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An IPO Success for Redfin (NASDAQ: RDFN)

Written by Monica Savaglia
Posted August 8, 2017 at 8:01PM

It’s no secret that some of the most anticipated IPOs of 2017 ended up being some of the most disappointing of the year.

There was so much hype involved with Snap’s (NYSE: SNAP) IPO because of its popular Snapchat app.

The app has grown very quickly in the past few years. If you were to check at least one of your friends’ or kids’ phones, you’d most likely find the app. People got caught up in the popularity of the app and probably didn't realize the company as a whole wasn't the investment they were looking for.

Then we saw Blue Apron’s (NYSE: APRN) IPO crash and burn in the beginning of July. This was another company investors were drawn to. Almost everyone knows the Blue Apron brand, and it’s been growing and earning valuation very, very quickly. What more could you want from a company?

Well, the market and investors can be fickle... and for good reason.

Investing in a company that doesn’t have a strong market share or the potential to gain one shouldn't be appealing, especially if a company's growth is slowing down or has been approaching a plateau. 

Snap is still dependent on the growth of its app. It’s the only successful product that's out right now. And on top of that, its user growth hasn't been increasing enough. Sure, it has advertising revenue, but if users start to drop off, then there would be no appeal for businesses to advertise with Snap.

Snap opened today, August 8, 2017, at $13.28 — a 21.8% decrease from its $17 offering price.

Blue Apron is in a whole new market, which makes it hard to gauge if there will actually be growth or if big companies like Amazon will end up putting it out of business. It opened at $5.80 on August 8, 2017  a 42% decrease from its $10 IPO price.

Watching Snap and Blue Apron disappoint the market has caused other companies that were prepping for their own IPOs to become extremely hesitant  and you can’t really blame them.

However, it’s not the IPO market that’s bringing in the disappointment; it’s the popular companies. Just because you're familiar with their brand or a product doesn’t mean they have valuation that’s appealing in the long run.

Success Does Exist

There have been quite a few successful companies that have entered the market with a bang and are still experiencing steady gains.

One recent example of IPO success is Redfin’s (NASDAQ: RDFN) market debut on July 28, 2017, offering 9.23 million shares.

Redfin is a Seattle-based real estate site that has been a startup for 13 years.

Redfin priced its shares at $15 per share and raised $138 million. This IPO price was above the company’s expected range of $12 to $14.

During the first day of trading, its stock jumped 45% before closing the day out with $21.72 per share.

Over the years, Redfin has raised over $167 million in equity funding. Its market cap prior to going public during its last private round of funding was $770 million.

The company has steadily grown since its inception in 2004. The real estate crash in 2008 brought a few hardships to this fairly new company, but in the end it persevered and continued to grow, especially when the housing market started to rebound.

Last year, in 2016, Redfin saw its revenue increase by 43% from the prior year, bringing in more than $267 million  $187 million more than what the company reported in 2015.

What sets Redfin apart from other real estate platforms is its business model. 

Redfin’s agents are direct employees, which means it doesn’t operate in the traditional commission model like most real estate businesses. This type of business model reduces the excessive amount of fees that usually come with real estate brokers.

A typical Redfin customer saves about $3,500 per transaction. Agents employed by Redfin aren’t looking to make quick commission, but rather provide high-quality services to customers — and that's how you really draw new customers in.

And it’s paying off  Redfin covers more than 80 markets throughout the U.S., and it sold more than 75,000 homes that exceeded $40 billion in worth last year on the company’s platform.

Zillow (NASDAQ: Z), which went public in 2011, has a similar business plan to Redfin. It’s also a real estate advertising company that uses the web and mobile platforms to provide users with real estate and home-related information marketplaces. It focuses on multiple stages of the home life cycle, including renting, buying, and selling.

Zillow and Realtor.com are some of Redfin’s competitors. Right now, both of those companies do receive more website traffic than Redfin. However, Redfin does have a lead over traditional brokers like Keller Williams and Realogy.

At the moment, it might seem like Redfin isn’t shaking things up too much in the real estate market, but as people start looking for different ways to buy, sell, or rent a home, they can’t help but turn to an easy and accessible platform like the one Redfin is offering.

When (and if) millennials decide to start settling down, they’ll be more drawn to the accessibility that Redfin and Zillow offer.

The companies that are giving people the opportunity to browse their sites or go to their apps in between normal, everyday tasks will already have a leg up on the traditional real estate agencies.

What's Going on With Real Estate Anyway?

According to a mid-year forecast from the National Association of Realtors (NAR), in 2017, the number of existing homes is expected to rise about 3.5% to 5.64 million.

NAR also predicts that existing-home purchases will rise an additional 2.8% in 2018 to 5.8 million.

Lawrence Yun, NAR’s chief economist, said in a statement:

The combination of the stock market being at records highs, 16 million new jobs created since 2010, pent-up household formation, and rising consumer confidence are giving more households the assurance and ability to purchase a home.

Redfin has the potential to gain traction in an industry that's been waiting for a company to change things up a bit. Investors like disruptors, but they want those disruptors to also be solid companies... companies that won’t be disrupted themselves.

Take the opportunity to learn more about Redfin by visiting its website.

Until next time,

Monica Savaglia
Wealth Daily

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