Shares of Redfin Corp. sold off Friday, after the real estate services company’s outlook for first-quarter losses was wider than what Wall Street expected, and said the housing market recovery has stalled as mortgage rates have climbed.
But the company also reported fourth-quarter losses that more than doubled, but were narrower than expected, and revenue fell less than forecast, leading two non-bullish analysts to more than double their stock price targets.
The stock slumped 6.8% in morning trading. It has still nearly doubled — up 98.1% — to start 2023, after plunging 89.0% in 2022 and tumbling 44.1% in 2021.
Wedbush analyst Jay McCanless boosted his stock price target to $8 from $4, saying Redfin “seems to be on the upswing” after fourth-quarter results. He reiterated the neutral rating he’s had on Redfin since July 2022, “for now,” because of “the upward reversal in mortgage rates” in February.
Oppenheimer’s Jason Helfstein boosted his price target to $7.00 from $3.21, citing increased valuations of Redfin’s real estate peers, but reiterated the underperform rating he’s had on the stock since November 2022 because “real estate growth and profitability remain strained by the uncertain but improving macro[economic] outlook.”
Of the 17 analysts surveyed by FactSet, four are bearish and 13 are neutral. There hasn’t been an analyst who was bullish on Redfin’s stock since November. Meanwhile, the stock has run up 56.7% since the end of November while the S&P 500 index has slipped 0.5%.
The company reported late Thursday a fourth-quarter net loss that widened to $62.1 million, or 57 cents a share, from losses of $28.4 million, or 27 cents a share, in the same period a year ago.
Revenue dropped 25.4% to $479.7 million.
The results beat the average analyst estimate compiled by FactSet for per-share losses of $1.07 and for revenue of $445.3 million.
For the first quarter, the company said it expects a net loss of between $116 million and $105 million, which compares with the current FactSet loss consensus of $84.3 million. The company also expects revenue of between $307 million and $324 million, which was above the FactSet consensus of $295 million.
Redfin said it has either sold or accepted an offer to sell all but 19 of its RedfinNow homes, which was its iBuyer service that it closed in November. Wedbush’s McCanless said the “effective disposal” of the RedfinNow inventory provided the cash needed to reduce debt and to eliminate a “material” drag on gross margins.
The company also said Friday that its Homebuyer Demand Index, which measures requests for tours and other services from Redfin agents, fell 1% from last week, the first weekly decline after a month of increases. The company said mortgage-purchase applications dropped 6%, as mortgage rates rose on the back of stronger-than-expected inflation data.
“The somewhat disappointing inflation numbers put a wet blanket on homebuyers after sub-6% rates lit a fire under them a few weeks ago,” said Chen Zhao, economics research lead at Redfin. “Inflation is cooling too slowly—and the job market and retail sales are too strong—for the Fed to ease up on interest-rate hikes, which means mortgage rates are unlikely to fall much in the next few months.”