Turnkey
Two years ago I wrote a somewhat snarky article about a partnership between Realogy Holdings (RLGY) and Amazon.com (AMZN) titled “Realogy and Amazon.com Partner Up But Does It Matter?” Real estate services company Realogy (RLGY) worked out a deal to increase order flow by hooking into Amazon.com (AMZN) smart products for the home. They called the partnership “Turnkey”. At the time, RLGY was sinking fast. The deal looked like a desperate move to stay relevant in an increasingly crowded space, with companies bringing innovative technological solutions for buying and selling homes. The episode contrasts with today’s Realogy outperformance.
Less than a year later, the pandemic brought the partnership to a rapid end. Realogy did not provide an announcement. Instead, the company took down all the marketing materials and only mentioned the end of the Turnkey project in response to an analyst question in the Q2 2020 earnings conference call on May 9th. From the Seeking Alpha Transcript:
“And then the TurnKey program, the value proposition of the TurnKey program which we piloted with Amazon in 15 cities, the value proposition of that is all built around in-home services and in-home installation. And so we together kind of made the joint decision that we were going to suspend that because we think helping people with smart home products get their own services that require people being in someone’s home just doesn’t work in a COVID kind of social-distancing world.
So we really like the TurnKey pilot program but we ran into this thing that really just cut the core proposition kind of off at the path. And we and Amazon, we had a decision point on the next phase of what we’re going to do that was in April. And in a COVID world bluntly it didn’t make much sense to continue that pilot. So we’re going to keep being creative on lead-generation opportunities like AARP, et cetera, but you’re not going to hear that much of us about TurnKey given COVID because of the way it kind of eviscerated the value proposition that the thing was built on.”
The Aftermath
When RLGY plunged 22.8% on August 29, 2019, the market seemed to confirm the irrelevance of the partnership to Realogy’s fortunes. However, that fresh bout of panic in the stock created a bottom ahead of a large run-up for the housing market going into the pandemic. In an ironic twist, the pandemic turned into a boon for housing-related companies like Realogy. While Turnkey closed down, Realogy’s fortunes soared and created Realogy outperformance (relatively).
The chart below shows that even with the intervening trough of the pandemic, RLGY is up 204% since announcing Turnkey. RLGY also gained 351% since admitting the end of Turnkey.
The chart above includes quarterly revenue numbers for Realogy. The company grew revenue 14% from Q3 2019 to Q3 2020. Revenue growth has been even more impressive since then. Q4 2020 delivered 42% year-over-year growth. Q1 2021 drove 38% revenue growth over Q1 2020. Q1 2020 was the last full quarter before the pandemic.
The Trade on Realogy Outperformance
Fast-forward to today and suddenly the inventory of existing homes for sale is as scarce as ever. So few homes are available for sale that the industry may now have a glut of realtors. Indeed, RLGY has made little to no progress since February. On the other hand, RLGY remains elevated despite the dearth of inventory. RLGY even avoided the steep pullback suffered by competitors like Zillow Group (ZG) and Redfin (RDFN).
Most importantly, RLGY has transitioned from under-performer in 2019 to a clear out-performer in 2021. RLGY is up 42% year-to-date. The iShares U.S. Home Construction ETF (ITB) is “only” up 26% year-to-date. RLGY even held support at its 50-day moving average (DMA) since its last earnings report at the end of April. This resiliency makes RLGY a buy on a confirmed breakout over May’s high. Confirmation comes with a close above the close from the breakout. The trade proposition gets precarious on a close of the post-earnings gap from April.
Be careful out there!
Full disclosure: no positions