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Redfin debut offers hope for a tech IPO market in need of good news

Redfin is not exactly a household name in the world of consumer tech – it’s a residential real-estate brokerage built on the Internet – but it’s the closest thing the tech IPO market has to a hero as we enter the second half of 2017. Following disappointing IPOs from Snap, Blue Apron, and Tintri, Redfin priced above its expected range and closed up 46 percent on its first day of trading.

Last week, Redfin priced its shares between $12 a share and $14 a share. Late Thursday, it priced its shares at $15 a share to raise $138 million, which the company plans to use to grow its operations. Today, Redfin’s stock rose as high as $22 a share on its first day of trading, closing at $21.70 a share.

In general, U.S. IPOs have had moderate success this year as volatility has disappeared from the broader stock market. Renaissance IPO counts 86 IPOs across all industries so far in 2017, a 65 percent improvement over the same period in 2016. According to Fenwick & West, only 12 tech IPOs debuted in the first half of the year, down from 14 in 2016, which was considered a lackluster year.

The sluggish market for tech IPOs isn’t what Wall Street was hoping for. In March, Goldman Sachs posted a slick video in which one of its top investment bankers predicted tech IPO investors would be “willing to pay more for growth and focus on near-term profitability.”

Instead, Snap’s poor post-IPO performance has returned focus to profitability. After an IPO in which Snap raised $3.4 billion in early March, Snap shares slumped, now trading 20 percent below its $17 a share offering price and less than half Snap’s peak price of $29.44 a share. Similarly, Blue Apron and Tintri are trading below their respective offering prices.

For now, Redfin is giving hope to investment banks like Goldman — which served as lead underwriter on the Redfin offering — that more tech companies could brave the public markets to raise money. Also today, subscription-styling company Stitch Fix reportedly submitted a confidential filing for an IPO.

Like Snap and Blue Apron, Redfin went public with solid revenue growth but a history of losses from investments in its operations. While Redfin revenue grew 44 percent year over year to $59.9 million in the first quarter of 2017, the company posted a net loss of $28.1 million, against a net loss of $24.4 million in the year-ago period.

Last year, the company saw revenue grow by 43 percent to $267.2 million and its net loss decrease to $22.5 million from $30.2 million in 2015. The company said its cash flow last quarter was a negative $22 million and that it had $38 million in cash on hand as of March 31.

Redfin’s online agents use its technology to offer commissions it says are well below traditional brokerages. As of the end of 2016, Redfin agents had helped customers buy or sell more than 75,000 homes, worth an aggregate $40 billion, the company said in its prospectus. Still, the value of Redfin home sales make up only 0.6 percent of the U.S. market.

“We’re the fastest growing real-estate web site,” Redfin CEO Glenn Kelman said on CNBC today. “We aren’t going to have problems recruiting agents because they’re going to earn twice the industry average. They’re working for a brand that doesn’t feel like a Radio Shack of real estate but feels like the Apple of real estate.”

The company has recently been offering 1-percent commissions in California and other markets, below its usual 1.5-percent rate and the 2.5 percent to 3-percent average for all residential real-estate commissions. It’s also experimenting with a new service called Redfin Now, in which Redfin buys homes directly from sellers and resells them to buyers.

Previously, Redfin raised $168 million in private funding rounds, most recently a $71 million series G round in December 2014. Among the company’s private investors are Greylock, Draper Fisher Jurvetson, Madrona Ventures, Tiger Global, and T. Rowe Price.

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Ms. A. C. Kennedy
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There's a good reason why security analysts get nervous about bundled third-party software: it can introduce vulnerabilities that the companies can't control. And Microsoft, unfortunately, has learned that the hard way. Google researcher Tavis Ormandy discovered that a Windows 10 image came bundled with a third-party password manager, Keeper, which came with a glaring browser plugin flaw -- a malicious website could steal passwords. Ormandy's copy was an MSDN image meant for developers, but Reddit users noted that they received the vulnerable copy of Keeper after clean reinstalls of regular copies and even a brand new laptop.

A Microsoft spokesperson told Ars Technica that the Keeper team had patched the exploit (in response to Ormandy's private disclosure), so it shouldn't be an issue if your software is up to date. Also, you were only exposed if you enabled the plugin.

However, the very existence of the hole has still raised a concern: are Microsoft's security tests as thorough for third-party apps as its own software? The company has declined to comment, but that kind of screening may prove crucial if Microsoft is going to maintain the trust of Windows users. It doesn't matter how secure Microsoft's code is if a bundled app undermines everything.

Source: Monorail, Tavis Ormandy (Twitter)