Happy pre-holiday Friday. Of course, right before we turned off the monitors and drank the dregs of the last Diet Coke, another tech company filed to go public.
Who? Redfin? For how much? It has $100 million written down, but that’s likely a placeholder. Let’s quickly remind ourselves what the hell a Redfin is, and then break down its numbers.
We’ll explain this twice, I think, to get a good handle for it. First up, let’s see what Crunchbase has on deck for Redfin, according to its profile:
“Redfin provides real estate search and brokerage services through a combination of real estate web platforms and access to live agents.”
In case that makes no sense, we can also turn to the company’s S-1 for a longer dissertation:
Redfin is a technology-powered residential real estate brokerage. We represent people buying and selling homes in over 80 markets throughout the United States. Our mission is to redefine real estate in the consumer’s favor.
That helps a bit more. And as you can already see, this IPO could be a treat. It isn’t one large cloud company selling cloud products to other cloud companies, all of which run on the public cloud of another company that does cloud but also sells soap. (Hint.)
To the numbers!
Redfin’s Red Ink
Sadly, like the enterprise IPO fare we so often chew over together, Redfin is unprofitable.
The company’s S-1 contains the usual wealth of information, most critical of which are its operational results. For the number kids, here’s the raw stuff that we’ll gist down in a moment:
If you want a quick tutorial, the years (2014 and on) should be read left to right. So, if positive numbers, like revenue, go up as you scoot right, that’s good. For numbers that shouldn’t be negative, but are, like losses, go up as you scan right, that’s bad.
But there’s some real nuance to Redfin’s numbers that we need to unpack. The company has grown its revenues consistently, including 42.6 percent in 2016, from $187.3 million in the year-prior to $267.2 million.
And the company’s GAAP net loss fell, from $30.2 million in 2015 to $22.8 million in 2016. That’s the right direction, and as the company’s losses are falling as its revenue grows, indicate improving margins.
If you caught our issue already, good work. What we have to understand is how a company that lost only $22.8 million last year lost $24.4 million in the first quarter of 2016. Why do we care about that? Because the company’s first quarter of 2017 looks bad in loss terms, we need to grok its year-ago cognate.
Yucky First Quarters
The answer to how Redfin lost so much in the first quarter of 2016, but only a bit more in the full year, is explained in its filing. In short, the company is seasonal in a way we don’t see too often; Redfin sees higher revenues during the middle two quarters, and, thus, smaller losses and even some GAAP profits.
That’s why the first quarter of 2016 was rough, and why the first quarter of 2017 looks as bad as it does compared to the firm’s full-year 2016 GAAP loss. Observe the gyrating profit results below:
Got that? That’s not only very interesting but changes what our initial perspective of Redfin might have been. This company is healthier and more mature than its first quarter 2017 gross profit would otherwise indicate.
(We won’t discuss the macro-health of the housing market. Mostly because we don’t know anything about it. Also, housing is boring.)
Let’s check the rest of the vitals and get out of the office.
In all of 2016, Redfin used just $9.3 million in cash to fund its operations. Compared to its $200 million-plus revenue generated in the year, and its 40 plus percent growth rate, that’s likely just fine by investors.
Notably, the firm did burn more cash in the first quarter of 2017 than 2016 ($22.0 million, compared to $19.3 million in the year-ago quarter). That could imply that Redfin is paying more for growth as it scales. But that modest margin pressure won’t matter too much if it can pop a few GAAP profitable quarters this summer as it did in 2016.
The company has just under $38 million in cash, which, stacked against its operational cash burn, is quite low. We’ll have a better way to handicap that number when we figure out how much the firm actually wants to raise. For reference, Redfin has raised a total just under $168 million as a private company. It last raised $71 million in late 2014.
The company is not listed on the Crunchbase Unicorn leaderboard, so we could be on the hook for a very interesting pricing period.
More when it sets a range.