Real estate technology company The Real Brokerage (NASDAQ:REAX) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 86.1% year on year to $200.7 million. It made a GAAP loss of $0.09 per share, down from its loss of $0.04 per share in the same quarter last year.

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"Real delivered exceptional results in what is traditionally the lowest revenue quarter of the year, while setting a new quarterly record for net agent additions, which surpassed 3,000. This performance clearly demonstrates the strong appeal of our agent value proposition in the marketplace," said Tamir Poleg, Real’s Chairman and Chief Executive Officer.

Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ:REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.

Real Estate Services

Technology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.

Sales Growth

A company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. The Real Brokerage's annualized revenue growth rate of 174% over the last four years was incredible for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. The Real Brokerage's recent history shows its momentum has slowed as its annualized revenue growth of 112% over the last two years is below its four-year trend.

This quarter, The Real Brokerage reported magnificent year-on-year revenue growth of 86.1%, and its $200.7 million of revenue beat Wall Street's estimates by 17.6%. Looking ahead, Wall Street expects sales to grow 20.5% over the next 12 months, a deceleration from this quarter.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, The Real Brokerage has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 2.7%, subpar for a consumer discretionary business.

The Real Brokerage's free cash flow came in at $21.38 million in Q1, equivalent to a 10.7% margin and up 134% year on year.

Key Takeaways from The Real Brokerage's Q1 Results

We were impressed by how significantly The Real Brokerage blew past analysts' revenue expectations this quarter as its completed real estate transactions grew 88% year on year to $7.5 billion. On the other hand, its operating margin missed and its EPS fell short of Wall Street's estimates. Overall, this was a mediocre quarter for The Real Brokerage, but the market seems to be encouraged by its robust top-line growth, especially in a high-interest rate/tight housing market environment. The stock is up 5% after reporting and currently trades at $4.39 per share.

So should you invest in The Real Brokerage right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.