Freedom Broker lowers rating on real estate tech platform reAlpha

Freedom Broker has downgraded its rating on reAlpha Tech, the micro-cap company behind an AI-powered, integrated real estate platform. The reason for the downgrade is an elevated risk of default due to cash burn.

Freedom Broker has downgraded its recommendation on reAlpha shares from “buy” to “hold” in a note seen by Oninvest. However, the target price remains unchanged at $1.10 per share — nearly 116% above the current share price. At the close of trading on Friday, May 23, reAlpha stood at $0.51 per share (U.S. markets were closed yesterday, May 26).

The downgrade is driven by an increased risk of default, Freedom Broker explains. The company’s first-quarter financials show that its liabilities still exceed its assets, which limits access to debt financing and increases the risk of future shareholder dilution. reAlpha’s cash position also deteriorated over the last quarter: As of the end of March, cash had dropped 61% to just $1.2 million.

At the same time, reAlpha reported a 4,432% year-over-year increase in revenue to $925.6 million, supported by recent acquisitions and expansion into mortgage services, Freedom Broker explains. In November, the company acquired a real estate tech subsidiary from Unreal Estate and, in February, mortgage broker GTG Financial.

However, profitability remains weak, Freedom Broker cautions. The gross margin declined to 56% from 71% in the fourth quarter, while adjusted EBITDA was little changed and remained negative at $1.96 million.

These factors — ongoing operating losses, negative equity, and a shrinking cash cushion — all point to a heightened risk of default and a strong likelihood that reAlpha will require additional capital to keep going, Freedom Broker concludes.

Since the start of the year, reAlpha shares have plunged more than 82%. Over the last 12 months, they are off 45%.

The two Wall Street analysts covering reAlpha are split on their view of the stock: One rates it a “buy,” while the other has it as a “hold,” according to MarketWatch. Their average target price of $1.18 per share suggests upside of more than 131% versus the last closing price.