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Redfin Reports Q4 Financials and Strategic Moves for 2025

Redfin is adjusting its compensation structure in 2024, beginning this month, by eliminating vacation pay and other benefits that agents prioritize less than their bonuses. This decision is expected to enhance gross margins in real estate services for the first quarter, following a reduction in entitlements made in February. As winter agents start closing sales, second-quarter margins are also anticipated to rise.

The company is optimistic about year-over-year gains in both real estate services margin and market share, which it attributes to increased demand stemming from an expanded sales force. Redfin plans to improve monetization across all business segments, primarily by continuing sales of mortgage and title services.

Mortgage attach rates fell to 26% in the fourth quarter but rebounded to 29% in January after announcing a customer incentive for agents with high attach rates. Title attach rates rose to 63% in the fourth quarter, up from 60% a year ago. The title segment, now reported separately, generated $8 million in adjusted EBITDA for 2024—an increase of $9 million over 2023. Such ancillary sales are expected to generate more demand moving forward.

In a first for the company, Redfin profitably invested in broader homebuyer campaigns on platforms like Google and Facebook during the fourth quarter. This move leveraged revenues from mortgage and title services, marking a shift from only focusing on home sales. By enhancing the rental audience with more listings, Redfin aims to better monetize this segment, even without increased traffic. Despite Zillow’s $100 million upfront payment, it’s expected that revenue from rental leads generated through the Zillow-Redfin partnership will bolster profits. However, Redfin plans to lay off approximately 450 rental employees between February 21 and June 30, primarily affecting sales and support roles.

The company acknowledges the significant contributions of its employees and aims to invest in technology for sites like rent.com and apartmentguide.com. Previously, the search experience for apartment seekers was prioritized over monetization, as listings were not optimally generating revenue. With the Zillow partnership, Redfin can now feature listings from paying property management clients, eliminating the need for unpaid options.

Furthermore, earning a fixed amount for every apartment inquiry simplifies the scaling of their audience through direct marketing and website improvements. The broader monetization strategy includes continued profitable growth from digital advertising to both for-sale and rentals audiences. This segment now known as monetization, earned $15 million in adjusted EBITDA, reflecting a 46% increase from the previous year. Future growth is expected through direct sales to advertisers who previously accessed the audience via ad networks.

While investors typically support the strategy to better monetize their audience and grow traffic, Redfin has delivered more concise remarks this time, recognizing the importance of executing their plans effectively to achieve share gains and profits.

The housing market outlook remains cautious. Redfin is focusing on gaining market share as significant home sales recovery seems unlikely in 2025. Demand surged after the November election, but high-interest rates could hinder affordability for current homebuyers. Year-over-year growth pressure in home sales is expected to ease following the first quarter, as 2024 started with an annualized rate of 4.3 million existing home sales compared to 3.9 million in September 2023.

As the difficult year-over-year comparisons lessen, home sales in the U.S. are projected to strengthen through summer, especially if inventory continues to rise and sellers ease their pricing strategies. The market dynamics have shown volatility; for instance, Cincinnati agents report widespread bidding wars, while Jacksonville has shifted entirely to a buyer’s market. Currently, for the four weeks leading up to last Sunday, homes sold took 15% longer to sell compared to the previous year.

While an immediate sharp rebound appears unlikely for 2025, the worst of the downturn may be behind us. The recovery cycle is expected to resemble that post-Great Financial Crisis—slow and gradual—due to the cultural significance of homeownership in America.

Take it away, Chris.

Chris Nielsen — Chief Financial Officer

Thank you, Glenn. In the fourth quarter, Redfin generated revenue of $244 million, representing a 12% increase from the prior year. Gross profit also rose by 12% to $82 million, with total gross margin remaining stable at 34%. Operating expenses totaled $112 million, reflecting a $5 million decrease year over year.

This reduction was largely due to a $4 million decline in rental amortization and a $4 million drop in software expenses, the latter driven by one-time vendor credits. However, these reductions were partially offset by a $3 million increase in marketing expenses. Our adjusted EBITDA loss for the quarter was $3 million, an improvement from a $13 million loss a year earlier.

The improvement in adjusted EBITDA was evident across all segments. The net loss was $36 million compared to a net loss of $23 million the previous year, which was below our guidance range of $32 million to $25 million losses, primarily due to unexpectedly high transaction bonuses in our brokerage segment. The diluted loss per share attributable to common stock was $0.29, up from $0.20 last year.

Examining our segment results for the fourth quarter, real estate services—including brokerage and partner businesses—brought in revenue of $149 million, a 12% year-over-year increase. Brokerage revenue rose 13%, reflecting a corresponding 13% increase in brokerage transactions, although brokerage revenue per transaction remained flat. Partner revenue climbed 3%, despite an 8% drop in transactions, owing to a 13% rise in revenue per transaction.

The gross margin for real estate services stood at 21.9%, down 60 basis points from the previous year, mainly due to a 700-basis-point uptick in personnel costs and transaction bonuses. This was somewhat offset by a 380-basis-point decline in home touring and field expenses, achieved by shifting compensation to be contingent on closed transactions rather than fixed salaries. Additionally, there was a 110-basis-point decrease stemming from home improvement costs incurred for home sellers. The net loss for real estate services in the fourth quarter was $16 million, an improvement from a net loss of $21 million the prior year.

Finally, our rental segment continued its growth streak, with revenue of $52 million, marking a 5% increase.

Company Reports Mixed Financial Results Amid Strategic Changes

The company has reported a decline in rental gross margin, now at 77.5%, down from 77.5% a year ago. The net loss for rentals stood at $5 million, an improvement from a $10 million loss in the previous year.

Financial Performance Overview

In the fourth quarter, the adjusted EBITDA was $4 million, up from $3 million year-over-year. The mortgage segment saw revenue of $30 million, marking a 15% increase from last year. Mortgage gross margin improved significantly to 10.9%, rising from 4.6% in the previous year. The net loss for this segment remained stable at $5 million compared to the prior year.

The adjusted EBITDA loss in the mortgage segment decreased to $3 million, down from $5 million in the previous year. Detailed segment reporting now includes results from both the title and modernization businesses. The title segment generated $9 million in revenue, a 58% increase from the previous year, and its gross margin rose to 26.2%, up from 2.2% a year ago. Notably, net income for the title segment stood at $2 million, a turnaround from a loss of $500,000 in the previous year, while adjusted EBITDA reached $2 million compared to a loss of $400,000 last year.

Revenue from the monetization segment was $4 million, representing a 9% year-over-year growth. With net income at $3 million, this figure indicated a slight increase from the previous year, with adjusted EBITDA also reaching $3 million, reflecting a small rise year-over-year.

Quarterly Financial Outlook

Looking ahead to the first quarter, total revenue is projected to be between $214 million and $225 million, indicating a year-over-year decline of up to 5% or remaining roughly flat compared to Q1 2024. The breakdown includes real estate services revenue projected between $126 million and $131 million, rentals revenue between $49 million and $51 million, mortgage revenue ranging between $27 million and $30 million, title revenue of around $8 million, and monetization revenue of approximately $4 million.

The anticipated gross margin for real estate services is expected to range between 17% and 18%, representing an increase of approximately 150 to 290 basis points year-over-year. However, total marketing expenses are set to increase to around $40 million, up from the previous year by $15 million, largely due to heightened spending on mass media marketing. Expectations suggest that such sharp increases in marketing expenditures will not continue throughout the remainder of 2025 as savings on rentals marketing will balance out the rise in mass media costs.

In Q1, the company anticipates restructuring charges of $21 million to $24 million. This includes approximately $18 million to $21 million related to the Zillow partnership, with another $3 million tied to a workforce reduction completed in January. Of the total restructuring costs, anticipated cash charges will be between $14 million and $17 million, with the remainder expected to be non-cash charges from write-offs unnecessary for the business moving forward. The expected total net loss for Q1 is anticipated to fall between $94 million and $83 million, with an adjusted EBITDA loss forecasted between $39 million and $32 million.

Zillow Partnership Impact

Before entertaining questions, the company elaborated on the implications of the new Zillow partnership for the rental segment’s financials. Once fully operational by July 2025, rental revenue will primarily come from payments received from Zillow for apartment seeker leads, plus the amortization of deferred revenues stemming from a $100 million initial payment. Q1 rentals revenue guidance will include roughly $2.5 million in deferred revenue from this initial payment but will not account for revenue generated from leads due to the partnership’s implementation timeline. As the transition unfolds, a decrease in rentals revenue is expected, but corresponding expenses will reduce even more, resulting in an anticipated tripling of adjusted EBITDA for this segment in 2024 on a run-rate basis.

Questions & Answers:

Operator

Thank you. We will now proceed to the question-and-answer session. [Operator instructions] Please hold while we collect questions. Our first question comes from Naved Khan with B. Riley.

Naved Khan — Analyst

Thank you. I have two queries. First, can you help clarify the rationale behind the $40 million advertising budget for Q1? Is there a timing factor compared to last year? Also, any insights on marketing expenditures moving forward? Secondly, could you provide guidance on full-year EBITDA and free cash flow profitability considering the new partnership and other adjustments?

Glenn Kelman — Chief Executive Officer

Certainly. We’re initiating advertising earlier this year to capture the attention of homebuyers as they begin their search process. This approach aims to ensure our presence is front of mind as they consider brokers for listings. So far, our advertising efforts are generating the expected increase in demand, which is a positive indicator.

We’ve noted demand spikes in January, occurring even before the mass media campaign commenced. Given the current landscape of rising interest rates, we are pleased that our marketing expenditures are yielding results and will carry through June, providing more leverage in the latter half of the year. We anticipate strong profitability in 2025.

We haven’t ramped up advertising in light of cost savings; rather, recent restructuring efforts have positioned us to invest more in growth by scaling back on staffing costs. Additionally, the Zillow partnership allows us further flexibility in demand generation.

With a 25% increase in our agent count and improved quality among agents, we believe the outlook is promising for revenue growth.

Chris Nielsen — Chief Financial Officer

To add, while marketing expenses are indeed up by $15 million this quarter, we don’t anticipate similarly large increases in the upcoming quarters.

Naved Khan — Analyst

Understood. So some increase year-over-year would be expected, is that correct?

Chris Nielsen — Chief Financial Officer

Yes, generally speaking, that would be a fair assessment depending on the advertising mix.

Naved Khan — Analyst

Regarding full-year profitability, can you provide any magnitude estimates for EBITDA or free cash flow?

Glenn Kelman — Chief Executive Officer

We’ve described our goal as achieving significant adjusted EBITDA—not just marginal gains, but aiming for millions in adjusted EBITDA.

Naved Khan — Analyst

Thank you for the insight, Glenn.

Operator

Thank you. Our next question comes from John Campbell with Stephens Inc. Please proceed with your question.

John Campbell — Analyst

Good afternoon. Regarding the lead agent count metric, it seems there’s a notable quarterly average. Comparing Q4 to Q2 reveals a 12% increase. Glenn, I believe you mentioned earlier that the agent count was up 25% from six months ago, indicating a strong year-end result. Could you elaborate further on this trend?

Redfin’s Agent Growth and Revenue Insights Show Promising Trends

Interview Excerpt with Glenn Kelman, CEO

In a recent discussion, Glenn Kelman, the Chief Executive Officer of Redfin, provided updates on the company’s current agent count and its comparative metrics over the previous quarters. As of last week, Redfin’s agent headcount exceeded 2,200—representing a significant increase from an average of 1,757 in the third quarter, translating to a growth rate of approximately 25%. This surge in hiring began in the fourth quarter and continued into the first two months of the current year, demonstrating Redfin’s success in onboarding capable agents.

This influx of new agents is notable, especially as their performance has surpassed existing agents in critical areas of the sales funnel, particularly in customer engagement and securing offers. Kelman emphasized this positive trend, noting that experienced agents are now a substantial portion of new hires, contrasting earlier practices of recruiting novice agents who needed extensive training.

Insights from John Campbell, Analyst

John Campbell, an analyst, sought clarification on the typical ramp-up time for newly hired agents. Kelman responded that while there are historical reasons for longer ramp times—primarily hiring less experienced agents—current practices focus on recruiting seasoned professionals. Consequently, the time it takes for agents to begin generating income remains partially affected by the sales cycle, which typically spans four to six months.

Financial Overview by Chris Nielsen, CFO

Turning to the financial landscape, Chris Nielsen, the Chief Financial Officer, addressed concerns about the rental business’s profitability and overall revenue metrics. Notably, Nielsen reported that profits in the rental segment had tripled compared to the previous year, reaching approximately $13.5 to $14 million. However, uncertainty surrounds the overall revenue, which stands at about $200 million as of year-end. Analysts were apprehensive regarding potential revenue declines, suggesting it could be a substantial drop, although not anticipated to reach 90%.

Nielsen explained that a significant driver for the expected drop is a transition away from digital services, which previously contributed a third of total revenues. The core advertising sector will also see declines in revenue; however, the focus remains on improving marketplace growth and profit potential for consumers. Kelman reiterated this outlook, confirming that while overall revenues might decrease, the company aims to bolster its lead generation capabilities and overall market presence through strategic partnerships and expansions.

Questions from Dae Lee, Analyst

Following up, Dae Lee from JPMorgan questioned the company’s market share dynamics, particularly in newer versus older markets. Kelman responded by acknowledging Redfin’s successes in previously launched markets without providing granular data on specific locations. The early results in newer markets show promise, particularly among higher-end listings, supported by the performance metrics of newly recruited agents.

Dae Lee further inquired about Redfin’s marketing plans for 2025, speculating whether these strategies reflect greater confidence in the Next program or the overall economic landscape. In reply, Kelman indicated that while the integration of skilled agents plays a role in facilitating demand, recent internal restructuring allowed for an increased investment in marketing and growth initiatives, rather than an optimistic forecast based on macroeconomic conditions.

In conclusion, Redfin’s leadership reflects optimism regarding the company’s trajectory, emphasizing strategic growth in agent recruitment and profitability, despite challenges in revenue streams.

Redfin’s Strategic Adjustments Aim for Increased Market Competitiveness

As Redfin navigates through 2024, the company is emphasizing its ability to meet demand, partly attributed to its Next initiative. CEO Glenn Kelman highlighted that even without this program, the firm needed to enhance its competitive stance to capture more traffic in a crowded market.

Kelman’s strategy emerges in response to observing rivals ramping up their advertising efforts. He stated, “We’ve got to restructure the business to ensure that we can go toe to toe with anybody.” This restructuring is crucial as the real estate market faces growing competition.

Dae Lee — JPMorgan Chase and Company — Analyst

“Makes sense. Thank you.”

Glenn Kelman — Chief Executive Officer

“Thank you.”

Operator

“Our next question comes from Jason Helfstein with Oppenheimer and Co. Please proceed.”

Jason Helfstein — Analyst

Helfstein inquired specifically about the Clear Cooperation policy and Redfin’s strategic leverage within the market. He also touched on mortgage gross margins, asking about the recent sequential decline, and sought clarity regarding increased operational expenses.

Glenn Kelman — Chief Executive Officer

“Starting with Clear Cooperation, the industry is grappling with its implications. Interestingly, the main supporter of Clear Cooperation once held the 13th position in real estate web traffic but has now fallen to 21st. This shift illustrates that keeping inventory exclusive to one platform detracts from the exposure that larger platforms can provide.” Kelman suggested that new methods may be needed to encourage sellers to list on Redfin.

He pointed out that as the housing market cools, with an increase in average days on the market by 15%, it’s challenging to justify diminishing visibility for property listings.

Chris Nielsen — Chief Financial Officer

Nielsen provided insights on the mortgage gross margin, noting a sequential decrease, which is typically expected as the fourth quarter approaches. However, there was an annual increase from 4.6% to 10.9%. He explained, “Lower volume impacts gross margins as fixed costs remain consistently high.” He also clarified that operational expenses related to mortgage were up year-over-year, chiefly in comparison to the reduced stock-based compensation in the previous fourth quarter.

Jason Helfstein — Analyst

“OK. Thank you.”

Glenn Kelman — Chief Executive Officer

“Thank you, Jason.”

Operator

[Operator instructions] Our next question comes from Ygal Arounian with Citi. Please proceed.

Ygal Arounian — Analyst

Arounian shifted the discussion to Redfin’s collaboration with Zillow regarding rental traffic. He asked about the share of rental traffic on Redfin.com and the anticipated benefits of increased rental inventory. He also questioned the future of agent attrition and hiring plans.

Glenn Kelman — Chief Executive Officer

“While we have not disclosed specific rental versus for-sale audience segmentation, we estimate that about 20% of homebuyers are also looking at rentals. The crucial point for us is that as search engines evaluate our web authority across all real estate categories, we need to enhance our rental listings to compete effectively, especially after seeing jumps in traffic from competitors.” Kelman expressed a positive outlook for traffic growth in 2025 as they focus on improving rental inventory.

Arounian also sought clarity on agent attrition rates and Redfin’s hiring strategies. Kelman noted that while a transition may spark some initial disruption, the company has not seen significant attrition since the changes were implemented. “Our agents are high performers, and the new compensation plan has been well received.” He added, “We plan to continue hiring to optimize our sales force, as under-monetization remains an issue within our for-sale demands.”

In conclusion, Redfin is making strategic adjustments to enhance its market position, driven by a need to fully leverage both listings and the strength of its operating structure as it transitions into the coming year.

Redfin Discusses Agent Strategy and Market Demand in Recent Earnings Call

In a recent earnings call, Redfin highlighted its commitment to hiring and training top-tier real estate agents. The company’s goal is to ensure visitors to their website receive quality service from skilled professionals. As Redfin CEO Glenn Kelman explained, “The whole reason you have a website that decided to hire its own agents is because we think we can be the only brand, the only real estate destination.” By building a strong team, Redfin aims to monitor performance closely and uphold its service promise.

Demand and Marketing Initiatives

Analyst Ygal Arounian inquired about the recent uptick in demand, particularly noting that January recorded the lowest pending home sales as tracked by the National Association of Realtors (NAR). He asked if Redfin’s combination of a robust sales force and increased marketing spending would result in significant market share gains this year. Kelman responded cautiously, stating, “We’ve learned to be careful about counting chickens before they hatch.” However, he indicated a strong optimism regarding listing demand and highlighted their unique position, stating, “We’re not just a pure website. We have our own listings.”

Kelman also observed a shift in consumer behavior, with buyers looking for lower listing fees. He noted, “Buy-side demand mostly tracks with website traffic, but sell-side demand seems to correlate with consumers’ willingness to seek better deals,” reinforcing the notion that market dynamics are changing.

Economics of Redfin Next

Another analyst, John Colantuoni, probed into Redfin’s economics regarding their agent recruitment strategy. He asked for details on the ratio of agents closing Redfin-generated leads versus self-sourced leads and how it influences gross margins. Kelman explained that agents generally receive higher commission splits for self-sourced business but elaborated on how the mix of sales has performed as anticipated. He noted a significant aspect of their strategy is to recruit agents skilled in securing Redfin-sourced business, which offers higher profit margins.

Confirming Kelman’s insights, Redfin CFO Chris Nielsen pointed out the company’s efforts to find cost reductions beyond just agent compensation. Nielsen mentioned, “We have fewer managers this year than we did last year” and highlighted an expectation for improved efficiency within the support staff. This approach aims to enhance gross margins while ensuring customer and agent satisfaction.

Future Projections and Transition Costs

Kelman shared constructive feedback on the anticipated benefits of their strategy, noting that new agents are expressing a desire for adjusted per-transaction support costs as they benefit from Redfin’s level of support. This alignment could yield greater operational leverage over support costs in the long term.

In a follow-up, Colantuoni sought clarification on the transition costs that presented challenges in meeting financial expectations. Nielsen explained that some costs associated with the national rollout of their programs were higher than previously estimated. He stated, “We can see that just some of the base costs associated with agents month to month were somewhat higher than we expected,” leading to adjustments aimed at improving profit margins for 2025.

Overall, Redfin appears committed to enhancing its agent model and gaining customer trust, aiming for a stronger position within the competitive real estate market. The company’s strategies reflect an understanding of both market demands and internal efficacy as they look to the future.

Operator

The next question comes from Tom White with D.A. Davidson. Please proceed with your question.

Redfin CEO Discusses Market Share Trends During Conference Call

Great. Thanks. Just one for me. Glenn, maybe a follow-up to your comments about your market share trends in your earliest Redfin Next markets.

It seemed maybe you sort of implied that in kind of the higher-end markets, maybe your share gains were most pronounced. I was just curious if — as you look kind of across the country and the more recently rolled-out markets, are there any kind of structural factors or sort of unique elements about those other markets? Maybe it’s different home values, or perhaps just an awareness of the Redfin brand. I don’t know, that might cause them to have a different kind of share trajectory than the first four markets or whatever? Thanks.

Glenn Kelman — Chief Executive Officer

Sure. Well, I already mentioned one factor, which is that markets where Redfin has been established for a long time tend to have agents with higher salaries. At some level, that situation became economically irrational, leading to unavoidable churn among agents.

As a result, we expect a one-time transition impact on market share within those established markets. Additionally, low home price markets present another factor. Prior to Redfin Next, our model was effective for agents selling homes priced at $400,000. However, it was less advantageous for agents handling $4 million homes. For example, Chicago exhibited more reservations about Redfin Next compared to a market like San Francisco.

However, I have to note that agents who were displeased with the situation six months ago are now much more satisfied. While no general statement applies universally, some agents were satisfied six months ago and others remain disgruntled. But the noticeable difference in morale is largely attributed to receiving more commission checks, even in markets with lower home prices. I understand that life is unpredictable, and as the saying goes, you can’t count your chickens before they hatch. But overall, things feel quite positive right now.

It feels pretty good.

Tom White — Analyst

Thank you.

Operator

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Glenn Kelman for closing comments.

Glenn Kelman — Chief Executive Officer

We’re going all out, everybody. Thank you for joining this call. We appreciate the turnout, and now it’s time to refocus on selling houses. Have a great February and March.

Operator

[Operator signoff]

Duration: 0 minutes

Call Participants:

Meg Nunnally — Head of Investor Relations

Glenn Kelman — Chief Executive Officer

Chris Nielsen — Chief Financial Officer

Naved Khan — Analyst

John Campbell — Analyst

Dae Lee — JPMorgan Chase and Company — Analyst

Jason Helfstein — Analyst

Ygal Arounian — Analyst

John Colantuoni — Analyst

Tom White — Analyst

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