Redfin (RDFN $12-14) is planning to come public this week. The company is basically an online platform for residential real estate sales.
Elephant #1: Zillow
Anyone familiar with this space would know that it’s dominated by Zillow (Z) which has been an active consolidator in the space (they acquired their main competitor Trulia in 2014.) Zillow is a much larger online presence with 166M average monthly visits versus 21M for Redfin.
In addition to a much larger consumer footprint, more listings and improving relationships agents it is a strong and entrenched competitor for Redfin. Zillow has is also evolving their model away from simple display advertising to agent fees/commissions, mortgages and rental properties. Finally, Zillow has plenty of M&A firepower.
Elephant(s) #2: Realogy, Re/Max:
Redfin has a hybrid model which includes employing their own agents (Redfin has over 2,000 employees). That makes them similar to Realogy (RLGY) or Re/Max (RMAX). Realogy has over 14,000 affiliated offices and 274,500 agents. Re/Max claims over 100,000 agents in the field. Both of these large real estate brokerage firms are worldwide and dominate many local markets.
Strangely Redfin doesn’t mention any of these companies in their IPO roadshow presentation. We even took the time to create a complete roadshow transcript. The central point of their investment story is that they have built a unique and improved platform which is more efficient and delivers much-improved customer service. This was a good argument ten years ago but is less true today.
The real estate industry woke up some time ago thanks to the success of Zillow. Successful agents realized that they would actually have to work hard for their clients and earn their commissions. The large brokers like Realogy have embraced technology to improve their own process. For example, Realogy sponsors an industry innovation summit. Looking down the list of the 15 finalists this year it’s apparent that many represent features that can be added to existing platforms to replicate much of what Redfin offers.
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