the second quarter.
Adjusted EBITDA is expected to be between negative $9 million and positive $1 million compared to.
Adjusted EBITDA of negative $29 million in the second quarter of 2022.
Furthermore, we expect to pay a quarterly dividend of 30006 hundred 40 shares of common stock to our preferred stockholders.
The guidance assumes among other things that no additional business acquisitions investments restructurings convertible note or stock repurchases or legal settlements are concluded and that there.
No further revisions to stock based compensation estimates.
And with that let's open the lines for your questions.
Thank you we will now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line has been our question queue.
Press Star two if you would like to we move to questions from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset one moment, while we poll for our first question.
Our first question comes from John Campbell with Stephens. Please proceed.
Hey, guys good afternoon.
Okay.
Hi.
No.
On the market share I mean, we're just talking single bet. So it's kind.
Kind of splitting hairs to some degree, but <unk> or excuse me in this quarter I mean, you actually.
Lines here, a little bit lower rate than you did last quarter.
Despite having 7% less lead agents it sounds like the elimination of the rebate was probably a pretty big driver. There was there anything else you'd call out for the better underlying results at least relative to last quarter.
Redfin now would be the other factor John .
So I'm not sure how much the price increase affected demand.
<unk> tested that and it hasn't had a major impact maybe on returning customers, but not on new customers.
<unk> now when it could offer near market value.
Lee drove many lifting inquiries.
Now that we're not offering that on our site.
We don't have as much listing demand, it's been hard to replace that and even when we have an open door partnership.
Offers just arent as compelling because the cost of capital is priced into those offers and consumers don't respond you should just remember that most of the people who asked for an immediate cash offer ended up listing their home.
So this was a great way to meet homeowners.
But it doesn't work and a non zero rate environment.
Makes sense and then on the EBITDA profitability goal. This year, obviously, everybody is paying close attention to that so for <unk>, obviously, a $67 million loss here and then on the guide.
Youre, assuming roughly flat.
If you do a little bit better than that you've got a pretty big hole to fill in the back half.
If you look back at second half of 2020, you actually put up that kind of EBITDA gains. So it's not it doesn't feel like too much of a stretch, but glenn or Chris Giovanni you guys want to take this.
You guys have talked to some detailed bridge work in the past I'm, hoping we might be able to revisit that if you guys can kind of unpack, what you're expecting in the back half.
Why don't I start Chris and then you can follow.
So first of all it's a seasonal business, we have frontloaded costs and Backloaded revenues.
<unk> agents to host tours with customers, we pay for marketing campaigns and then those customers close in the summer.
Part of it.
But the other part is that unlike in 2020, we now have these two other businesses rent and bay equity both of which are rapidly improving their profitability. So we expect rent.
<unk> to improve every single quarter over the course of the year and we have the same expectation with pay equity and with Bay equity has already demonstrated that progress from the fourth quarter of 2022 to the first quarter of 2023.
So if you couple that with the fact that.
We're going to start improving revenues in our core business at a higher gross margin and we get the full benefit of some cost reductions that extended through April of this year.
There's a lot of leverage in the back half of 2023.
We haven't put a number out there that we've missed this one is a doozy.
But we feel good.
And maybe just two more comments there we do think we'll continue to see that.
Other revenue segment come on during the course of the year, including tie at all which is expanding its service and we're really pleased with the progress made on display advertising those are relatively small revenue dollars, but of course from a profitability standpoint, and then beyond that it's also typically the case that operating expenses in the form of.
Marketing expenses.
Paul during the course of the year, because it's just less valuable to advertise.
In the second half than it is in the first half so.
Lots of work to do but.
We feel good about that.
Efforts in how we havent setup.
Okay, great. Thank you guys.
Thanks, John .
The next question comes from Diego ammonium with Citigroup. Please proceed.
Hey, good afternoon guys.
First question, Glenn a follow up on the macro a little bit.
We've talked about the seasonality of it I think the way you phrased as youre not really seeing regular seasonality.
Hands on rates.
At the same time prices arent dropping so it sounds like really well.
The only swing factor, but that's the market as the markets open up again.
Lower rates.
Is that I assume you think.
Are there things that you get.
The market moving a little bit more of the.
Iran out until rates come back closer to where everyone's locked in right now is that the only thing that can open up the market.
Are you guys seeing any impact from.
He was the regional banks.
Yes.
I'm getting mortgages.
Yeah.
No Bad news is good news for us both because.
Sorry, there's an echo.
But the bad news is good news for us mostly because.
We have less competition for jumbo loans and it also.
Encourage as the fed to just go easy on interest rate increases.
But having said that we have factored into our business. The assumption that there will be $4 3 million existing homes sold in the United States. This year, which is a conservative assumption. It's about the same number of homes that were sold at the bottom of the great financial crisis, when the population was 10% smaller.
So we don't need the housing market to get better when it does and at some point it will as the fed steps back from these rate increases.
We have tremendous leverage as we get more revenues will hold our cost study and we'll have a more efficient real estate operation.
Should fall to the bottom line.
Right right right right.
Right.
As expected.
More with.
In your control.
Redfin now in Hawaii.
<unk>.
You just talked about drove.
Drove demand.
Announcement there.
A little bit of a headwind for you guys.
Do you think about ways to offset that.
E.
In place to drive the man again talked about.
The improvements in the site and share gains from competitors.
How do we how do we kind of supplant what we'd walk there.
There anything you can do or not.
I have to work with what you have.
Good question I wouldn't characterize the loss of red sending out redfin now demand.
As massive.
A significant factor, we will be glad when we're a year out from that.
Because there are just so many ways that cheap capital subsidize demand creation for new real estate companies.
And the fundamental way that we want to create demand, it's just by offering consumers a better deal.
Listing a home for a 1% fee and really explaining the consumers that we sell that property for more money and we're more likely to sell it than traditional brokers that we sell it faster than our competition.
That's the case that we have to make an.
And every real estate portal, whether it's realtor dot com or zillow or redfin has always had more traffic from buyers than sellers.
So our other challenge is just to make sure that when we meet somebody who wants to tour our property that we figure out if they have a home to sell and that we execute well on the entire customer relationship not just the opening transaction.
So my guess is that we will continue taking share because we just have a fundamentally better proposition better results for a lower price and we just need to make that case better on our side. It was so easy to sell a cash offer it's harder to explain.
The 1% fee because people worry about the trade offs, and we're just going to get better and better at that we've already seen this improvement in conversion after months of decline in March of 2023, and we've also seen that when we started marketing the luxury customers. There was an increase in homebuyer demand from that segment too. So I know we can do it.
Alright, thanks for taking the question.
Once again to ask a question. Please star one on your telephone keypad. Our next question comes from Curtis Nagle with Bank of America. Please proceed.
Great. Thanks very much.
The first one I'm just kind of curious about the.
Luxury business it sounds like that's going pretty well.
I think thats, a pretty competitive and fairly entrenched business in terms of.
Existing brokerages, so I guess, what specifically in terms of I guess, the service levels or maybe the marketing is driving that progress and.
What is the threshold in terms of I guess defining luxury homes in terms of price point.
Well the threshold varies by market. So a million dollar home as a middle class home in San Francisco, whereas in South Carolina, It can be a mansion.
Yeah.
But generally you should think about $1 million and up.
As a good boundary for most of America.
And I wouldn't say, it's going well I would say that we have encouraging early data that we can drive more demand from luxury buyers.
And the reason I say that is that we're just at the beginning we haven't really made our case there are other very entrenched brands have far more equity with luxury homebuyers.
But the case that we're making is that we have some amazing agents and we've taken the best of the best already.
There are more top producers that redfin on AR.
Population adjusted basis than any other brokerage we've taken the best of those agents the ones who have the most luxury experience and given them special branding on our site that site gets 50 million visitors. So many consumers who came to our site with the luxury home to buy or sell just naturally assume that redfin wasn't for them and simply raising our.
Hand, and saying we want this business, we have an agent who sold homes at this price point in these neighborhoods has made a difference then it should be no surprise.
But to think that we're going to become sotheby's overnight that isn't our ambition.
They are big incumbent brands, who trade just on name.
They are on defense, we're on offense and we're going to go get them and we're going to spend the next 10 years.
Yes.
Sure.
That's a good place for us to be in.
Okay, and then Glenn just another follow up for you I'm curious just how I see continued inventory crunches factored in June .
Assumptions for home volumes for the back half of the year in your EBIT targets.
Just any concern that once we get past the spring selling season demand. This off again or do you think that just because.
Unrealized cement so high and I don't know maybe rates start to fall that that should be an offset how should we think about that.
While there are puts and takes there first of all we have assumed.
There will still be a seasonal decline in the back half of the year.
And home buying demand, that's what typically happens seasonal patterns have been disrupted for so long during the pandemic that we've had the baseline 2019 to 2023 and.
That makes the analysis more speculative but.
There are several factors to consider the first is that people just haven't soured on real estate the way that they did in 2000 2008 I was here then people just didn't want to hear about housing there is still in 2023.
Deep appetite to move there are so many people who want to move to a more affordable part of the country that is unfinished business in America and there is this demographic bump from millennials and just to prevailing interest in looking at pretty houses.
So that feels really different.
And then the other factor is just talking to our agents somewhere in the office today for Seattle City meeting and.
And they just met so many customers, who say I'm going to sit it out right now I have no real sense of urgency if rates come down I want them to call me that.
Maybe that'll happen in the back half of 2023, maybe it will happen next year, but it's going to happen at some point.
And until then we're going to plan on lower volumes $4 3 million units is based on this crude assumption that shelter is one of the three fundamental human need and.
And that is kind of a bare bones number of people who will move in the United States. This year.
Okay. Thanks, very much appreciate the answer.
Yeah.
Our next question comes from Ryan Mckenna with Zelman and Associates. Please proceed.
Hi, guys. Thanks for taking the question.
Sorry, if I missed some of the detail about this but I wanted to dig in a little on the real estate service.
Our revenue guidance.
I think the midpoint of guidance is down 29% year over year.
Versus one acute down 28% and I know the macros uncertain, but I think there's at least some indications that year over year declines will probably lessen for the industry in total and <unk> one in Q. So hoping you could maybe unpack the trends that you were expecting and I am sure Theres moving pieces, but.
Is the increase in waiting to partner business driving some of that is it the listing headwinds you talked about or geographic mix or the market generally.
Just hoping you could maybe unpack that a bit.
Sure. So the way we set our guidance is based on what we can see in terms of revenue bookings into the first month of the quarter and the second month of the quarter and then.
As you can imagine we have less visibility until the last month of that quarter and so it's always a little difficult for us to tell what's happening in the broader market over that same period of time.
But what you see in our guidance is what we think.
That whole picture will look like and I do think that you.
You were mentioning that there are expectations, the second quarter looks a lot better than the first quarter in terms of overall housing volume I'm not sure. We've seen a lot of evidence of that for all the reasons that Glenn just mentioned and so.
We haven't made a specific assumptions about market conditions, but what you see reflected in the guidance is what we've seen in terms of bookings.
Got it okay, if I could add just one piece of color there Ryan.
Sure.
January demand was really strong because rates were close to 6%.
And then February and March demand was much weaker and this isn't just at redfin. This.
<unk> industry wide and if you just do the math around the length of the sales cycle.
It's just hard to imagine that at least the first two months of Q2 are going to be boom months, because that's when people were first adjusting to rates ticking back up into the seven.
Yeah, No that's helpful commentary Glenn.
That makes sense I guess, maybe one other question just.
Turning to the mortgage side of things.
Given the high.
Sure you guys have within California, and some of the West Coast markets I guess, just any any turbulence youre seeing with your customers.
Due to some of the banking dynamics and.
As there is some of this turmoil in the regional banks is that potentially helping.
Pay equity capture some business that maybe otherwise would have gone to.
First Republic as an example to get a mortgage.
Any commentary there.
It's been an advantage for us that first Republic isn't issuing loans at a loss in order to acquire high net worth customers.
But there's still so many bigger banks, who covet those high net worth customers the competition for jumbo business is savage.
We've gotten more sharp elbowed about it.
<unk> will put some pressure on margin for that product.
But we want to compete on rate because.
The loan officers at Bay equity don't have to work quite as much to meet those customers and that sales and marketing cost savings will be passed on to the consumer.
Got it thank you very much.
Thank you. Thank you.
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