Thread by @JoshuaTai0427

$RDFN! One of the most excited real estate disruptor.

This is a detail deep dive thread on $RDFN, a technology powered real estate brokerage that helps people buy and sell homes while SAVING people A LOT of money in the process.

A detail deep dive thread 👇👇

1. Problem
$RDFN aims to solve the broken real estate market. The real estate market is highly fragmented into local market. According to National Association of Realtors (NAR), there are over 2 million real estate agents and 106548 real estate brokerage firms in the US.

1.1 Not only is the market highly fragmented, but the transaction costs for a property is relatively high too. On average, a seller usually pays around 6% commissions to the listing and buyer’s agents. 6% translate to $20850 for a US house with a median price of $347500.

1.2 Some agents are also a part of the real estate problem. Since agents are paid on commission, many agents (especially ones that are not well-off), are incentivised to force sell a house rather than provide great customer service to the customers.

1.3 Furthermore, many agents are unhappy with the structure/pay of the real estate business and often feel unsupported, as agents are mostly on them own.

All these problems made the real estate market awaiting disruption from who provide better service with lower costs.

2. TAM
According to the US Census Bureau, around 6.4 million homes (existing and new) are sold in 2020. The value of the US housing market is over 27 trillion (2019). According to Zillow, the value of the US real estate housing market is worth around $36.2 trillion in 2021.

2.1 $RDFN's market
$RDFN has estimated that they can served a $93B core market based on NAR’s 2020 existing home sales data assuming a 5% commission.

3.Solution
With this huge real estate problem, here comes $RDFN. $RDFN is a technology powered real estate brokerage with a mission is to redefine real estate in the consumer’s favour. $RDFN aims to make everything about real estate super easy for the customers.

4. Complete Solution
Redfin’s long-term goal is to create a digitalized ‘one stop shop’ with end-to-end product offerings, where customers can start their real estate journal from $RDFN's search, then uses $RDFN's brokerage, mortgage and title services to finish the transaction.

4.1 In the words of $RDFN's CEO, @glennkelman, $RDFN aims to makes home more affordable, make sure agents are on the side of the consumer, and make sure that the technology can increase efficiency in real estate.

5.Long term focus
@glennkelman had mentioned that he never checks the stock price of $RDFN, because he does not want to focus on daily movement, but rather on long term shareholder value creation.

Everyone in $RDFN pour their guts out to reach more people in the US, not to squeeze another cent on EPS.

6. Products & Services
$RDFN offers 3 different ways for a customer to sale a property. (1) $RDFN brokerage service as a traditional property sale (2) $RDFN concierge fixes a customer’s home up before listing and (3) $RDFN now buy the home instantly from the customer (ibuying).

7. Title & Mortgage service
$RDFN also provide title, escrow, and mortgage service to streamline the transaction process. As shown below, with $RDFN mortgage & title more transactions are closed on time. However, $RDFN will need to continue to offer these services in more states

8. $RDFN Now
Similar to $Z and $OPEN’s ibuying program, $RDFN Now charges around 9% of what a customer can get via a traditional sale. This means that for Redfin Now to be profitable, $RDFN will need to buy and sale the property while keeping the cost lower than 9%.

8.1 $RDFN Now provides liquidity to the real estate market and may serve as an option to people who are not willing to go through the hassles of a property transaction or needed desperately cash.

9. Rentals – RentPath
Previously $RDFN's search only have property for sale but not for rent. Therefore, $RDFN in February 2021 has announced that it is going to acquire RentPath for $608 million, to make rental information available (which matches $Z's function).

10. Some more information on the RentPath acquisition…

11. Savings
The single most important value proposition that $RDFN delivers is that $RDFN saves customer money. When a person sells his house with $RDFN, $RDFN only charges 1% if the seller buys and sell with $RDFN, or 1.5% if the seller only sale with $RDFN.

11.1 A $RDFN client save $8600 on average when they both buy and sell with $RDFN.

12. $RDFN buyer refund
Not only is listing cheaper with $RDFN, but a person can also save when they buy with $RDFN albeit the savings being smaller than a person listing. $RDFN sure is trying to save their customer money in every possible way.

13. Total Savings
For a typical US house with a median price of 350k, a buyer with $RDFN can save $765, and a seller can save $4810! Furthermore, a person will save even more with $RDFN if the house is more expensive.

14. Results
The stunning result is that $RDFN has nearly saved its customer 1 billion dollars.

15. Technology
$RDFN aims to make real estate transactions more efficient by using technology to remove friction and hassles. $RDFN aims to deliver a digital real estate experience, like what $AMZN did to retail shopping.

15.1 $RDFN is the first one who invented a map-based real estate search, showing $RDFN's technological innovation. (CONTINUE)

15.2 $RDFN also uses big data and machine learning in almost every process of a real estate transaction to make $RDFN's property search more accurate and provide better customer service.

16. 3D virtual tour
Every house listed on $RDFN can be toured virtually on a customer’s device. This feature saves $RDFN's customers time by enabling them to better pre-select the homes they like before going to visit them physically.

17. On demand tours
$RDFN makes touring homes easy. A customer just needs to pick a date and time and a local $RDFN agent will help the customer find ‘the one’. This provides flexibility for customers who have time constraint and make the touring experience more convenient.

17.1

18. $RDFN's agents salary structure
Real estate customers want agents that are on their side and not just driven by sales and commission. $RDFN seeks to change their agents’ behavior by hiring their ‘agents’ as ‘employee’ rather than ‘independent contract’.

18.1 $RDFN's employees are offered a base salary and a bonus that is not only based on performance but also on customer satisfaction rate. This motivates the agents to be a ‘truth teller’ and eliminates the conflict of interest between an agent and customer.

18.1 For many new agents within the real estate industry, it is hard to set their footing, however $RDFN provides their new agents with a great support program and regularly leads. This allow $RDFN's agent to not just worry about the commission but on their craft and on how well

18.2 they can serve their customers. In $RDFN's mind, the best agent is the one who gives the best service, not get the most clients, therefore, $RDFN tries their best to put their agents in the position to success.

19. Agents benefit
$RDFN is also the first major real estate broker that offers employee benefits and a great training and support program. According to Comparably below, $RDFN's benefit are quite great compare to other similar companies.

20. Focus on being the best employer
Glenn believes that ‘the only way to deliver the best service is to employ the best agents’, therefore at every $RDFN’s board meeting, the board always first discuss how can $RDFN be the best employer in real estate.

21.Results of focus on employees
$RDFN by providing better support to their agents, encourages their agents to be better agents and provide better service. Comparing to the real estate industry’s average, $RDFN's agents earn more, close more sales per year and are more likely to

21.1 stay with $RDFN. This creates a win-win situation for both the employee and customers!

21.2 Even if we take independent data rather than $RDFN's, it is still relatively clear that $RDFN's agent are paid considerably better than the industry average.

22. Sales volume and transactions per agent
$RDFN's agent also have the highest total sales volume, transactions per agent and efficiency. (This was a study done for compass by Mike Delprete, but look at $RDFN ranking at the top for all three)

23. eNPS and A Culture
$RDFN has a high eNPS and an A rated culture on Comparably. Not only on Comparably, if you go on to YouTube and watch some $RDFN agents review videos and comments, but most of them have a pleasant experience working for $RDFN.

24. Repeatable business
With better agents and service, $RDFN is able to have more durable and reputable growth over time (Source: $RDFN based on MLS, homes sold in 2020). $RDFN's percentage of brokerage sales from repeat and referral customers has grown from 17% to 21%.

25.The flip side
Since $RDFN provides great support/benefits to its employees, this will increase their labor costs. Nevertheless, $RDFN’s technology use should off-set this labor costs and the benefits of having better agents can well justified the higher cost.

26. Web presence is important
Internet account for almost half of the share where buyers found the home they purchased (2018), in 2021, the share should be even higher. It is important that $RDFN has an internet presence, which is exactly where $RDFN's tech edge comes in.

27. $RDFN search/website
$RDFN has a powerful and robust search tool. One main reason is that because $RDFN is a broker, $RDFN are assessable to many local multiple listing services (MLS), which have the most up to date real estate information that is only available to broker.

27.1 New listings are updated every 10 minutes on Redfin.com.However, $RDFN's management have commented that overtime this advantage will be mitigated.

27.2 Because of this, reviewers have commented that $RDFN has a more accurate search than $Z, because it is more up to date (sometimes when a house is under contract/offer, $RDFN will reflect the accurate information whereas $Z may not).

27.3 Having one of the best searches, most information and up to date, will be crucial for $RDFN because overtime people will start searching for their homes on the best real estate website (similar to you use google because $GOOG provides the best search).

28. Traffic of $RDFN website
$RDFN has claimed that it is the #1 most-visited brokerage site with 44 million average monthly visitors in Q4 2020 (up 44% YoY).

28.1 However, when we broaden the category by including all real estate players not only brokers, it is clear that $RDFN’s does not have enough traffic compare to other main competitors such as Zillow, compass and realtor (Google trend). CONTINUE

28.2 $RDFN will need to improve on this to attract more customers since $RDFN sources most of its customer on its website according to $RDFN management. Furthermore, with more website traffic, $RDFN will also be able to gather more data, improving their ability to generate leads

29. Redfin estimate
$RDFN estimate is an AI calculation of what the market value of an individual home is. Although $RDFN claims that for all their locations, $RDFN’s estimation median of error is only 2.71%, with 71.37% within 5%, 90.98% within 10% and 98.15% within 20%,

29.1 many people/reviewers on reddit, YouTube, Google have said that both $RDFN and $Z’s estimation is still inaccurate compare to human. Their AI still have room to improve on.

30. The Benefit
The result $RDFN having better agents, providing better and a full set of services and using technology for every step of the transactions, allows $RDFN to sell homes faster, for more money.

31. Revenue
$RDFN have been delivering stellar growth from 2015 to 2019, however in 2020 due to Covid, $RDFN's revenue growth has slowed. Nevertheless, as the US house market has been booming after Covid, $RDFN's revenue growth should be higher than 2020’s.

32. Market share
Despite having high revenue growth for many years, $RDFN's total market share of the real estate market is only 1% in 2020 (and 1.14% as of Q1 2021), indicating the huge potential runway in front of $RDFN as the real estate market is poised to be disrupt.

33. How much market share will $RDFN ultimately gets will determine the ceiling of $RDFN.

34. Gross Profit Margin
$RDFN's gross profit margin on their services is 23.20%, whereas products (Redfin Now aka Ibuying) is only 1.75%. These are both improvements to last year’s 11.76% and -23.71%.

34.1 On a yearly basis, $RDFN has also improved from 2019-2020. Although the Q1 numbers are lower than the annualized numbers, please do note that the real estate market is a cyclical one and is typically the weakest in the first quarter.

35. Net profitability
Although $RDFN has a positive gross margin, currently $RDFN’s net profit margin is only 0.6% with an operating margin of 3.14%. This means that $RDFN will need to continue to work on its profitability in the future, especially in the ibuying section.

36. Question – Redfin Now Margin
There are two main questions that must be answered for Redfin Now (and any Ibuyer) (1) Ultimately, how many houses will be sold to an ibuyer and how many of them will be sold to Redfin Now? (2) what will the margins on ibuyer be?

36.1 Ibuying is a very low margin business. However, arguably, $RDFN may not need to make money of Redfin Now. Ibuyer may be a method to attract more customers, and $RDFN can earn on margins and profit on the ancillary services that $RDFN provides.

37. Liquidity
At the present time, $RDFN have plenty of cash and a great current ratio of 7.18 for its current assets to covers all current liabilities. In the short run, $RDFN should not face any liquidity issues.

38. Valuation
As of June 20th, $RDFN has a price of $59, a P/S ratio of 6.3a EV/revenue of 6.20 and a market cap of $6.181 billion. It must be noted that although $RDFN's P/S ratio seems small, $RDFN's margin are not high. In comparison, $Z also have a similar P/S ratio at 6.24

39. *Risks – Valuation
According to the NAR, the median existing home sales price has rose by a record-breaking annual pace to a historic high. Properties are typically sold in 18 days, which is a record low. All these signals that the real estate market is in a hot boom because

39.1 of a strong post Covid recovery, ultra-low interest rates and people’s movement to rural areas.

39.2 Therefore, inevitably, investor’s emotions may have push $RDFN high and expensive, and when the real estate market cools down, there is a chance that $RDFN will pull back. But if you are a long-term investor, this should not be a big risk :)

39.3 $RDFN's stock will inevitably be tied to the real estate market, when it booms, $RDFN will also boom and vice versa.

40. Competitors
Since the real estate market is highly fragmented, there are many competitors for $RDFN. Some noticeable ones are $Z, $Open, Compass, Realtor and Remax (incumbents). The competition is fierce as all these companies are trying to disrupt the real estate industry.

41. $Z
$Z has been the one that has been most frequently brought up when talking about $RDFN’s competitors. $Z have quite a distinct model from $RDFN. $Z’s business is centered around creating a platform to acquire leads and sell them to external realtors (because $Z does not

41.1 have their own agents), whereas $RDFN is trying to become the one stop shop for real estate.

41.2 $Z is the most dominant in terms of market share, with app ranking above $RDFN, and highest traffic. Although $Z is not a direct competitor to $RDFN, there’s no denial that $Z indirectly are still $RDFN’s competitor.

41.3 One other distinction between $RDFN and $Z is that $Z is more aggressive, whereas $RDFN sometimes is not as aggressive. Glenn has mentioned that sometime $RDFN prefers to ‘tame some growth to be more stable’, to prevent lay off when experiencing a real estate downturn.

41.4 This is not good nor bad, just a way that Glenn and $RDFN is.

Nevertheless, the real estate market is definitely big enough to contain both $RDFN and $Z.

42. $OPEN
$OPEN is another real estate disruptor that are often mentioned. Again, different to $RDFN, $OPEN mainly aims at the ibuying section, not providing a full set of solutions.

43.Stigma of a ‘discount brokerage’
As $RDFN offers low prices, some people have the impression that $RDFN is a ‘discount broker’, which may give incumbents a name advantage. A reputation of ‘discount’ will imply that it will be hard for $RDFN to tap the higher end market.

43.1 In $RDFN’s q1’s call, $RDFN acknowledges that it will take $RDFN years to build their reputation in the luxury market, but $RDFN (and I also believe) that as $RDFN continue to deliver better results for customers, $RDFN is going to take share, it is only a matter of time.

43.2 Moreover, some people have referred to $RDFN’s agent as ‘inexperience’ because they are new to the market or only being part time agents. Although the majority have indicated a positive review on $RDFN, the stigma of $RDFN being a ‘discount’ brokerage should be improved for

43.3 better brand recognition, which is very important in real estate.

Nevertheless, all these should be solved when more customers experience great service provided by $RDFN

44. Conclusion
The real estate market is poised to be disrupt. With $RDFN’s savings to its customers, better service and becoming a real estate ‘one stop shop’, $RDFN has positioned itself well to be a part, if not leading, the disruption. Whether $RDFN will become the largest

44.1 winner of all real estate players will largely depend on how much customers/traffic $RDFN can attract. Nevertheless, $RDFN sure is doing a lot of right things putting itself at the correct position to win.

45.Thank you all for reading this thread. I hope you have learnt one or two things more about $RDFN. If you like it, please consider liking it and retweeting it so that this thread on $RDFN can reach more people! It really does help me out a lot! Appreciate all your support!

46. Please also consider following me on twitter @JoshuaTai0427 , I do regularly thread on exciting companies! My next deep dive will be on $JD, from a Chinese perspective, where I will discuss what Chinese people really think about $JD.

Tagging some $RDFN bulls and people that may be interested in the $RDFN thread! @BahamaBen9 @Innovestor_ @Invesquotes @HonestInvesting @PelotonHolder @sloth_investor @jeremymday @mukund @MaxTheComrade @MT_Capital1

@GetBenchmarkCo @max_damore @FromValue @BackpackerFI @ztinvesting @caleb_investTML

Will really appreciate any feedback and comments from you all! Thanks!

@GetBenchmarkCo @max_damore @FromValue @BackpackerFI @ztinvesting @caleb_investTML @jablamsky @fatbabyfunds @InvestiAnalyst @InvestmentTalkk @mystockvault @RedCoatChicago @anandchokkavelu @paul_essen

Would deeply appreciate all your feedback! Thank you!