The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and other information included in this annual report. In particular, the risk factors contained in Item 1A may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources. The following discussion contains forward-looking statements, such as statements regarding our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations. See "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements. The following discussion also contains information using industry publications. See "Note Regarding Industry and Market Data" for more information about relying on these industry publications.
When we use the term “basis points” in the following discussion, we refer to
units of onehundredth of one percent.
Overview
We help people buy and sell homes. Representing customers in over 100 markets inthe United States , we are a residential real estate brokerage. We pair our own agents with our own technology to create a service that is faster, better, and costs less. We meet customers through our listings-search website and mobile application. We use the same combination of technology and local service to originate mortgage loans and offer title and settlement services. Beginning inApril 2021 , we also offer digital platforms to connect consumers with available apartments and houses for rent.
Our mission is to redefine real estate in the consumer’s favor.
Adverse Macroeconomic Conditions and Our Associated Actions
Beginning in the second quarter of 2022, a number of economic factors began to adversely impact the residential real estate market, including higher mortgage interest rates, lower consumer sentiment, increased inflation, and declining financial market conditions. This shift in the macroeconomic backdrop had an adverse impact on consumer demand for our services, as consumers weighed the financial implications of selling or purchasing a home and taking out a mortgage. Our real estate services transaction volume decreased by 27% in the third and fourth quarters of 2022, compared to the prior year. This stands in contrast to the 2% that our real estate services transaction volume decreased in the first and second quarters of 2022, compared to the prior year. Our newly acquired mortgage business, Bay Equity, also experienced significant declines in loan volumes beginning in the second quarter of 2022, particularly from refinancing prior mortgages.
In response to these macroeconomic and consumer demand developments, we took
action to adjust our operations and manage our business towards longer-term
profitability despite these adverse macroeconomic factors.
In June, we laid off 442 employees, which represented approximately eight percent of total employees. In November, we laid off an additional 862 employees, which represented 13% of total employees. FromApril 2022 , after completing the acquisition of Bay Equity, through the end of the year, through involuntary reductions and attrition, we reduced our total of number of employees by 28%, including a reduction in lead agents of 30%. These workforce reductions were intended to align the size of our operations with the level of consumer demand for our services at that time.
Also in November, we decided to wind-down RedfinNow. This was a strategic
decision we made in order to focus our resources on our core business in the
face of the rising cost of capital.
21
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Table of Conten t s
Key Business Metrics
In addition to the measures presented in our consolidated financial statements,
we use the following key metrics to evaluate our business, develop financial
forecasts, and make strategic decisions.
Year
Ended
2022 2021 2020
Monthly average visitors (in thousands) 49,654 47,113 42,862
Real estate services transactions
Brokerage 66,554 76,680 60,510
Partner 13,649 17,899 15,290
Total 80,203 94,579 75,800
Real estate services revenue per transaction
Brokerage $ 11,269 $ 11,076 $ 10,040
Partner 2,718 3,020 2,858
Aggregate 9,814 9,551 8,591
U.S. market share by units(1) 0.80 % 0.77 % 0.67 %
Revenue from top-10 markets as a percentage of
real estate services revenue 58 % 62 % 63 %
Average number of lead agents 2,426 2,396 1,757
RedfinNow homes sold 2,044 1,451 453
Revenue per RedfinNow home sold $ 576,599 $ 594,268 $ 462,883
Mortgage originations by dollars (in millions) $ 4,317 $ 988 $ 685
Mortgage originations by units (in ones) 10,625 2,643 1,973
(1) Prior to the second quarter of 2022, we reported our U.S. market share based
on the aggregate home value of our real estate services transactions, relative
to the aggregate value of all U.S. home sales, which we computed based on the
mean sale price of U.S. homes provided by the National Association of REALTORS®
("NAR"). Beginning in the second quarter of 2022, NAR (1) revised its
methodology of computing the mean sale price, (2) restated its previously
reported mean sale price beginning from January 2020 (and indicated that
previously reported mean sale price prior to January 2020 is not comparable),
and (3) discontinued publication of the mean sale price as part of its primary
data set. Due to these changes, as of the second quarter of 2022, we report our
U.S. market share based on the number of homes sold, rather than the dollar
value of homes sold. Our market share by number of homes sold has historically
been lower than our market share by dollar value of homes sold. We also stopped
reporting the aggregate home value of our real estate services transactions.
Monthly Average Visitors
The number of, and growth in, visitors to our website and mobile application are important leading indicators of our business activity because these channels are the primary ways we meet customers. The number of visitors is influenced by, among other things, market conditions that affect interest in buying or selling homes, the level and success of our marketing programs, seasonality, and how our website appears in search results. We believe we can continue to increase visitors, which helps our growth.
Given the lengthy process to buy or sell a home, a visitor during one month may
not convert to a revenue-generating customer until many months later, if at all.
When we refer to "monthly average visitors" for a particular period, we are referring to the average number of unique visitors to our website and our mobile applications for each of the months in that period, as measured by
Our monthly average visitors exclude visitors to Rent.’s websites and mobile
applications.
22 -------------------------------------------------------------------------------- Table of Conten t s Real Estate Services Transactions We record a brokerage real estate services transaction when one of our lead agents represented the homebuyer or home seller in the purchase or sale, respectively, of a home. We record a partner real estate services transaction (i) when one of our partner agents represented the homebuyer or home seller in the purchase or sale, respectively, of a home or (ii) when a Redfin customer sold his or her home to a third-party institutional buyer following our introduction of that customer to the buyer. We include a single transaction twice when our lead agents or our partner agents serve both the homebuyer and the home seller of the transaction. Additionally, when one of our lead agents represents RedfinNow in its sale of a home, we include that transaction as a brokerage real estate services transaction. Increasing the number of real estate services transactions is critical to increasing our revenue and, in turn, to achieving profitability. Real estate services transaction volume is influenced by, among other things, the pricing and quality of our services as well as market conditions that affect home sales, such as local inventory levels and mortgage interest rates. Real estate services transaction volume is also affected by seasonality and macroeconomic factors.
Real Estate Services Revenue per Transaction
Real estate services revenue per transaction, together with the number of real estate services transactions, is a factor in evaluating revenue growth. We also use this metric to evaluate pricing changes. Changes in real estate services revenue per transaction can be affected by, among other things, our pricing, the mix of transactions from homebuyers and home sellers, changes in the value of homes in the markets we serve, the geographic mix of our transactions, and the transactions we refer to partner agents and any third-party institutional buyer. We calculate real estate services revenue per transaction by dividing brokerage, partner, or aggregate revenue, as applicable, by the corresponding number of real estate services transactions in any period. We generally generate more real estate services revenue per transaction from representing homebuyers than home sellers. However, we believe that representing home sellers has unique strategic value, including the marketing power of yard signs and other campaigns, and the market effect of controlling listing inventory. Prior toJuly 2022 , homebuyers who purchased their home using our brokerage services would receive a commission refund in a substantial majority of our markets. InJuly 2022 , we began a pilot program in certain of those markets to eliminate our commission refund. Since this pilot was successful, we eliminated our commission refund in all markets inDecember 2022 . The average refund per transaction for a homebuyer was$1,336 in 2022, and$852 in the fourth quarter of 2022. We expect that elimination of our commission refund in all markets will increase our real estate services revenue per transaction, although this metric is also impacted by the factors discussed above.
From 2021 to 2022, the percentage of brokerage transactions from home sellers
was essentially unchanged at approximately 44%.
U.S. Market Share by Units
Increasing our U.S. market share by units is critical to our ability to grow our business and achieve profitability over the long term. We believe there is a significant opportunity to increase our share in the markets we currently serve. We calculate our market share by aggregating the number of brokerage and partner real estate services transactions. We then divide that number by two times the aggregate number ofU.S. home sales, in order to account for both the sell- and buy-side components of each home sale. We obtain the aggregate number ofU.S. home sales from the National Association of REALTORS® ("NAR"). NAR data for the most recent period is preliminary and may subsequently be updated by NAR. 23 -------------------------------------------------------------------------------- Table of Conten t s Revenue from Top-10 Markets as a Percentage of Real Estate Services Revenue Our top-10 markets by real estate services revenue are the metropolitan areas ofBoston ,Chicago ,Denver (includingBoulder andColorado Springs ),Los Angeles (includingSanta Barbara ),Maryland ,Northern Virginia ,Portland (including Bend),San Diego ,San Francisco , andSeattle . This metric is an indicator of the geographic concentration of our real estate services segment. We expect our revenue from top-10 markets to decline as a percentage of our total real estate services revenue over time.
Average Number of Lead Agents
The average number of lead agents, in combination with our other key metrics such as the number of brokerage transactions, is a basis for calculating agent productivity and is one indicator of the potential future growth of our business. We systematically evaluate traffic to our website and mobile application and customer activity to anticipate changes in customer demand, helping determine when and where to hire lead agents.
We calculate the average number of lead agents by taking the average of the
number of lead agents at the end of each month included in the period.
RedfinNow Homes Sold
The number of homes sold by RedfinNow is an indicator for investors to understand the underlying transaction volume growth of our RedfinNow business. This number is influenced by, among other things, the level and quality of our homes available for sale inventory and market conditions that affect home sales, such as local inventory levels and mortgage interest rates.
Revenue per RedfinNow Home Sold
Revenue per RedfinNow home sold, together with the number of RedfinNow homes sold, is a factor in evaluating revenue growth. Changes in revenue per RedfinNow home sold can be affected by, among other things, the geographic mix of home sales, the types and sizes of homes that it had previously purchased, pricing of homes listed for sale, and changes in the value of homes in the markets it serves. For any period, we calculate revenue per RedfinNow home sold by dividing revenue from sales of homes by RedfinNow by the number of homes sold by RedfinNow during that period.
Mortgage Originations
Mortgage originations is the volume of mortgage loans originated by our mortgage business, measured by both dollar value of loans and number of loans. This volume is an indicator for the growth of our mortgage business. Mortgage originations is affected by mortgage interest rates, the ability of our mortgage loan officers to close loans, and the number of our homebuyer customers who use our mortgage business for a mortgage loan, among other factors. Prior toApril 1, 2022 , our mortgage business consisted solely ofRedfin Mortgage, LLC . FromApril 1, 2022 throughJune 30, 2022 , our mortgage business consisted of bothBay Equity LLC andRedfin Mortgage, LLC . We dissolvedRedfin Mortgage, LLC onJune 30, 2022 , and since that time, our mortgage business has consisted solely ofBay Equity LLC .
Components of Our Results of Operations
Revenue
We generate revenue primarily from commissions and fees charged on each real
estate services transaction closed by our lead agents or partner agents, from
the sale of homes, from subscription-based product offerings for our rentals
business, and from the origination, sales, and servicing of mortgages.
24
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Table of Conten t s
Real Estate Services Revenue
Brokerage Revenue-Brokerage revenue includes our offer and listing services,
where our lead agents represent homebuyers and home sellers. We recognize
commission-based brokerage revenue upon closing of a brokerage transaction, less
the amount of any commission refunds, closing-cost reductions, or promotional
offers that may result in a material right. Brokerage revenue is affected by the
number of brokerage transactions we close, the mix of brokerage transactions,
home-sale prices, commission rates, and the amount we give to customers.
Partner Revenue-Partner revenue consists of fees paid to us from partner agents
or under other referral agreements, less the amount of any payments we make to
homebuyers and home sellers. We recognize these fees as revenue on the closing
of a transaction. Partner revenue is affected by the number of partner
transactions closed, home-sale prices, commission rates, and the amount we
refund to customers. If the portion of customers we introduce to our own lead
agents increases, we expect the portion of revenue closed by partner agents to
decrease.
Properties Revenue
Properties Revenue-Properties revenue consists of revenue earned when we sell
homes that we previously bought directly from homeowners. Properties revenue is
recorded at closing on a gross basis, representing the sales price of the home.
Rentals Revenue
Rentals Revenue-Rentals revenue is primarily composed of subscription-based
product offerings for internet listing services, as well as lead management and
digital marketing solutions.
Mortgage Revenue
Mortgage Revenue-Mortgage revenue includes fees from the origination and
subsequent sale of loans, loan servicing income, interest income on loans held
for sale, origination of IRLCs, and the changes in fair value of our IRLCs,
forward sales commitments, loans held for sale, and MSRs.
Other Revenue
Other Revenue-Other services revenue includes fees earned from title settlement services, Walk Score data services, and advertising. Substantially all fees and revenue from other services are recognized when the service is provided.
Intercompany Eliminations
Intercompany Eliminations-Revenue earned from transactions between operating segments are eliminated in consolidating our financial statements. Intercompany transactions primarily consist of services performed from our real estate services segment for our properties segment.
Cost of Revenue and Gross Margin
Cost of revenue consists primarily of personnel costs (including base pay,
benefits, and stock-based compensation), transaction bonuses, home-touring and
field expenses, listing expenses, home costs related to our properties segment,
customer fulfillment costs related to our rentals segment, office and occupancy
expenses, interest expense on our mortgage related warehouse facilities, and
depreciation and amortization related to fixed assets and acquired intangible
assets. Home costs related to our properties segment include home purchase
costs, capitalized improvements, selling expenses directly attributable to the
transaction, and home maintenance expenses.
Gross profit is revenue less cost of revenue. Gross margin is gross profit
expressed as a percentage of revenue. Our gross margin has and will continue to
be affected by a number of factors, but the most important are the mix of
revenue from our relatively higher-gross-margin real estate services segment and
our relatively lower-gross-margin properties segment, real estate services
revenue per transaction, agent and support-staff productivity, personnel costs
and transaction bonuses, and, for properties, the home purchase costs.
25
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Table of Conten t s Operating Expenses Technology and Development Our primary technology and development expenses are building software for our customers, lead agents, and support staff to work together on a transaction, and building a website and mobile application to meet customers looking to move. These expenses primarily include personnel costs (including base pay, bonuses, benefits, and stock-based compensation), data licenses, software and equipment, and infrastructure such as for data centers and hosted services. The expenses also include amortization of capitalized internal-use software and website and mobile application development costs as well as amortization of acquired intangible assets. We expense research and development costs as incurred and record them in technology and development expenses.
Marketing
Marketing expenses consist primarily of media costs for online and offline
advertising, as well as personnel costs (including base pay, benefits, and
stock-based compensation).
General and Administrative
General and administrative expenses consist primarily of personnel costs (including base pay, benefits, and stock-based compensation), facilities costs and related expenses for our executive, finance, human resources, and legal organizations, depreciation related to our fixed assets, and fees for outside services. Outside services are principally composed of external legal, audit, and tax services. For our rentals business, personnel costs include employees in the sales department. These employees are responsible for attracting potential rental properties and agreeing to contract terms, but they are not responsible for delivering a service to the rental property.
Interest Income, Interest Expense, Income Tax (Expense) Benefit, Gain on
Extinguishment of Convertible Senior Notes, and Other (Expense) Income, Net
Interest Income
Interest income consists primarily of interest earned on our cash, cash
equivalents, and investments.
Interest Expense
Interest expense consists primarily of interest payable on our convertible
senior notes and the amortization of debt discounts and issuance cost related to
our convertible senior notes. See Note 15 to our consolidated financial
statements for information regarding interest on our convertible senior notes.
Interest expense also includes interest on borrowings and the amortization of debt issuance costs related to our secured revolving credit facility. See Note 15 to our consolidated financial statements for information regarding interest for the facility, which we terminated onDecember 29, 2022 .
Income Tax (Expense) Benefit
Income tax expense primarily relates to current state income taxes recorded for the year, partially offset by a deferred income tax benefit generated by the reduction to a deferred tax liability created through ourApril 2, 2021 acquisition of Rent..
Gain on Extinguishment of Convertible Senior Notes
Gain on extinguishment of convertible senior notes relates to gains recognized
on the repurchase of our convertible senior notes.
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Table of Conten t s
Other (Expense) Income, Net
Other (expense) income, net consists primarily of realized and unrealized gains
and losses on investments and other assets. See Note 4 to our consolidated
financial statements for information regarding unrealized losses on our
investments.
Results of Operations
The following tables set forth our results of operations for the periods
presented and as a percentage of our revenue for those periods.
Year Ended December 31,
2022 2021 2020
(in thousands)
Revenue $ 2,284,442 $ 1,922,765 $ 886,093
Cost of revenue(1) 1,998,389 1,518,945 653,983
Gross profit 286,053 403,820 232,110
Operating expenses:
Technology and development(1) 196,250 156,718 84,297
Marketing(1) 158,071 138,740 54,881
General and administrative(1) 254,593 218,315 85,624
Restructuring and reorganization 40,469 - 6,516
Total operating expenses 649,383 513,773 231,318
(Loss) income from operations (363,330) (109,953) 792
Interest income 6,639 635 2,074
Interest expense (17,745) (11,762) (19,495)
Income tax (expense) benefit (126) 6,107 -
Gain on extinguishment of convertible senior notes 57,193
- - Other (expense) income, net (3,774) 5,360 (1,898) Net loss$ (321,143) $ (109,613) $ (18,527)
(1) Includes stock-based compensation as follows:
Year Ended December 31,
2022 2021 2020
(in thousands)
Cost of revenue $ 15,950 $ 13,614 $ 8,844
Technology and development 29,608 23,275 16,564
Marketing 4,093 2,350 1,569
General and administrative 18,606 15,483 9,996
Total $ 68,257 $ 54,722 $ 36,973
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Table of Conten t s
Year Ended December 31,
2022 2021 2020
(as a percentage of revenue)
Revenue 100.0 % 100.0 % 100.0 %
Cost of revenue(1) 87.5 79.0 73.8
Gross profit 12.5 21.0 26.2
Operating expenses:
Technology and development(1) 8.6 8.2 9.5
Marketing(1) 6.9 7.2 6.2
General and administrative(1) 11.1 11.4 9.7
Restructuring and reorganization 1.8 0.0 0.7
Total operating expenses 28.4 26.8 26.1
(Loss) income from operations (15.9) (5.8) 0.1
Interest income 0.3 0.0 0.2
Interest expense (0.8) (0.6) (2.2)
Income tax benefit - 0.3 -
Gain on extinguishment of convertible senior notes 2.5 - -
Other (expense) income, net (0.2) 0.3 (0.2)
Net loss (14.1) % (5.8) % (2.1) %
(1) Includes stock-based compensation as follows:
Year Ended December 31,
2022 2021 2020
(as a percentage of revenue)
Cost of revenue 0.7 % 0.7 % 1.0 %
Technology and development 1.3 1.2 1.9
Marketing 0.2 0.1 0.2
General and administrative 0.8 0.8 1.1
Total 3.0 % 2.8 % 4.2 %
Comparison of the Years Ended
Revenue
Year Ended December 31, Change
2022 2021 Dollars Percentage
(in thousands, except percentages)
Real estate services
Brokerage $ 749,985 $ 849,288 $ (99,303) (12) %
Partner 37,091 54,046 (16,955) (31)
Total real estate services 787,076 903,334 (116,258) (13)
Properties 1,202,651 880,653 321,998 37
Rentals 155,910 121,877 34,033 28
Mortgage 132,904 19,818 113,086 571
Other 23,684 13,609 10,075 74
Intercompany elimination (17,783) (16,526) (1,257) 8
Total revenue $ 2,284,442 $ 1,922,765 $ 361,677 19
Percentage of revenue
Real estate services
Brokerage 32.8 % 44.2 %
Partner 1.6 2.8
Total real estate services 34.4 47.0
Properties 52.6 45.8
Rentals 6.8 6.3
Mortgage 5.8 1.0
Other 1.2 0.8
Intercompany elimination (0.8) (0.9)
Total revenue 100.0 % 100.0 %
28
-------------------------------------------------------------------------------- Table of Conten t s In 2022, revenue increased by$361.7 million , or 19%, as compared with 2021. Included in the increase was$155.9 million from our acquisition of Rent., and there was$121.9 million of such revenue in 2021. Also included in the increase was$130.2 million resulting from our acquisition of Bay Equity, and there was no such revenue in 2021. Excluding these revenues from Rent. and Bay Equity, this increase in revenue was primarily attributable to a$322.0 million increase in properties revenue, which was partially offset by a$116.3 million decrease in real estate services revenue. Properties revenue increased 37%, primarily driven by a 41% increase in RedfinNow homes sold and a 3% decrease in revenue per RedfinNow home sold. These increases are largely due to our properties business's expansion. Brokerage revenue decreased by$99.3 million and partner revenue decreased by$17.0 million . Brokerage revenue decreased 12% during the period, driven by a 13% decrease in brokerage transactions and partially offset by a 2% increase in brokerage revenue per transaction.
Cost of Revenue and Gross Margin
Year Ended December 31, Change
2022 2021 Dollars Percentage
(in thousands, except percentages)
Cost of revenue
Real estate services $ 608,027 $ 603,320 $ 4,707 1 %
Properties 1,225,717 870,052 355,665 41
Rentals 33,416 21,739 11,677 54
Mortgage 126,552 26,096 100,456 385
Other 22,460 14,264 8,196 57
Intercompany elimination (17,783) (16,526) (1,257) 8
Total cost of revenue $ 1,998,389 $ 1,518,945 $ 479,444 32
Gross profit
Real estate services $ 179,049 $ 300,014 $ (120,965) (40) %
Properties (23,066) 10,601 (33,667) (318)
Rentals 122,494 100,138 22,356 22
Mortgage 6,352 (6,278) 12,630 (201)
Other 1,224 (655) 1,879 (287)
Total gross profit $ 286,053 $ 403,820 $ (117,767) (29)
Gross margin (percentage of revenue)
Real estate services 22.7 % 33.2 %
Properties (1.9) 1.2
Rentals 78.6 82.2
Mortgage 4.8 (31.7)
Other 5.2 (4.8)
Total gross margin 12.5 21.0
In 2022, total cost of revenue increased by $479.4 million , or 32%, as compared
with 2021. Included in the increase was $33.4 million from our acquisition of
Rent., and there were $21.7 million of such expenses in 2021. Also included in
the increase was $118.1 million resulting from our acquisition of Bay Equity,
and there were no such expenses in 2021. Excluding these expenses from Rent. and
Bay Equity, this increase in cost of revenue was primarily attributable to a
$331.6 million increase in home purchase costs and related capitalized
improvements by our properties business, due to more RedfinNow homes having been
sold.
Total gross margin decreased 850 basis points as compared with 2021, driven
primarily by the relative growth of our properties business compared to our real
estate services and other businesses, and decreases in real estate services and
properties gross margin. This was partially offset by the increases in mortgage
and other gross margin.
In 2022, real estate services gross margin decreased 1,050 basis points as
compared with 2021. This was primarily attributable to a 930 basis point
increase in personnel costs and transaction bonuses as a percentage of revenue.
29 -------------------------------------------------------------------------------- Table of Conten t s In 2022, properties gross margin decreased 310 basis points as compared with 2021. This was primarily attributable to a 370 basis point increase in home purchase costs and related capitalized improvements, including our lower of cost or net realizable value write-downs, as a percentage of revenue. This was partially offset by a 50 basis point decrease in personnel costs and transaction bonuses as a percentage of revenue. In 2022, rentals gross margin decreased by 360 basis points. This was primarily attributable to a 210 basis point increase in marketing expenses and a 210 basis point increase in personnel costs, each as a percentage of revenue and due to expanded services. This was partially offset by a 90 basis point reduction in outside services costs as a percentage of revenue.
In 2022, mortgage gross margin increased by 3,650 basis points. This was
primarily attributable to a 3,160 basis point decrease in personnel costs and
transaction bonuses as a percentage of revenue.
In 2022, other gross margin increased by 1,000 basis points. This was primarily
attributable to a 470 basis point decrease in personnel costs and transaction
bonuses as a percentage of revenue.
Operating Expenses
Year Ended December 31, Change
2022 2021 Dollars Percentage
(in thousands, except percentages)
Technology and development $ 196,250 $ 156,718 $ 39,532 25 %
Marketing 158,071 138,740 19,331 14
General and administrative 254,593 218,315 36,278 17
Restructuring and reorganization 40,469 - 40,469 n/a
Total operating expenses $ 649,383 $ 513,773 $ 135,610 26
Percentage of revenue
Technology and development 8.6 % 8.2 %
Marketing 6.9 7.2
General and administrative 11.1 11.4
Restructuring and reorganization 1.8 0.0
Total operating expenses 28.4 % 26.8 %
In 2022, technology and development expenses increased by $39.5 million , or 25%,
as compared with 2021. Included in the increase was $52.3 million resulting from
our acquisition of Rent., and there were $39.0 million such expenses in 2021.
Also included in the increase was $1.8 million resulting from our acquisition of
Bay Equity, and there were no such expenses in 2021. Excluding these expenses
from Rent. and Bay Equity, the increase was primarily attributable to a $16.6
million increase in personnel costs.
In 2022, marketing expenses increased by $19.3 million , or 14%, as compared with
2021. Included in the increase was $51.1 million resulting from our acquisition
of Rent., and there were $36.1 million such expenses in 2021. Also included in
the increase was $4.7 million resulting from our acquisition of Bay Equity, and
there were no such expenses in 2021. Excluding these expenses from Rent. and Bay
Equity, marketing expenses decreased by $0.4 million . The decrease was primarily
attributable to a $4.9 million decrease in marketing media costs. This was
partially offset by a $2.8 million increase in personnel costs.
In 2022, general and administrative expenses increased by $36.3 million , or 17%,
as compared with 2021. Included in the increase was $90.8 million resulting from
our acquisition of Rent., and there were $71.5 million such expenses in 2021.
Also included in the increase was $22.8 million resulting from our acquisition
of Bay Equity, and there were no such expenses in 2021. Excluding these expenses
from Rent. and Bay Equity, general and administrative expenses decreased by $5.9
million . The decrease was primarily attributable to a $7.3 million decrease in
advertising campaign and contractor expenses for recruiting employees, and a
$6.5 million decrease in acquisition transaction expenses. This was partially
offset by a $4.4 million increase in internet-based software services, and a
$4.0 million increase in personnel costs due to increased headcount.
In 2022, restructuring and reorganization expenses increased by
and there were no such expenses in 2021. See Note 1 to our consolidated
financial statements for more information on our restructuring and
reorganization costs.
30
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Table of Conten t s
Interest Income, Interest Expense, Income Tax (Expense) Benefit, Gain on
Extinguishment of Convertible Senior Notes, and Other (Expense) Income, Net
Year Ended December 31, Change
2022 2021 Dollars Percentage
(in thousands, except percentages)
Interest income $ 6,639 $ 635 $ 6,004 946 %
Interest expense (17,745) (11,762) (5,983) 51
Income tax (expense) benefit (126) 6,107 (6,233) (102)
Gain on extinguishment of convertible 57,193 - 57,193 n/a
senior notes
Other (expense) income, net (3,774) 5,360 (9,134) (170)
Interest income, interest expense,
income tax (expense) benefit, gain on $ 42,187 $ 340 $ 41,847 12,308
extinguishment of convertible senior
notes, and other (expense) income, net
Percentage of revenue
Interest income 0.3 % 0.0 %
Interest expense (0.8) (0.6)
Income tax (expense) benefit 0.0 0.3
Gain on extinguishment of convertible 2.5
0.0
senior notes Other (expense) income, net (0.2)
0.3
Interest income, interest expense, income tax (expense) benefit, gain on 1.8 % 0.0 % extinguishment of convertible senior notes, and other (expense) income, net In 2022, interest income, interest expense, income tax (expense) benefit, gain on extinguishment of convertible senior notes, and other (expense) income, net increased by$41.8 million , as compared with 2021.
Interest income increased by
on our cash, cash equivalents, and investments compared with 2021.
Interest expense increased by$6.0 million primarily due to$3.9 million in additional expense from increased interest rates related to our borrowings under the RedfinNow line of credit as well as$0.7 million of accelerated amortization due to our early termination of that facility in association with our wind-down of RedfinNow. In addition, we had a full year of amortization for our 2027 notes as compared to a partial year in 2021, resulting in$0.5 million in additional expense in 2022.
Income tax (expense) benefit decreased by
one-time income tax benefit from the Rent. acquisition in 2021, where no such
benefit was recognized in 2022.
Gain on extinguishment of convertible senior notes increased by$57.2 million , due to our paying down a portion of our 2025 notes at a discount, where there was no such activity in 2021. See Note 15 to our consolidated financial statements for further information on these transactions. Other (expense) income, net increased by$9.1 million primarily due to (1) the fair value of one of our investments being recorded in 2021, where we did not have this recording during 2022, and the subsequent sale of that investment at a loss, (2) impairment of leases, and (3) losses on various property and equipment disposals. 31 -------------------------------------------------------------------------------- Table of Conten t s Comparison of the Years EndedDecember 31, 2021 and 2020 Revenue Year Ended December 31, Change 2021 2020 Dollars Percentage (in thousands, except percentages) Real estate services Brokerage$ 849,288 $ 607,513 $ 241,775 40 % Partner 54,046 43,695 10,351 24 Total real estate services 903,334 651,208 252,126 39 Properties 880,653 209,686 670,967 320 Rentals 121,877 - 121,877 n/a Mortgage 19,818 15,835 3,983 25 Other 13,609 12,377 1,232 10 Intercompany elimination (16,526) (3,013) (13,513) 448 Total revenue$ 1,922,765 $ 886,093 $ 1,036,672 117 Percentage of revenue Real estate services Brokerage 44.2 % 68.6 % Partner 2.8 4.9 Total real estate services 47.0 73.5 Properties 45.8 23.7 Rentals 6.3 n/a Mortgage 1.0 1.8 Other 0.8 1.4 Intercompany elimination (0.9) (0.4) Total revenue 100.0 % 100.0 % In 2021, revenue increased by$1,036.7 million , or 117%, as compared with 2020. Included in the increase was$121.9 million resulting from our acquisition of Rent., where there were no such revenues in 2020. Excluding these revenues from Rent., this increase in revenue was primarily attributable to a$671.0 million increase in properties revenue and a$252.1 million increase in real estate services revenue. Properties revenue increased 320%, primarily driven by a 220% increase in RedfinNow homes sold and a 28% increase in revenue per RedfinNow home sold. These increases are largely due to our properties business's expansion, greater customer awareness of that business, and COVID-19's impacts on that business during the prior period. Brokerage revenue increased by$241.8 million and partner revenue increased by$10.4 million . Brokerage revenue increased 40% during the period, driven by a 27% increase in brokerage transactions and a 10% increase in brokerage revenue per transaction. We believe the increase in brokerage transactions was attributable to higher levels of customer awareness of Redfin and increasing customer demand, while the increase in brokerage revenue per transaction was driven primarily by increasing home values. 32 -------------------------------------------------------------------------------- Table of Conten t s Cost of Revenue and Gross Margin Year Ended December 31, Change 2021 2020 Dollars Percentage (in thousands, except percentages) Cost of revenue Real estate services$ 603,320 $ 417,140 $ 186,180 45 % Properties 870,052 214,382 655,670 306 Rentals 21,739 - 21,739 n/a Mortgage 26,096 15,627 10,469 67 Other 14,264 9,847 4,417 45 Intercompany elimination (16,526) (3,013) (13,513) 448 Total cost of revenue$ 1,518,945 $ 653,983 $ 864,962 132 Gross profit Real estate services$ 300,014 $ 234,068 $ 65,946 28 % Properties 10,601 (4,696) 15,297 (326) Rentals 100,138 - 100,138 n/a Mortgage (6,278) 208 (6,486) (3,118) Other (655) 2,530 (3,185) (126) Total gross profit$ 403,820 $ 232,110 $ 171,710 74 Gross margin (percentage of revenue) Real estate services 33.2 % 35.9 % Properties 1.2 (2.2) Rentals 82.2 n/a Mortgage (31.7) 1.3 Other (4.8) 20.4 Total gross margin 21.0 26.2 In 2021, total cost of revenue increased by$865.0 million , or 132%, as compared with 2020. Included in the increase was$21.7 million resulting from our acquisition of Rent., and there were no such expenses in 2020. Excluding these expenses from Rent., this increase in cost of revenue was primarily attributable to (1) a$590.6 million increase in home purchase costs and related capitalized improvements by our properties business, due to more RedfinNow homes having been sold, and (2) a$168.7 million increase in personnel costs and transaction bonuses, due to increased headcount and increased brokerage transactions, respectively. Total gross margin decreased 520 basis points as compared with 2020, driven primarily by the relative growth of our properties business compared to our real estate services and other businesses, and decreases in real estate services, mortgage, and other gross margin. This was partially offset by the increase in properties gross margin, and our acquisition of Rent., which comprises our rentals business. In 2021, real estate services gross margin decreased 270 basis points as compared with 2020. This was primarily attributable to a 230 basis point increase in personnel costs and transaction bonuses and a 140 basis point increase in home-touring and field expenses, each as a percentage of revenue. This was partially offset by a 50 basis point decrease in listing expenses, and a 40 basis point reduction in occupancy and office expenses, each as a percentage of revenue. In 2021, properties gross margin increased 340 basis points as compared with 2020. This was primarily attributable to a 210 basis point decrease in home purchase costs and related capitalized improvements, and a 120 basis point decrease in personnel costs and transaction bonuses, each as a percentage of revenue.
In 2021, mortgage gross margin decreased by 3,300 basis points. This was
primarily attributable to a 2,690 basis point increase in personnel costs and
transaction bonuses as a percentage of revenue.
In 2021, other gross margin decreased by 2,520 basis points. This was primarily
attributable to a 2,620 basis point increase in personnel costs and transaction
bonuses as a percentage of revenue.
33
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Table of Conten t s
Operating Expenses
Year Ended December 31, Change
2021 2020 Dollars Percentage
(in thousands, except percentages)
Technology and development $ 156,718 $ 84,297 $ 72,421 86 %
Marketing 138,740 54,881 83,859 153
General and administrative 218,315 85,624 132,691 155
Restructuring and reorganization $ - $ 6,516 $ (6,516) (100)
Total operating expenses $ 513,773 $ 231,318 $ 282,455 122
Percentage of revenue
Technology and development 8.2 % 9.5 %
Marketing 7.2 6.2
General and administrative 11.4 9.7
Restructuring and reorganization 0.0 0.7
Total operating expenses 26.8 % 26.1 %
In 2021, technology and development expenses increased by $72.4 million , or 86%,
as compared with 2020. Included in the increase was $39.0 million resulting from
our acquisition of Rent., and there were no such expenses in 2020. Excluding
these expenses from Rent., the increase was primarily attributable to a $26.4
million increase in personnel costs due to increased headcount.
In 2021, marketing expenses increased by $83.9 million , or 153%, as compared
with 2020. Included in the increase was $36.1 million resulting from our
acquisition of Rent., and there were no such expenses in 2020. Excluding these
expenses from Rent., the increase was primarily attributable to a $43.0 million
increase in marketing media costs as we expanded advertising.
In 2021, general and administrative expenses increased by $132.7 million , or
155%, as compared with 2020. Included in the increase was $71.5 million
resulting from our acquisition of Rent., and there were no such expenses in
2020. Excluding these expenses from Rent., the increase was primarily
attributable to a $30.0 million increase in personnel costs due to increased
headcount, an $8.9 million increase in transaction costs from our acquisition of
Rent. and our proposed acquisition of Bay Equity, and a $7.0 million increase in
advertising campaign and contractor expenses for recruiting employees and
independent contractors.
In 2021, restructuring and reorganization expenses decreased by
100%, as compared with 2020. We had no such restructuring expenses in 2021.
Interest Income, Interest Expense, Income Tax Benefit, and Other Income
(Expense), Net
Year Ended December 31, Change
2021 2020 Dollars Percentage
(in thousands, except percentages)
Interest income $ 635 $ 2,074 $ (1,439) (69) %
Interest expense (11,762) (19,495) 7,733 40
Income tax benefit 6,107 - 6,107 n/a
Other income (expense), net 5,360 (1,898) 7,258 (382)
Interest income, interest expense,
income tax benefit, and other income $ 340 $ (19,319) $ 19,659 102
(expense), net
Percentage of revenue
Interest income 0.0 % 0.2 %
Interest expense (0.6) (2.2)
Income tax benefit 0.3 -
Other income (expense), net 0.3 (0.2)
Interest income, interest expense,
income tax benefit, and other income 0.0 % (2.2) %
(expense), net
In 2021, interest income, interest expense, income tax benefit, and other income
(expense), net increased by
2020.
34
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Table of Conten t s
Interest income decreased by
our cash, cash equivalents, and investments compared to 2020.
Interest expense decreased by$7.7 million due primarily to the implementation of ASU 2020-06, which eliminates the liability and equity separation models for convertible instruments. As a result, we did not incur an expense for the accretion of the equity portion of our convertible senior notes during 2021. See Note 15 to our consolidated financial statements for more information on our adoption of this accounting standard. Income tax benefit increased by$6.1 million primarily due to a deferred tax liability created through the Rent. acquisition, and such deferred tax liability was used to realize certain deferred tax assets against which we had previously recorded a full valuation allowance. We did not have any income tax benefit during 2020. See Note 14 to our consolidated financial statements. Other income (expense), net increased by$7.3 million primarily due to (1) recording the fair value of one of our investments during 2021, where we did not have this recording during 2020, and (2) writing down the fair value of another of our investments during 2020, where we did not have this write down during 2021. See Note 4 to our consolidated financial statements for more information on our fair value recording.
Quarterly Results of Operations and Key Business Metrics
The following tables set forth our unaudited quarterly statements of operations
data for the most recent eight quarters, as well as the percentage that each
line item represents of our revenue for each quarter presented. The information
for each quarter has been prepared on a basis consistent with our consolidated
financial statements and reflect, in the opinion of management, all adjustments
of a normal, recurring nature that are necessary for a fair presentation of the
financial information contained in those statements. The following quarterly
financial data should be read in conjunction with our consolidated financial
statements.
Quarterly Results
Three Months Ended
Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sep. 30, 2021 Jun. 30, 2021 Mar. 31, 2021
Revenue $ 479,664 $ 600,517 $ 606,915 $ 597,346 $ 643,057 $ 540,074 $ 471,315 $ 268,319
Cost of revenue(1) 442,229 542,440 488,912 524,808 535,033 412,772 345,179 225,961
Gross profit 37,435 58,077 118,003 72,538 108,024 127,302 126,136 42,358
Operating expenses:
Technology and development(1) 47,041 48,063 51,506 49,640 43,894 43,658 41,488 27,678
Marketing(1) 24,238 33,748 56,743 43,342 22,397 49,143 55,398 11,802
General and administrative(1) 62,889 61,005 71,733 58,966 66,962 54,395 59,567 37,391
Restructuring and reorganization 21,798 284 12,677 5,710 - - - -
Total 155,966 143,100 192,659 157,658 133,253 147,196 156,453 76,871
Loss from operations (118,531) (85,023) (74,656) (85,120) (25,229) (19,894) (30,317) (34,513)
Interest income 4,691 1,174 554 220 163 178 135 159
Interest expense (4,905) (5,359) (3,620) (3,861) (3,939) (3,672) (2,813) (1,338)
Income tax benefit (expense) 299 (132) (159) (134) 744 311 5,052 -
Gain on extinguishment of
convertible senior notes 57,193 - - - - - - -
Other (expense) income, net (693) (905) (265) (1,911) 1,259 4,128 65 (92)
Net loss $ (61,946) $ (90,245)
$ (18,949) $ (27,878) $ (35,784) Net loss attributable to common stock$ (62,090) $ (90,517) $ (78,496) $ (91,599) $ (28,396) $ (20,611) $ (29,756) $ (38,120) Net loss per share-diluted$ (0.57) $ (0.83) $ (0.73) $ (0.86) $ (0.27) $ (0.20) $ (0.29) $ (0.37)
(1) Includes stock-based compensation as follows:
35
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Table of Conten t s
Three Months Ended
Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sep. 30, 2021 Jun. 30, 2021 Mar. 31, 2021
Cost of revenue $ 4,307 $ 4,387 $ 3,879 $ 3,377 $ 3,595 $ 3,283 $ 3,758 $ 2,978
Technology and development 6,572 7,371 7,700 7,965 6,288 5,455 5,771 5,761
Marketing 1,069 1,028 924 1,072 736 537 535 542
General and administrative 4,638 5,284 4,310 4,374 4,667 3,835 3,679 3,302
Total $ 16,586 $ 18,070 $ 16,813 $ 16,788 $ 15,286 $ 13,110 $ 13,743 $ 12,583
Three Months Ended
Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sep. 30, 2021 Jun. 30, 2021 Mar. 31, 2021
(as a percentage of revenue)
Revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue(1) 92.2 90.3 80.6 87.9 83.2 76.4 73.2 84.2
Gross profit 7.8 9.7 19.4 12.1 16.8 23.6 26.8 15.8
Operating expenses
Technology and development(1) 9.8 8.0 8.5 8.3 6.8 8.1 8.8 10.3
Marketing(1) 5.1 5.6 9.3 7.3 3.5 9.1 11.8 4.4
General and administrative(1) 13.1 10.2 11.8 9.9 10.3 10.1 12.6 13.9
Restructuring and
reorganization 4.5 0.0 2.1 1.0 - - - -
Total 32.5 23.8 31.7 26.4 20.6 27.3 33.2 28.6
Loss from operations (24.7) (14.2) (12.3) (14.2) (3.8) (3.7) (6.4) (12.8)
Interest income 1.0 0.2 0.1 - - - - 0.1
Interest expense (1.0) (0.9) (0.6) (0.6) (0.6) (0.7) (0.6) (0.5)
Income tax benefit (expense) 0.1 - - - 0.1 0.1 1.1 -
Gain on extinguishment of
convertible senior notes 11.9 - - - - - - -
Other (expense) income, net (0.1) (0.2) - (0.3) 0.2 0.8 - -
Net loss (12.8) % (15.0) % (12.9) % (15.2) % (4.1) % (3.5) % (5.9) % (13.2) %
(1) Includes stock-based compensation as follows:
Three Months Ended
Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2022 2022 2022 2022 2021 2021 2021 2021
(as a percentage of revenue)
Cost of revenue 0.9 % 0.7 % 0.6 % 0.6 % 0.6 % 0.6 % 0.8 % 1.1 % Technology and development 1.4 1.2 1.3 1.3 1.0 1.0 1.2 2.2 Marketing 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.2 General and administrative 0.9 0.9 0.7 0.7 0.6 0.7 0.8 1.2 Total 3.4 % 3.0 % 2.8 % 2.8 % 2.3 % 2.4 % 2.9 % 4.7 % Our revenue and cost of revenue have typically followed the seasonal pattern of the residential real estate industry. As such, revenue and cost of revenue increase sequentially from the first quarter to the second quarter and sequentially again during the third quarter. Fourth quarter revenue typically declines sequentially from the third quarter. Our 2022 revenue and cost of revenue were impacted by macroeconomic conditions; see "Adverse Macroeconomic Conditions and Our Associated Actions" under Item 7. In 2021, revenue increased from the third quarter to the fourth quarter, largely due to our properties business's expansion and greater customer awareness of that business.
Two acquisitions also increased our quarterly revenue, cost of revenue and
operating expenses in 2021 and 2022.
•We completed our acquisition of Rent. on
increased revenue, cost of revenue, and operating expenses in the second
quarter, third quarter, and fourth quarter of 2022 over their seasonal pattern,
because there were no such results in prior quarters.
•We completed our acquisition of Bay Equity onApril 1, 2022 . The acquisition increased revenue, cost of revenue, and operating expenses in the second quarter, third quarter, and fourth quarter of 2022 over their seasonal pattern, because there were no such results in prior quarters. 36
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Table of Conten t s
Quarterly Key Business Metrics
Dec. 31, 2022 Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sep. 30, 2021 Jun. 30, 2021 Mar. 31, 2021
Monthly average visitors (in
thousands) 43,847 50,785 52,698 51,287 44,665 49,147 48,437 46,202
Real estate services
transactions
Brokerage 12,743 18,245 20,565 15,001 19,428 21,929 21,006 14,317
Partner 2,742 3,507 3,983 3,417 4,603 4,755 4,597 3,944
Total 15,485 21,752 24,548 18,418 24,031 26,684 25,603 18,261
Real estate services revenue
per transaction
Brokerage $ 10,914 $ 11,103 $ 11,692 $ 11,191 $ 10,900 $ 11,107 $ 11,307 $ 10,927
Partner 2,611 2,556 2,851 2,814 2,819 2,990 3,195 3,084
Aggregate 9,444 9,725 10,258 9,637 9,352 9,661 9,850 9,233
U.S. market share by units(1) 0.76 % 0.80 % 0.82 % 0.79 % 0.78 % 0.78 % 0.77 % 0.75 %
Revenue from top-10 Redfin
markets as a percentage of
real estate services revenue 57 % 58 % 59 % 57 % 61 % 62 % 64 % 62 %
Average number of lead agents 2,022 2,293 2,640 2,750 2,485 2,370 2,456 2,277
RedfinNow homes sold 474 530 423 617 600 388 292 171
Revenue per RedfinNow home
sold $ 538,788 $ 550,903
Mortgage originations by
dollars (in millions)
258 $ 261 $ 227 Mortgage originations by units (in ones) 2,631 3,720 3,860 414 591 671 749 632 (1) Prior to the second quarter of 2022, we reported our U.S. market share based on the aggregate home value of our real estate services transactions, relative to the aggregate value of allU.S. home sales, which we computed based on the mean sale price ofU.S. homes provided by the National Association of REALTORS® ("NAR"). Beginning in the second quarter of 2022, NAR (1) revised its methodology of computing the mean sale price, (2) restated its previously reported mean sale price beginning fromJanuary 2020 (and indicated that previously reported mean sale price prior toJanuary 2020 is not comparable), and (3) discontinued publication of the mean sale price as part of its primary data set. Due to these changes, as of the second quarter of 2022, we report our U.S. market share based on the number of homes sold, rather than the dollar value of homes sold. Our market share by number of homes sold has historically been lower than our market share by dollar value of homes sold. We also stopped reporting the aggregate home value of our real estate services transactions. Similar to our revenue, monthly average visitors to our website and mobile application has typically followed the seasonal pattern of the residential real estate industry. Monthly average visitors in 2022 were impacted by adverse macroeconomic conditions. See section "Adverse Macroeconomic Conditions and Our Associated Actions" under Item 7.
Segment Financial Information
The tables below present, for each of our reportable and other segments,
financial information on a GAAP basis and adjusted EBITDA, which is a non-GAAP
financial measure, for the year ended
See Note 3 to our consolidated financial statements for more information
regarding our GAAP segment reporting.
To supplement our consolidated financial statements that are prepared and presented in accordance with GAAP, we also compute and present adjusted EBITDA, which is a non-GAAP financial measure. We believe adjusted EBITDA is useful for investors because it enhances period-to-period comparability of our financial statements on a consistent basis and provides investors with useful insight into the underlying trends of the business. The presentation of this financial measure is not intended to be considered in isolation or as a substitute of, or superior to, our financial information prepared and presented in accordance with GAAP. Our calculation of adjusted EBITDA may be different from adjusted EBITDA or similar non-GAAP financial measures used by other companies, limiting its usefulness for comparison purposes. Our adjusted EBITDA for the year endedDecember 31, 2022 , 2021, and 2020 is presented below, along with a reconciliation of adjusted EBITDA to net loss. 37
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Table of Conten t s
Year ended December 31, 2022
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Revenue $ 787,076 $ 1,202,651 $ 155,910 $ 132,904 $ 23,684 $ (17,783) $ 2,284,442
Cost of revenue 608,027 1,225,717 33,416 126,552 22,460 (17,783) 1,998,389
Gross profit 179,049 (23,066) 122,494 6,352 1,224 - 286,053
Operating expenses
Technology and development 105,196 17,326 59,899 6,034 3,591 4,204 196,250
Marketing 98,673 2,762 51,064 4,889 199 484 158,071
General and administrative 88,171 11,203 92,728 25,680 3,307 33,504 254,593
Restructuring and
reorganization - - - - - 40,469 40,469
Total operating expenses 292,040 31,291 203,691 36,603 7,097 78,661
649,383
Loss from operations (112,991) (54,357) (81,197) (30,251) (5,873) (78,661)
(363,330)
Interest income, interest expense, income tax expense, gain on extinguishment of convertible senior notes, and other expense, net (123) (7,607) 1,389 (114) 140 48,502 42,187 Net loss$ (113,114) $ (61,964) $
(79,808)
$ (321,143) Year ended December 31, 2022 Corporate Overhead Real estate and Intercompany services Properties Rentals Mortgage Other Eliminations Total Net loss$ (113,114) $ (61,964) $ (79,808) $ (30,365) $ (5,733) $ (30,159)$ (321,143) Interest income(1) - (1,266) (24) (10,499) (143) (5,181) (17,113) Interest expense(2) - 8,859 - 8,580 - 8,778 26,217 Income tax expense - 10 (1,077) - - 1,193 126 Depreciation and amortization 17,526 2,335 38,683 3,438 1,089 1,836
64,907
Stock-based compensation(3) 36,652 5,238 11,319 4,132 1,496 9,420
68,257
Acquisition-related costs(4) - - - - - 2,437 2,437 Restructuring and reorganization(5) - - - - - 40,469 40,469 Impairment(6) - - - - - 1,136 1,136 Gain on extinguishment of convertible senior notes - - - - - (57,193) (57,193) Adjusted EBITDA$ (58,936) $ (46,788) $
(30,907)
(1) Interest income includes$10.5 million of interest income related to originated mortgage loans for the year endedDecember 31, 2022 . (2) Interest expense includes$8.5 million of interest expense related to our warehouse credit facilities for the year endedDecember 31, 2022 . (3) Stock-based compensation consists of expenses related to stock options, restricted stock units, and our employee stock purchase program. See Note 12 to our consolidated financial statements for more information. (4) Acquisition-related costs consist of fees for external advisory, legal, and other professional services incurred in connection with our acquisition of other companies. (5) Restructuring and reorganization expenses primarily consist of personnel-related costs associated with employee terminations, furloughs, or retention due to the restructuring and reorganization activities from our acquisitions of Bay Equity and Rent., and from our June andOctober 2022 workforce reductions. (6) Impairment consists of an impairment loss due to subleasing one of our operating leases. 38
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Table of Conten t s
Year ended December 31, 2021
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Revenue $ 903,334 $ 880,653 $ 121,877 $ 19,818 $ 13,609 $ (16,526) $ 1,922,765
Cost of revenue 603,320 870,052 21,739 26,096 14,264 (16,526) 1,518,945
Gross profit 300,014 10,601 100,138 (6,278) (655) - 403,820
Operating expenses
Technology and development 81,588 13,237 41,492 10,396 2,528 7,477 156,718
Marketing 98,746 1,889 36,174 561 209 1,161 138,740
General and administrative 84,655 9,593 71,943 8,306 2,288 41,530 218,315
Restructuring and
reorganization - - - - - - -
Total operating expenses 264,989 24,719 149,609 19,263 5,025 50,168 513,773
Loss from operations 35,025 (14,118) (49,471) (25,541) (5,680) (50,168) (109,953)
Interest income, interest
expense, income tax
benefit, and other expense,
net (87) (4,261) 3,301 3 2 1,382 340
Net income (loss) $ 34,938 $ (18,379) $ (46,170) $ (25,538) $ (5,678) $ (48,786) $ (109,613)
Year ended December 31, 2021
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Net loss $ 34,938 $ (18,379) $ (46,170) $ (25,538) $ (5,678) $ (48,786) $ (109,613)
Interest income(1) - (9) - (1,598) (2) (619) (2,228)
Interest expense(2) - 4,271 - 1,666 - 7,490 13,427
Income tax expense - - (2,699) - - (3,408) (6,107)
Depreciation and amortization 13,282 1,888 27,607 1,406 761 1,962 46,906
Stock-based compensation(3) 34,662 5,177 1,311 2,985 856 9,731 54,722
Acquisition-related costs(4) - - - - - 7,925 7,925
Restructuring and
reorganization(5) - - - - - - -
Adjusted EBITDA $ 82,882 $ (7,052) $ (19,951) $ (21,079) $ (4,063) $ (25,705) $ 5,032
(1) Interest income includes $1.6 million of interest income related to
originated mortgage loans for the year ended December 31, 2021 .
(2) Interest expense includes $1.7 million of interest expense related to our
warehouse credit facilities for the year ended December 31, 2021 .
(3) Stock-based compensation consists of expenses related to stock options,
restricted stock units, and our employee stock purchase program. See Note 12 to
our consolidated financial statements for more information.
(4) Acquisition-related costs consist of fees for external advisory, legal, and
other professional services incurred in connection with our acquisition of other
companies.
(5) Restructuring and reorganization expenses primarily consist of
personnel-related costs associated with employee terminations, furloughs, or
retention due to the restructuring and reorganization activities from our
acquisition of Rent..
39
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Table of Conten t s
Year ended December 31, 2020
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Revenue $ 651,208 $ 209,686 $ - $ 15,835 $ 12,377 $ (3,013) $ 886,093
Cost of revenue 417,140 214,382 - 15,627 9,847 (3,013) 653,983
Gross profit 234,068 (4,696) - 208 2,530 - 232,110
Operating expenses
Technology and development 66,389 5,986 - 5,914 1,288 4,720 84,297
Marketing 53,399 536 - 267 88 591 54,881
General and administrative 54,538 2,810 - 1,665 764 25,847 85,624
Restructuring and
reorganization - - - - - 6,516 6,516
Total operating expenses 174,326 9,332 - 7,846 2,140 37,674 231,318
Loss from operations 59,742 (14,028) - (7,638) 390 (37,674) 792
Interest income, interest
expense, and other expense,
net - (1,018) - 73 30 (18,404) (19,319)
Net income (loss) $ 59,742 $ (15,046) $ - $ (7,565) $ 420 $ (56,078) $ (18,527)
Year ended December 31, 2020
Corporate Overhead
Real estate and Intercompany
services Properties Rentals Mortgage Other Eliminations Total
Net loss $ 59,742 $ (15,046) $ - $ (7,565) $ 420 $ (56,078) $ (18,527)
Interest income(1) - (244) - (1,354) (30) (1,726) (3,354)
Interest expense(2) - 1,262 - 1,394 - 13,599 16,255
Depreciation and amortization 11,070 971 - 728 618 1,177
14,564
Stock-based compensation(3) 26,448 2,234 - 1,505 315 6,471 36,973 Restructuring and reorganization(4) - - - - - 6,516 6,516 Impairment(5) - - - - - 2,063 2,063 Loss on extinguishment of convertible senior notes - - - - - 4,634 4,634 Adjusted EBITDA$ 97,260 $ (10,823) $ -$ (5,292) $ 1,323 $ (23,344)$ 59,124 (1) Interest income includes$1.3 million of interest income related to originated mortgage loans for the year endedDecember 31, 2020 . (2) Interest expense includes$1.4 million of interest expense related to our warehouse credit facilities for the year endedDecember 31, 2020 . (3) Stock-based compensation consists of expenses related to stock options, restricted stock units, and our employee stock purchase program. See Note 12 to our consolidated financial statements for more information. (4) Restructuring and reorganization expenses primarily consist of direct and incremental costs related to COVID-19. (5) Impairment primarily consists of an impairment cost related to our cost method investments.
Liquidity and Capital Resources
As ofDecember 31, 2022 , we had cash and cash equivalents of$239.8 million and investments of$151.7 million , which consist primarily of operating cash on deposit with financial institutions, money market instruments,U.S. treasury securities, and agency bonds. Also, as ofDecember 31, 2022 , we had$1,117.2 million aggregate principal amount of convertible senior notes outstanding across three issuances maturing betweenJuly 15, 2023 andApril 1, 2027 . See Note 15 to our consolidated financial statements for our obligations to pay semi-annual interest and to repay any outstanding amounts at the notes' maturity. BetweenNovember 13, 2022 andDecember 27, 2022 , we repurchased and retired an aggregate amount of$142.5 million of our 2025 convertible senior notes pursuant to the repurchase program authorized by our board of directors onOctober 17, 2022 . As ofDecember 31, 2022 ,$166.4 million remained available for future repurchases pursuant to the foregoing repurchase program. Also, as ofDecember 31, 2022 , we had 40,000 shares of convertible preferred stock outstanding. See Note 11 to our consolidated financial statements for our obligations to pay quarterly interest and to redeem any outstanding shares onNovember 30, 2024 . 40
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Table of Conten t s
OnNovember 2022 , we announced that we were winding down RedfinNow. See Note 5 to our consolidated financial statements for more information on changes to inventory related to home purchases and home sales for our properties business during 2022. See Note 15 to our consolidated financial statements for more information regarding the secured revolving credit facility previously used to purchase RedfinNow homes, which we terminated onDecember 29, 2022 . Our mortgage business has significant cash requirements due to the period of time between its origination of a mortgage loan and the sale of that loan. We have relied on warehouse credit facilities with different lenders to fund substantially the entire portion of the mortgage loans that our mortgage business originates. Once our mortgage business sells a loan in the secondary mortgage market, we use the proceeds to reduce the outstanding balance under the related facility. See Note 15 to our consolidated financial statements for more information regarding our warehouse credit facilities. We believe that our existing cash and cash equivalents and investments, together with cash we expect to generate from future operations, the cash we will generate from the wind-down of RedfinNow, and borrowings from our mortgage warehouse credit facilities, will provide sufficient liquidity to meet our operational needs and our growth, and fulfill our payment obligations with respect to our convertible senior notes and convertible preferred stock. However, our liquidity assumptions may change or prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. As a result, we may seek new sources of credit financing or elect to raise additional funds through equity, equity-linked, or debt financing arrangements. We cannot assure you that any additional financing will be available to us on acceptable terms or at all.
Our title and settlement business holds cash in escrow that we do not record in
our consolidated balance sheets. See Note 8 to our consolidated financial
statements for more information regarding these amounts.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
2022 2021 2020
(in thousands)
Net cash provided by (used in) operating activities
Net cash used in investing activities
(184,338)
(576,306) (57,119)
Net cash (used in) provided by financing activities (332,094) 650,341 694,227
Net Cash Provided By (Used In) Operating Activities
Our operating cash flows result primarily from cash generated by commissions paid to us from our real estate services business and sales of homes from our properties business. Our primary uses of cash from operating activities include payments for personnel-related costs, including employee benefits and bonus programs, marketing and advertising activities, purchases of homes for our properties business, office and occupancy costs, and outside services costs. Additionally, our mortgage business generates a significant amount operating cash flow activity from the origination and sale of loans held for sale. Net cash provided by operating activities was$40.5 million for the year endedDecember 31, 2022 , primarily attributable to changes in assets and liabilities of$244.7 million and$116.9 million of non-cash items related to stock-based compensation, depreciation and amortization, gain on extinguishment of convertible senior notes, amortization of debt discounts and issuances costs, lease expense related to right-of-use assets, and other non-cash items. This was offset by a net loss of$321.1 million . The primary source of cash related to changes in our assets and liabilities was a$243.9 million decrease in inventory related to the wind-down of RedfinNow. The primary use of cash related to changes in our assets and liabilities was a$48.9 million decrease in accounts payable and accrued and other liabilities related to the timing of vendor payments and payroll-related expenses. 41 -------------------------------------------------------------------------------- Table of Conten t s Net cash used in operating activities was$301.6 million for the year endedDecember 31, 2021 , primarily attributable to a net loss of$109.6 million , offset by$114.8 million of non-cash items related to stock- based compensation, depreciation and amortization, amortization of debt discounts and issuances costs, lease expense related to right-of-use assets, impairment charges related to one of our cost-method investments, and other non-cash items. Changes in assets and liabilities decreased cash provided by operating activities by$306.8 million . The primary source of cash related to changes in our assets and liabilities was a$28.9 million increase in accounts payable and other accrued liabilities related to the timing of vendor payments and payroll related expenses. The primary use of cash related to changes in our assets and liabilities was a$309.1 million increase in inventory related to our properties business. Net cash provided by operating activities was$61.3 million for the year endedDecember 31, 2020 , primarily attributable to a net loss of$18.5 million , offset by$77.2 million of non-cash items related to stock- based compensation, depreciation and amortization expenses, amortization of debt discounts and issuances costs, and lease expense related to right-of-use assets. Changes in assets and liabilities increased cash used in operating activities by$2.6 million . The primary sources of cash related to changes in our assets and liabilities were a$41.2 million increase in accounts payable and other accrued liabilities related to the timing of vendor payments and payroll related expenses, and a$25.4 million decrease in inventory related to our properties business. The primary uses of cash related to changes in our assets and liabilities were a$35.5 million increase in accounts receivable related to the timing of escrow payments in-transit, a$19.5 million increase in net loans held for sale related to our mortgage business, and an$11.3 million decrease in lease liabilities.
Our primary investing activities include acquisitions of other companies and the
purchase of investments and property and equipment, primarily related to
capitalized software development expenses and leasehold improvements.
Net cash used in investing activities was$184.3 million for the year endedDecember 31, 2022 , primarily attributable to cash paid for our acquisition of Bay Equity of$97.3 million ,$65.5 million in net investments inU.S. government securities, and$21.5 million in purchases of property and equipment. Net cash used in investing activities was$576.3 million for the year endedDecember 31, 2021 , primarily attributable to cash paid for our acquisition of Rent. of$608.0 million ,$59.2 million in net investments inU.S. government securities, and$17.6 million of capitalized software development expenses. Net cash used in investing activities was$57.1 million for the year endedDecember 31, 2020 , primarily attributable to$42.4 million in net investments inU.S. government securities,$5.8 million related to equipment, furnishings and leasehold improvements for new or expansion of existing office space, and$8.9 million of capitalized software development expenses.
Our primary financing activities have come from (i) our initial public offering inAugust 2017 , (ii) sales of our common stock and 2023 notes inJuly 2018 , our common stock and convertible preferred stock inApril 2020 , our 2025 notes inOctober 2020 , and our 2027 notes inMarch 2021 , and (iii) the sale of our common stock pursuant to stock option exercises and our ESPP. Additionally, we generate a significant amount of financing cash flow activity due to borrowings from and repayments to our warehouse credit facilities and, historically, our secured revolving credit facility, which we terminated onDecember 29, 2022 . Net cash used in financing activities was$332.1 million for the year endedDecember 31, 2022 , primarily attributable to a$199.8 million decrease in net borrowings under our secured revolving credit facility,$83.6 million used in connection with repurchases of our 2025 notes, and a$51.1 million decrease in net borrowings under our warehouse credit facilities. Net cash provided by financing activities was$650.3 million for the year endedDecember 31, 2021 , primarily attributable to$498.9 million in net proceeds from the issuance of our 2027 notes offering, a$175.8 million increase in net borrowings under our secured revolving credit facility, and$22.8 million in proceeds from the issuance of common stock pursuant to our equity compensation plans. 42 -------------------------------------------------------------------------------- Table of Conten t s Net cash provided by financing activities was$694.2 million for the year endedDecember 31, 2020 , primarily attributable to$647.5 million in net proceeds from the issuance of our 2025 notes offering,$109.5 million in net proceeds from the issuance of common stock and our convertible preferred stock offering,$21.1 million in proceeds from the issuance of common stock pursuant to our equity compensation plans, a$19.5 million increase in net borrowings under our secured revolving credit facility, and a$17.7 million increase in our net borrowings under our warehouse credit facilities. This was partially offset by$108.1 million used in connection with repurchases and conversions of our 2023 notes.
Critical Accounting Policies and Estimates
Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue, and expenses at the date of the financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and estimates addressed below. In addition, we have other key accounting policies and estimates that are described in Note 1 to our consolidated financial statements.
Revenue Recognition
Our key revenue components are brokerage revenue, partner revenue, properties revenue, rentals revenue, mortgage revenue, and other revenue. Of these, we consider the most critical of our revenue recognition policies to be those related to commissions and fees charged on brokerage transactions closed by our lead agents, and from the sale of homes. We recognize commission-based brokerage revenue upon closing of a brokerage transaction, less the amount of any commission refunds, closing-cost reductions, or promotional offers that may result in a material right. We determined that brokerage revenue primarily contains a single performance obligation that is satisfied upon the closing of a transaction, at which point the entire transaction price is earned. We evaluate our brokerage contracts and promotional pricing to determine if there are any additional material rights and allocate the transaction price based on standalone selling prices. Properties revenue is earned when we sell homes that were previously bought directly from homeowners. Our contracts with customers contain a single performance obligation that is satisfied upon a transaction closing. Properties revenue is recorded at closing on a gross basis, representing the sales price of the home. Rentals revenue is primarily recognized on a straight-line basis over the term of the contract, which is generally less than one year. Revenue is presented net of sales allowances, which are not material. Mortgage revenue is recognized (1) when an interest rate lock commitment is made to a customer, adjusted for a pull-through percentage, (2) for origination fees, when the purchase or refinance of a loan is complete, and (3) when the fair value of our interest rate lock commitments, forward sale commitments, and loans held for sale are recorded at current market quotes.
We have utilized the practical expedient in ASC 606, Revenue from Contracts with
Customers, and elected not to capitalize contract costs for contracts with
customers with durations less than one year. We do not have significant
remaining performance obligations or contract balances.
See Note 1 to our consolidated financial statements for further discussion of
our revenue recognition policy.
43 -------------------------------------------------------------------------------- Table of Conten t s Acquired Intangible Assets andGoodwill We recognize separately identifiable intangible assets acquired in a business combination. Determining the fair value of the intangible assets acquired requires management's judgment, often utilizes third-party valuation specialists, and involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash flows, discount rates, replacement costs, and asset lives, among other estimates. The judgments made in the determination of the estimated fair value assigned to the intangible assets acquired and the estimated useful life of each asset could significantly impact our consolidated financial statements in periods after the acquisition, such as through depreciation and amortization expense. We evaluate intangible assets for impairment whenever events or circumstances indicate that they may not be recoverable. We measure recoverability by comparing the carrying amount of an asset group to future undiscounted net cash flows expected to be generated.Goodwill represents the excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets acquired in a business combination.Goodwill is not amortized, but is subject to impairment testing. We assess the impairment of goodwill on an annual basis, during the fourth quarter, or whenever events or changes in circumstances indicate that goodwill may be impaired. We assess goodwill for possible impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. When utilizing a quantitative assessment, we determine fair value at the reporting unit level based on a combination of an income approach and market approach. The income approach is based on estimated future cash flows, discounted at a rate that approximates the cost of capital of a market participant, while the market approach is based on guideline public company multiples and adjusted for the specific size and risk profile of the reporting units. For fiscal year 2022, we performed a quantitative assessment and concluded that there was no impairment to any of our reporting units. No goodwill impairment charges were recorded in fiscal 2022 or 2021.
See Note 2 to our consolidated financial statements for a summary of our
valuation of the Bay Equity intangible assets, along with their estimated useful
lives.
Inventory Our inventory represents homes purchased with the intent of resale and are accounted for under the specific identification method. Direct home acquisition and improvement costs are capitalized and tracked directly with each specific home. Homes are stated in inventory at cost and are reviewed on a home by home basis. When evidence exists that the net realizable value of a home is lower than its cost, we recognize the difference as a loss in the period in which it occurs. In determining net realizable value, management must use judgment and estimates, including assessment of readily available market value indicators such as the Redfin Estimate and other third-party home value indicators, assessment of a current listing or pending offer price if either are available, and the value of any improvements made to the home. If a home's estimated market value is less than the inventory cost then the home is written down to net realizable value. In determining net realizable value, we use judgment and estimates, including assessment of readily available market value indicators. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized in cost of revenue and the value of the corresponding asset is reduced. As ofDecember 31, 2022 , we had$8.4 million in inventory write-downs. We will continue to monitor our reserve and may make further material adjustments in the future due to changing market conditions, natural disasters, or other forces outside of our control. OnNovember 7, 2022 , we decided to wind-down RedfinNow. We expect to complete the liquidation of our RedfinNow inventory in the second quarter of 2023.
See Note 5 to our consolidated financial statements for a summary of our
inventory categories and any net realizable write-downs.
44 -------------------------------------------------------------------------------- Table of Conten t s Business Combinations The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of acquisition. We record assets and liabilities of an acquired business at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. The purchase price allocation process requires our management to make significant estimates and assumptions. Although we believe the assumptions and estimates made are reasonable, they are inherently uncertain and based in part on experience, market conditions, projections of future performance, and information obtained from legacy management of acquired companies. Critical estimates include but are not limited to:
•future revenue, cost of revenue and operating margin projections,
•discount rates,
•terminal growth rate; and
•market data of comparable guideline companies.
See Note 2 to our consolidated financial statements for a summary of our
business combinations activities.
Recent Accounting Standards
For information on recent accounting standards, see Note 1 to our consolidated
financial statements.
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