Shares of Redfin Corp. experienced a pullback from their 15-month high on Wednesday, as D.A. Davidson’s Tom White expressed a bearish view on the real estate services company. White stated in a note to clients that Redfin has made progress in achieving sustainable profitability through cost cuts and a focus on higher-margin revenue streams. However, he believes this progress is already reflected in the company’s current valuation.
Redfin’s stock has surged an impressive 266.5% year-to-date, surpassing White’s $10 price target by 60%. In comparison, the S&P 500 index has gained 15.6% over the same period. Despite these gains, White downgraded his rating to underperform from neutral, while maintaining his $10 price target.
Before the market opened on Wednesday, Redfin’s stock dropped by 6.0%, following its highest price since April 7, 2022, on Tuesday. In July alone, the stock has risen by 25.1%, and over the past two months, it soared by 70.0%.
Despite Redfin’s remarkable stock surge, White’s research indicates that the company’s share of listings in the U.S. has only slightly increased and is significantly lagging compared to previous years. He also believes that with three rounds of job cuts in the past year, it will be challenging for Redfin to improve its listings trend.
Redfin recently implemented a change in strategy to redirect more online customer leads to its network of third-party partner brokerages. This move aims to accelerate the company’s path to profitability but may act as a headwind for its listings share. To counter rivals like Zillow Group Inc., Redfin might need to invest more in driving traffic to its website and stimulate growth in digital ad revenue.
