Saga Partners, an investment management firm, published its first-quarter 2022investor letter – a copy of which can be downloaded here. During the first quarter of 2022, the Saga Portfolio (“the Portfolio”) declined 42.4% net of fees. This compares to the overall decrease for the S&P 500 Index, including dividends, of 4.6%. Since its inception on January 1, 2017, the cumulative return for the Saga Portfolio is 112.0% net of fees compared to the S&P 500 Index of 122.7%. The annualized return since inception for the Saga Portfolio is 15.4% net of fees compared to the S&P 500’s 16.5%. Try to spend some time looking at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Saga Partners mentioned Redfin Corporation (NASDAQ:RDFN) and explained its insights for the company. Founded in 2002, Redfin Corporation (NASDAQ:RDFN) is a Seattle, Washington-based full-service real estate brokerage with a $1.09 billion market capitalization. Redfin Corporation (NASDAQ:RDFN) delivered a -73.30% return since the beginning of the year, while its 12-month returns are down by -80.12%. The stock closed at $10.25 per share on May 18, 2022.
Here is what Saga Partners has to say about Redfin Corporation (NASDAQ:RDFN) in its Q1 2022 investor letter:
“I recently wrote about Redfin in this December 2021 write-up. I explained how Redfin has increased the productivity of real estate agents by integrating its website with its full-time salaried agents and then funneling the demand aggregated on its website to agents. Redfin agents do not have to spend time prospecting for business but can rather spend all their time servicing clients throughout the process of buying and selling a home.
Since Redfin agents are three times more productive than a traditional agent, Redfin is a low-cost provider, i.e., it costs Redfin less to close a transaction than a traditional brokerage at scale. It is a similar concept as the higher operating leverage of e-commerce relative to brick & mortar retailers. Redfin has higher operating leverage compared to the traditional real estate brokerage.
Real estate agents are typically contractors for a brokerage. They are largely left alone to run their own business. Agents have to prospect for clients, market/advertise listings, do showings, and service clients throughout each step of the real estate transaction. Everything an agent does is largely a variable cost because few of their tasks are automated. Redfin, on the other hand, turned prospecting for demand, marketing/advertising listings, and investments in technology to help agents and customers throughout the transaction into more of a fixed cost. These costs are scalable and become a smaller cost per transaction as total transaction volumes grow across the company.
Because Redfin is a low-cost provider, it has a relative advantage over traditional brokerages. No other real estate brokerage has lowered or attempted to lower the costs of transacting real estate in a similar way. This cost advantage provides Redfin with options about how to share these savings on each transaction. Redfin has primarily shared the cost savings with customers by charging lower commission rates than traditional brokerages. By offering a similar, if not superior, service to customers compared to other brokerages yet charging lower fees, it naturally attracts further demand which then provides Redfin with the ability to scale fixed costs per transaction even more, further widening their cost advantage to other brokerages.
So far, the majority of those cost savings are shared with home sellers as opposed to homebuyers. Sellers are more price sensitive than homebuyers because the buyer’s commission is already baked into the seller’s contract and therefore buyers have not directly paid commissions to agents historically. Also, growing share of home listings is an important component of controlling the real estate transaction. The seller’s listing agent is the one who controls the property, decides who sees the house, and manages the offers and negotiations. Therefore, managing more listings enables Redfin to have more control over the transaction and further streamline/reduce inefficiencies for the benefit of both potential buyers and sellers…” (Click here to see the full text)
jason-dent-w3eFhqXjkZE-unsplash
Our calculations show that Redfin Corporation (NASDAQ:RDFN) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Redfin Corporation (NASDAQ:RDFN) was in 18 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 12 funds in the previous quarter. Redfin Corporation (NASDAQ:RDFN) delivered a -66.40% return in the past 3 months.
In March 2022, we also shared another hedge fund’s views on Redfin Corporation (NASDAQ:RDFN) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
