KeyBanc: Redfin Is Poised For Steady Share Gains, But At The Cost Of Margin Expansion

Although Redfin Corp RDFN should steadily gain market share for the foreseeable future by offering lower-cost services, it may not be possible for the company to “simultaneously expand margins at a level that would justify upside in the shares from current levels,” according to KeyBanc Capital Markets.

The Analyst

Andy Hargreaves initiated coverage of Redfin with an Sector Weight rating and $16 price target. 

The Thesis

Redfin’s site traffic provides a cost advantage in customer acquisition, enabling the company to offer lower-cost services, Hargreaves said in a Thursday initiation note. (See his track record here.) 

Passing along these costs savings adversely impacts Redfin’s profit outlook, the analyst said, adding that the company has not demonstrated an ability to simultaneously gain market share and drive margin expansion.

The market's fragmented nature limits Redfin’s ability to gain enough share to dominate, he said. 

“Redfin lacks the capital and scale to compete in the iBuying market with more well-funded competitors, in our view,” Hargreaves said.

While the analyst said RedfinNow could be a valuable lead generation tool for brokers, he said it's unlikely to become a meaningful contributor to long-term profits for the company.

Price Action

Redfin shares were down 0.53% at $16.76 at the time of publication Friday. 

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