Profit companies

Does a good earnings season portend trouble?

Strange things are brewing in real estate.

In the past two weeks, at least 11 major real estate companies have released earnings reports. These reports described the performance of different companies in the first three months of this year and, for the most part, they were optimistic. Generally, these companies have been able to plausibly claim that they are doing better now than they were a year ago. Their leaders were almost universally optimistic about their prospects. Revenues were up.

And yet.

There was also a sense of worry. Perhaps it was the fact that despite the increase in revenue, companies saw other metrics drop. Perhaps it was the number of times the word “headwinds” came up during calls with investors. Maybe after two years of the pandemic, everyone is just tired.

But anyway, this latest round of gains had two big themes. The first is that the good times keep rolling. But the second is that they can’t last much longer.

good times roll

It cannot be overemphasized that it has, in general, been a good earnings season for real estate companies. Zillow, for example, managed to reverse its catastrophic losses from an earlier quarter and turn a profit of $16 million. The mega-portal also generated $4.3 billion in revenue, a 250% year-over-year increase.

Results for eXp Realty were equally positive: the brokerage grew revenue 73% year-over-year to $1 billion and saw gross profit increase 56% to 83.5. millions of dollars.

The inherited societies also had decent quarters. RE/MAX, for example, grew revenue 25.9% year over year and managed to post a profit of $1.5 million, up slightly from the first quarter of 2021. Keller Williams – which is not a public company and does not publish revenue and profitability figures – disclosed that its agents had agent sales volume of $108.4 billion in the first quarter of 2022, or a 10.5% year-over-year increase.

Finally, Redfin also had a good week. Although the company recorded a net loss of $90.8 million, it also beat analysts’ expectations and posted revenue of $597.3 million. And that was apparently enough for investors, as shares of Redfin jumped nearly 10% the day after the earnings report was released.

The list of positive reports could go on and on, but the point should be clear by now: Overall, the past two weeks have been a strong earnings season.

iBuyers did particularly well

Another thing worth mentioning here: iBuyers had a great week.

First, Offerpad revealed that it had its second profitable quarter in a row, while revenue was also up 384% year-over-year.

In arguably even bigger news, Opendoor had its profitable first quarter. The company specifically made $5.2 billion in revenue and posted a net profit of $28 million.

That the iBuyers are doing well was not a foregone conclusion. Last fall, Zillow – then the second-largest iBuyer after Opendoor – announced that it was pulling out of the cash offers market. This news sparked a debate about whether iBuying itself is truly sustainable, and whether other companies might ultimately repeat Zillow’s stumble.

This week’s earnings report suggests that won’t be the case and supports the idea that iBuying is here to stay.

The good times may not last long

Despite all this good news, it was hard not to notice what seemed like warning signs in all these earnings reports. In some cases, it was because business leaders had explicitly mentioned problems on the horizon.

Glenn Kelman | Photo credit: Redfin

For example, Redfin CEO Glenn Kelman said his company was “very cautious about the housing market as a whole.”

“The point of maximum suffering is when those who are most prepared will win,” Kelman also said. “Redfin has come to this point in our race.”

Comments from Zillow CEO Rich Barton were similarly hectic and described the housing outlook as “unstable”.

And Fathom Realty CEO Josh Harley said on a call with investors that “these market conditions are not good for the majority of real estate companies.”

Mark King

Many business leaders have also raised “headwinds”. EXP’s Glenn Sanford used the word. So does Zillow’s CFO, Allen Parker. Just like Keller Williams’ Marc King. Other companies have hinted at the concept, and by the end, the word “headwinds” appears in the vast majority of earnings stories Inman published last week.

To be clear, every executive who weighed in recently was optimistic about the prospects for their own companies. But also seemed pretty unified in the idea that the housing market is heading for relatively stormier waters.

In some cases, headwinds are already blowing. For example, Move Inc. — parent company of Realtor.com and itself a subsidiary of News Corp — saw revenue rise in the first three months of the year. This is therefore good news for the company. But the increase was modest, at just 5% year-over-year. And it’s the second quarter in a row that the company has posted such weak earnings. Realtor.com also saw a drop in the average number of monthly users on its websites and mobile apps, as well as a drop in lead volume. The company’s report noted that the numbers represented a “difficult comparison with the prior year”, and News Corp CEO Robert Thomson referred to “the ebb and flow of market forces”.

Move Inc. was not an isolated case.

Keller Williams also revealed in his report that despite the increase in sales volume, he also saw a decline in transactions, new listings and expected closing volumes.

Realogy – which posted earnings in late April – also had a profitable quarter at the start of 2022, but slightly less profitable than the same quarter a year earlier.

None of these numbers sound like an impending apocalypse. But they hint at the possibility that the endless growth of recent years is reaching its limits.

This graph compares the percentage change in stock prices over the past month for five real estate companies: Zillow (grey), Opendoor (blue), eXp (orange), Realogy (purple), and Redfin (green). The set is down. Credit: bar chart

Investors also showed a mixed response to recent earnings. Although some companies, including Redfin and eXp, saw their stock prices jump by significant percentages, others, like Offerpad and Realogy, saw much more modest gains following their reports. Zillow and Opendoor also saw their share prices fall – although, in the latter case, Opendoor had its first profitable quarter.

Part of what is happening may just be that the market has generally been hammered lately. But stocks of real estate companies have generally underperformed for more than a year now, and that doesn’t seem to be changing amid growing worries about a recession, ever-rising mortgage rates and a shortage of inventory that simply won’t end. not.

The conclusion therefore seems to be that investors, much like business leaders who recently shared their results, see headwinds looming on the horizon for the housing industry.

Read all of Inman’s first quarter earnings coverage below and check back in the coming days for the latest reports of the season.

Zillow posts first quarter profit as housing market turns ‘unsettled’

Keller Williams posts $108 billion in sales volume as deals fall in first quarter

Opendoor hits profitable first quarter in Q1 with net profit of $28 million

RE/MAX revenues jump in the first quarter thanks to the rise in home prices

EXp Realty Reports $1 Billion in Revenue as First Quarter Profits and Agents Rise

Redfin posts nearly $600 million in Q1 revenue as market share grows

Offerpad remains profitable for the second consecutive quarter

Realogy builds on last year’s revenue growth with first quarter results

Airbnb declares ‘new world of travel’ as first quarter bookings surge

Move Inc. revenue growth drops to single digits amid market shift

Fathom expects continued revenue, agent and transaction growth

Email Jim Dalrymple II