Redfin Corporation (NASDAQ:RDFN) Analysts Just Trimmed Their Revenue Forecasts By 22%

Today is shaping up negative for Redfin Corporation (NASDAQ:RDFN) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

Following the latest downgrade, the current consensus, from the 18 analysts covering Redfin, is for revenues of US$2.0b in 2023, which would reflect a stressful 20% reduction in Redfin's sales over the past 12 months. Losses are predicted to fall substantially, shrinking 35% to US$1.72. Yet before this consensus update, the analysts had been forecasting revenues of US$2.5b and losses of US$1.69 per share in 2023. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

Our analysis indicates that RDFN is potentially undervalued!

The consensus price target fell 16% to US$7.00, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Redfin, with the most bullish analyst valuing it at US$16.00 and the most bearish at US$1.30 per share. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 17% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 40% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 2.5% annually for the foreseeable future. It's pretty clear that Redfin's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Redfin. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Redfin's revenues are expected to grow slower than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Overall, given the drastic downgrade to next year's forecasts, we'd be feeling a little more wary of Redfin going forwards.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Redfin analysts - going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.