It was a great day for Redfin, the Seattle-based real estate site that finally went public after 13 years as a startup. After pricing higher than expected at $15 per share and raising $138 million, the stock soared 45 percent before closing the day $21.72.
This gives Redfin a market cap of $1.73 billion, well above its last private round, which was about $770 million. Redfin raised over $167 million in equity funding over the years.
“It’s better than going down,” CEO Glenn Kelman exclaimed about the company’s great first day. But he downplayed expectations, saying it was “not enough volume” to be indicative of long-term performance yet.
When asked if that meant the company would do a secondary offering, releasing more shares, he quipped, “I feel like I just got married and you’re just asking about my second wife!”
The very candid Kelman said that now was the right time to go public because it had become harder to sell shares in the secondary (pre-IPO trading) markets. “Once that bubble popped…it was inevitable that we were going to go public,” he said, expecting that public investors will now pay more than private investors.
Kelman characterized Redfin as the “Amazon of real estate” because he wants his company to be a one-stop shop for all things real estate. Redfin has grown into a large marketplace for home listings, but it recently began originating mortgages, too. We can’t “just reinvent half of it, we gotta do the whole thing,” he said about building a comprehensive real estate business.
It wasn’t a perfect week for Redfin. Just days before the IPO, one of its original co-founders threatened a patent lawsuit. Kelman claims he doesn’t know much about it yet, saying the company submitted a filing as a precautionary measure.
He isn’t necessarily optimistic about the real estate market, either, saying it’s been “super weird” with an “inventory crunch for four straight years,” which he attributes to low wage growth. Still, he doesn’t seem too worried about it impacting Redfin, because he hopes investors will focus on its market share, rather than the trends in the overall market.
Greylock Partners stands to benefit the most from the IPO since the firm owned a 12.4 percent stake prior to the offering. Madrona Ventures owned 11.4 percent, Tiger Global owned 10.5 percent, and DFJ owned 10.2 percent.
“We are proud of Redfin’s unique and powerful culture, which emanates from the CEO and creates a super conductive energy that unites the team,” said James Slavet, a partner at Greylock. “We appreciate the hard work and deep commitment that has gotten the company to this milestone.”
Redfin makes money by taking a cut of the home sales generated by its site. The IPO filing touted stats that show the commission is lower than the industry average.
Investors seem to like Redfin’s improving financials. The company has shown strong year-over-year growth. Its top line was $267.2 million revenue for last year, up from $187.3 million in 2015 and $125.4 million in 2014. Losses narrowed to $22.5 million for 2016, down from $30.2 million in 2015.
Redfin’s first quarter showed growing losses, largely due to the introduction of its mortgage origination business. In the first quarter of 2017, it lost $28.1 million, up from the $24.3 million loss in the same quarter of last year.
When asked what he was planning to do with the proceeds from the IPO, Kelman joked, “I’m going to blow it in Vegas!” He then acknowledged that it has yet to be determined, saying that they “don’t have a specific use for the money,” but that it “opens a lot of doors for you when you have a lot of cash on your balance sheet.”
He’s not worried about spending too much on his employees. Kelman was proud to point out that Redfin hires real estate agents as full-time W-2 employees, with healthcare and other benefits. “Treat people the way you think you ought to be treated, and they treat your customers better, too.”
Redfin isn’t the first Seattle-based real estate site to IPO. Zillow, which now owns Trulia, went public in 2011.
Redfin listed on the Nasdaq under the ticker “RDFN.”