3 growth stocks that are transforming the real estate sector

Jhe real estate market is hot right now with low interest rates driving strong demand and inventory shortages crippling supply. It’s the perfect storm for soaring prices and first-time home buyers are struggling to break into the market.

Real estate technology companies have been big beneficiaries of this environment as more consumers turn to digital platforms to buy and sell homes. The real estate industry has historically been labor intensive and expensive for both buyer and seller, and these companies are showcasing new ways to conduct transactions much more efficiently.

These three high-growth companies buy and sell thousands of homes every year, creating value for their customers and great opportunities for investors.

Image source: Getty Images

Block of offers

Solutions offers (NYSE: OPAD) is the newest entrant in the revolutionary direct purchase of real estate industry where companies buy homes directly from sellers with the intention of reselling them for a profit.

Founded in 2015, Offerpad began operations in early September and the company is growing rapidly with a noticeable acceleration over the past 12 months.

Metric

2018

2019

2020

2021 (Estimated)

CAGR

Income

$856 million

$1.08 million

$1.06 billion

$1.78 billion

28%

Source of data: documents filed by the company. Revenue estimate for 2021 based on the midpoint of the management guidance range. CAGR = compound annual growth rate.

The company sold 4,281 homes in 2020 and is expected to smash that figure this year, managing as many as 6,000 people. But the amount of money he earns per house sold is an even bigger improvement that investors should pay attention to. In the second quarter, Offerpad increased that figure to $31,500 from just $1,400 in the same period last year.

Favorable market conditions (rising house prices) have helped Offerpad achieve this growth, but it’s clear that the company is rapidly reaching scale – the point where it sells enough homes for the fixed costs of lending. business become less impactful.

Offerpad has now exceeded its full-year 2021 contribution earnings estimates in the first six months of the year. To further spur growth, the company purchased a record 2,025 homes in the second quarter, so there will likely be continued strength going forward.

red fin

While red fin (NASDAQ: RDFN) has a strong direct buying business like Offerpad, it has also had success applying technology to enhance the traditional real estate sales process. Where smaller agencies charge high fees and manage a small number of listings, Redfin has employed an army of thousands to sell homes the old-fashioned way, but with a significantly lower 1% listing fee.

This large-scale business model has saved consumers more than $1 billion in listing fees since Redfin’s inception, and the company’s share of all homes sold in the United States continues to grow.

Metric

2018

2019

2020

Q2 2021

Redfin’s share of US home sales

0.81%

0.93%

1.00%

1.18%

Source of data: documents filed by the company.

On the direct purchase side, Redfin sold 583 homes over 12 months, which is far less than its main competitors. But the 292 homes sold in the second quarter represent an 80% year-over-year increase, indicating its growing volume.

The combined segments have resulted in strong revenue growth for the company, proving that a hybrid real estate sales model that involves traditional practices can still deliver great results. Based on consensus analyst estimates for full-year 2021 revenue of $1.78 billion, Redfin will have recorded compound annual growth of more than 50% since 2018.

But Redfin’s second quarter showed that its growth was accelerating. It recorded a 121% year-over-year increase in revenue and a 174% increase in gross margin. The company’s best years are still ahead of it as consumers continue to turn to the company for their growing real estate needs.

An aerial photo of dozens of homes and the beach in a coastal suburb.

Image source: Getty Images.

Zillow

Zillow Group (NASDAQ:Z)(NASDAQ: ZG) is the dominant player in the field of direct purchase, but this is not its only strength. With a market capitalization of over $24 billion, it is almost five times larger than Redfin.

It achieved this scale by building a suite of nine real estate-related brands, which include software-as-a-service (SaaS) brokerage services platform Premier Agent, Zillow Closing Services for title and brokerage services. escrow, and Zillow Home Loans, an in-house mortgage lender.

The combined companies are expected to generate more than $6.5 billion in revenue this year.

Metric

2018

2021 (Estimated)*

CAGR

Income

$1.33 billion

$6.59 billion

70%

Source of data: documents filed by the company. *Yahoo! Finance. CAGR = compound annual growth rate.

The only segment of the real estate industry that Zillow does not operate in is the traditional sales business. But it helps consumers list their own homes on its website and host their own open houses. Plus, through Premier Agent, it helps independent agents build networks which, in turn, can lead buyers to Zillow’s various listings. These strategic moves ensure that Zillow captures revenue from all aspects of the laborious and costly traditional sales process without having to operate there.

Direct purchasing is the company’s largest segment, accounting for nearly 60% of total revenue. It relies on artificial intelligence to continuously monitor the real estate market across the United States, allowing it to offer willing sellers a “Zestimate” through its website within days of an offer request. .

Zillow sold 2,086 homes in the second quarter alone. With volume like that and a plethora of other successful real estate businesses, this stock could really be good for your long-term portfolio.

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Anthony Di Pizio has no position in the stocks mentioned. The Motley Fool owns shares and recommends Redfin, Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool recommends the following options: $65 short calls in September 2021 on Redfin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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