On first glance, the question of whether Redfin shares will be profitable or not seems to be, to quote popular slang, a ‘no-brainer’. After all the fields of electronic commerce and real estate buying and selling have never been more popular among a wide range of people than they are this time. Surely an online real estate brokerage is the answer to the modern consumer and prospective home buyer or property developer’s dreams. However, when Redfin announced their forthcoming IPO in July 2016 there were concerns expressed by some observers, since Redfin was proposing the dive into waters already occupied by the established and successful concern, Zillow. Will there be enough for the customer for both of these concerns to flourish or must one wax as the fortunes of the other wanes? Will the property search service that Redfin offers make inroads into Zillow’s position? It is in considering like this that we will find the answer to the question posited by this article: Will Redfin shares be profitable?
The first matter to note when pondering on the possible future performance of Redfin shares is that the company already has a well-established presence in the online brokerage sector and also to remember that this presence was strengthened and reinforced by Redfin’s concentration on the technology they employed. Indeed, some observers at the time of the IPO wondered whether it would not be better to consider Redfin to be a tech company rather than an estate brokerage. The firm has been one of the leading exponents of map-based estate agency services, and these have been extensively and thoroughly plugged into all the local listings services. A follow-on to this highly automated services is Redfin’s ability to keep down the rate of their commission fees. This makes them a more attractive prospect to the potential customer, as the difference is estimated to be from 1-1.5% for Redfin as compared to 5-6% for old-fashioned brokers. Though the company does do business with outside brokers, over 70% of its transactions are carried out by its own agents. Clearly, this large advantage for customers will impact on the profitability or otherwise of Redfin shares.
All of the above sounds promising for the future of Redfin shares but there are a few warning signs that the potential investor would do well to ponder. One is simply that Redfin has, so far, constantly posted bottom-line deficits. In this way, it does show a striking similarity to many other tech companies at the time of their IPO. On the positive side, the deficits have been steadily reducing as top-line growth has been strong. Redfin has stated that they intend to use the proceeds of their IPO in ways that will continue to expand the success of their business, especially in the development of more or the types of technology that have produced their already quite considerable success. Redfin shares look to have a promising future.
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