Home is where the disruption is.
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Today I will be completing an in-depth analysis on Opendoor OPEN . Within, I will break down the company’s backstory in relation to technological innovation as a whole, outline the opportunity they have in front of them and explain the significance of their mission. In addition, I will provide an overview of their technological functionality, delve deep into their financials and most recent earnings report, provide some projections for the end of the upcoming quarter, and discuss some positive developments and risk-based factors alike that I’ve considered while analyzing this company. As always, the format of this research piece can be seen outlined below, please feel free to skip ahead to the sections that you feel will be most useful:
3.0 Technology and Product Offerings
4.0 How Opendoor makes $$$
Disclaimer: The information and research contained herein is all my own opinion and should not be used as a substitute for proper due diligence. Please consult your financial advisor and evaluate your financial circumstances before making any investment.
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With all of that out of the way, let’s get started.
The history of our species, Homo Sapiens, begins approximately 200,000 years ago, an assertion that was corroborated by the legendary 1967 discovery of ancestral remains present within the Omo Valley in Ethiopia. Although this may seem like a long time, in reality it isn’t. By splitting the history of this tenure into sub-groups of 250 years and spreading it across an 800 page book (800 x 250 years = 200,000 years), we arrive at an interesting thought experiment, particularly how noticeable technological innovation doesn’t really start to happen until the very last page, i.e. within the last 250 years. Within that short time frame, our species birthed technology that would change the face of both our planet and our species as a whole, forever. The internal combustion engine, the nuclear bomb, computing and the later explosion of the world of bits, gene editing, and MRNA vaccines, as examples, were all brought into fruition within the last 250 years. Technology is moving fast and the rates at which breakneck innovations occur are only increasing, a phenomenon that will make the world of investing all the more interesting in the coming decades.
These feats of progress have created lives full of convenience for most within the developed world. All forms of commerce, ranging from grocery shopping to the purchase of luxury furnishings, can be conducted through online mediums, an endless array of video and music entertainment is available to us through streaming services, and we can contact essentially every person from all corners of the globe with a few coordinated thumb movements. Despite that fact, homebuying has largely avoided the onslaught of technological progress, rearing its ugly head to all those that come into contact with it, rubbing in the fact it exists still in its archaic forms, despite decades of fast-paced disruption occurring in almost every industry.
The topic of this deep-dive today aims to change all of that. With Opendoor, customers can say goodbye to processes of the past, and leverage a digital real estate platform that was built for the 21st Century. In a world where simplicity and seamless experiences are paramount, the ability for customers to both buy and sell homes online enjoys a favourable backdrop as good as any.
With that brief description in mind, let’s attempt to quantify the opportunity that Opendoor has in front of it, before we dig deeper into the nuances of their products and technology itself.
Quite simply, Real Estate is the largest part of the global economy that until the last few years, has been largely unaffected by technology as a whole. At Opendoor’s very core, the company believes that by intertwining their tech with the consumer process, the ease of the experience as a whole will allow for iBuying to infiltrate all corners of the space. This belief is nothing new, with Keith Rabois, the leader of Opendoor’s $10M Series A funding round, being quoted saying the following in 2014:
“My belief is that if you added a frictionless, convenient, simple process, more people would sell their homes.”
Since the premise of what the wielders of technology in this space are trying to achieve is not overly complicated, we don’t need too much time dwelling there. However, it is worth mulling over a quantification of just how big this area is before moving on. Residential real estate is a massive industry. The total number of homes sold has grown at a CAGR of approximately 4.2% over the last decade, with the metric totalling approximately 6.9M in 2021:
Even more staggering is the associated Total Transaction Value of these sales, a metric that reached nearly $2.3T in 2021. iBuying, i.e. the process of listing and selling one’s home online, despite years of progress, still doesn’t account for many of these total home sales, with Opendoor estimating that iBuyer volumes represented less than 1% of total transactions in 2021 and Zillow estimating that approximately 1.7% of total transactions in Q4’21 were performed via iBuying mediums. Though the enormity of this opportunity should not be lost on investors, it is unrealistic to assume that the entirety of this total transaction value is obtainable by iBuying constituents. Parallels can be drawn to other beneficiaries of technologically-enabled changes in consumer trends such as e-commerce. Even with one of the most favourable backdrops in history, i.e. the emergence of the global pandemic, e-commerce as a % of adjusted US retail spend (excl. Food, transportation, and auto) still only reached 20%, as outlined below:
Ramblings aside, it is not unrealistic to consider that iBuying continues to infiltrate the retail real estate market, eventually reaching mid single digit penetration within the next few decades, similar to what has been seen in the company’s most developed markets already. These assertions are not without corroborative backdrops. First off, homebuying is engrained within the very fabric of modernity. Based upon data provided by the US Bureau of Labor Statistics, approximately 66% of Total Consumer Units were homeowners, a value that has remained very consistent over the last few years as outlined below:
This data clearly outlines the fact that on average, one will become acquainted with the process of buying or selling a home at some point in their lives. When this conclusion is viewed alongside the fact that the processes contained therein are overly complicated, archaic and time consuming, it is quite clear that there is a substantial consumer problem ripe for disruption. As an example, it takes around 66 days, from list to close, to sell a house, on average. This process is also riddled with middlemen, with a useful Edison Financial article outlining the fact that a typical buy-process contains a host of different parties, including mortgage brokers and lenders, credit underwriters, buyers and listing agents, vendors, real estate lawyers, appraisers and inspectors. In short, there is a substantial void that exists for a digitally-native solution to transform a typically painful process into one that is both expedient and hassle-free.
Outside of making the process of buying and selling a home orders of magnitude easier, Opendoor also has a substantial opportunity in front of it in terms of ancillary services. Whether that be through the provision of a home loan, repair services, insurance, or potential moves into other areas of home improvement ranging from monotonous maintenance to regular home upkeep, there are many metaphorical pies for Opendoor to stick their hand in, so to speak. Looking at the proportion of after-tax income directed at home expenditures further affirms the fact that one’s home is the most important purchase they will make, both metaphorically and as a result of the % of their own income they direct towards it on an annual basis:
Paul Rabil once said the following:
“Character is what you do when no one is watching.”
I believe this applies very well to iBuying as a technology and to Opendoor as a company. What they’ve been attempting to achieve over the course of the last few years has been largely written off by the masses as a result of perceived complexity, business intricacies that seem unfavourable, and potential tail risks that may nullify any potential success they have garnered thus far. Despite that fact, if done right, success would be largely asymmetric in nature.
With that in mind, let’s dig deeper into Opendoor’s technology and the product offerings that make up the foundation of the company as we see it today.
3.0 Technology and Product Offerings
Opendoor directs a series of products and services at their customers, of which can be seen outlined and described below:
Sell or Buy From Opendoor
Selling one’s home to Opendoor removes the pain-points that are commonly present within the same process were it to be completed in person, and noticeably accelerates the process as well. Sellers start off by requesting an offer through Opendoor’s platform, a procedure that entails that the individual provides geographic information, photos of the home’s interior and information about the property’s size, condition and associated features. The platform will then evaluate the home, leveraging in-house technology to price and provide a preliminary offer within the span of minutes. Opendoor will then fine tune the offer through the conduction of inspections, completed through virtual or in-person mediums depending on the case, then using this information to make a final offer that takes into consideration deductions made for required repairs.
Buying one’s home from Opendoor works in a similar manner just on the opposite end of the spectrum. Customers can browse available inventory, decide upon a new home within the Opendoor platform and conduct a tour either virtually or in-person, depending on their preference. In-person tours are conducted alongside an accompanying agent in certain locations, while others allow for homes to be browsed solo anytime between 6AM-9PM, using the Opendoor App to unlock the home as required, as the following outlines:
Once completed, customers, with assistance from the platform, can submit a competitive offer, of which will have any negotiations overseen. Upon acceptance, the purchase agreement is then signed, inspections are scheduled, repairs are completed, closing costs are settled upon and move-in dates are set in stone, all through one single Opendoor point of contact.
Opendoor’s ability to accurately price homes is directly reliant on the company’s Automated Valuation Model, or AVM. Similar to traditional home valuation methods, the AVM relies on comparables, gathering data from a host of different sources in order to make preliminary offers to customers.The first step of data gathering is largely contingent on market data, which includes data points from MLS transactions. The framework which is the foundation for this initial process, of which has now evolved to incorporate Deep Learning design processes, can be seen outlined below:
After the AVM completes this process, they will then incorporate proprietary data points in order to fine tune the offer. This process includes data gathered from seller input flows, home assessment details, visitor traffic, historical underwriting information etc. Unlike Zillow’s infamous pricing algorithm, which consistently and significantly underestimated market changes and lead to disastrous failure as a result, Opendoor’s AVM has been successful up till now at ever increasing scale. In 2021 Opendoor gathered a host of home assessment data by way of assessment completions, with 375k home assessments completed to date, fully automated their preliminary offer process and increased the magnitude of total offers by a substantial margin, as outlined below, all while reducing valuation model error by 24% since 2017, evidently commendable progress for the tech behind Opendoor’s business.
As the title of this offering suggests, Opendoor Complete combines the entire process of selling one’s current home and buying a new one into a single product.
Opendoor Home Loans
Navigating the complex sea of mortgages, interest rates and financing processes adds orders of magnitude of complexities to almost every home purchasing decision. Opendoor offers customers access to varieties of mortgage rates ranging from 15-year to 30-year fixed as well as the opportunity to refinance one’s existing home if desired. Financing functionality also works well in conjunction with Opendoor offers, with the company supporting the ability for buyers to submit offers for homes before getting financed, holding the home for up to 120 days until the financing approval process is completed.
Opendoor further bolstered their loan capabilities, and by association, their buying process through the acquisition of RedDoor, completed in 2021. The founders Ali Mackani and Heather Harmon not only digitized the paper mortgage process but also created technology that provides pre-approval to mortgage applicants, oftentimes in the span of a minute. This pre-qualification expedience allows for buyers and agents to work in conjunction with knowledge of what the buyer can afford, leveraging this information to remain nimble in a competitive market.
Title and Escrow
Opendoor branched its functionality out to include title and escrow capabilities in 2019, with their acquisition of OS National. Title Insurance is a necessary evil of every home purchase, a requirement that protects residential owners and their lenders against any losses related to a property’s title or ownership. The escrow process on the other hand occurs between the time a seller accepts the offer to when the buyer takes possession of the home, often involving a third party or intermediary to hold and manage the payments of funds until the obligations of both parties privy to the transaction are met. Sparing any further details, this ancillary service, offered in the majority of Opendoor’s operating markets, and when viewed alongside the company’s loan capabilities, represents their evident focus on coupling transactions with add-on services, with total transactions and an attach rate % on T&E that highlighting the progress made thus far:
When one views these happenings from a financial perspective, the high-margin nature of these services is a net-positive given the low-margin and capital intensive nature of Opendoor’s core business, but more on that later.
With these ramblings in mind, let’s take a look at how exactly Opendoor makes money from all of this.
4.0 How Opendoor makes $$$
As one probably guessed from the last section, Opendoor generates revenue from two primary sources, the first being associated with the sale of homes themselves, and the second being through the provision of ancillary services to customers. Starting off with the former, Opendoor charges customers fees for selling services they provide, of which consist of a 5% service fee in addition to 1% fee attributable to the closing costs associated with every transaction. Similarly, if an individual decides to list with Opendoor and sell their home through an associated MLS, a 5% commission fee, 1% closing cost fee and 0-2% seller concession fee are charged.
Service fees are capped at 5%, allowing Opendoor to make this process competitive relative to other players, standing in stark contrast to both competitors and the Opendoor of old (fees were not capped and were often in the low teens % range prior to this decision). In addition, Opendoor also makes money if the homes they own are then sold to market for more than they were purchased for i.e. the Buy-to-List/Sale premium, a proxy of sorts for how effective the company’s pricing model is. Of late, the ability for Opendoor o buy slightly lower than market value, and sell for slightly higher in the company’s most developed markets, reflected in buy-to-list premiums below, has been impressive:
In addition, the company also benefits from any appreciation of home values during the period that said homes are held on their balance sheet, also falling victim to the opposite scenario of depreciation in some cases as well. We will dig into these dynamics further in later sections of the report.
Moving over to the latter, Opendoor also makes money from fees associated with the provision of services adjacent to a customer’s home purchase, of which includes escrow services, title insurance, mortgage loans, etc.
Now that we understand how Opendoor makes money, let’s delve into their financials and gain a deeper knowledge of how the company is performing under the hood, so to speak.
Within this section, we will be delving into Opendoor’s financials on a yearly basis, in addition to zooming in and analyzing the company’s recent quarterly performance. All dollar values are in millions of USD.
Opendoor’s Top-Line has grown substantially over the last few years, with this phenomenon clearly translating into the company’s most recent quarter. 2021A Revenue came in at $8.02B, increasing 211% YoY, evidently driven by pandemic-dampened comparable, but still representing a 69% Yo2Y increase nonetheless. Q1’22 Revenue came in blazing as well at $5.15B, increasing 589% YoY, already achieving 64% of the FY’21 value in the first segment of this year.
The strength of this metric is primarily driven by two phenomena, the increasing volume of transactions occurring on the Opendoor platform itself, as well as the increase in the selling prices of these homes in general. In Q1’22, Opendoor sold approximately 12,700 homes, a value that is more than 50% of the FY’21 recorded metric, all with the average Revenue per home increasing 10% in comparison to FY’21:
Tailwinds are evidently in play here, and we will discuss the implications of what happens when housing moves in other directions in later sections, however, for now, it is clear Opendoor is chugging along.
Cost of Revenue
As you may have inferred, Opendoor’s COR is highly fixed in nature, existing as the costs to purchase, acquire, renovate and repair the home, of which are also subject to any variation in home-price valuation. 2021 COR coming in at approximately $7.29B and Q1’21 COR at $4.62B, values that increased relatively inline Top Line, representing approximately 90% of Revenue, respectively.
Opendoor’s operating expenses have remained relatively consistent over the course of the last few years. We’re starting to see slight Operational Leverage in key areas with S&M increasing relative to top-line over the last few years, with G&A and T&D remaining in relatively tight ranges. As such, annual operating margins have been slightly negative thus far:
On a quarterly basis, specifically with Q1’22, we can start to see the effect of even further controls, phenomena that related in Opendoor achieving their first bout of profitability on an Operating Profitability since becoming a publicly traded company, a happening that surprised the street:
Margins and Profitability
On an Annual Basis, Opendoor has been maintaining slightly unprofitability, as gauged by the company’s Operating, Net and EBITDA metrics and associated margins, as outlined below:
Similar behaviour was observed on a quarterly basis, spare Q1’22, where the company achieved its first quarter of profitability, on an Operating and Net Income, as well as an EBITDA basis.
This phenomenon is likely to continue, a point I will touch on in my Q2’22 estimates section of this report. Opendoor’s technology and business model is improving with age, and the success of the AVM in developed markets is evident. The time-to-effectiveness in new markets is also increasing, with this excerpt from the Q1’22 conference call outlining the fact that profitability is being achieved faster in new markets than it was in prior years and prior cohorts:
The change and structure of the company’s balance sheet over the course of the last few quarters can be seen outlined below:
Taking a look at Opendoor’s balance sheet, one can draw a notable conclusion. Put simply, the company is evidently extremely capital intensive, a necessary evil judging by how the company’s business model functions. As of Q1’22, the company had approximately $4.66B in Home Inventory, of which is obtained primarily (80-90% of purchase price) using asset-backed senior debt facilities, with the remaining cost basis covered by the company’s mezzanine term facilities. Put simply, it is essential that Opendoor maintains ample liquidity and capital resources to continue to accumulate the level of inventory they rely upon to function adequately. These factors will be essential and I will touch upon related factors (particularly the impact of an inflationary environment and housing downturn) in the discussion section of this report.
Cash Flow Statement
A summary of Opendoor’s recent Cash Flow Statements can be seen outlined below:
CFO for Q1’22 came in at approximately $1.55B for the year, a testament to the company’s improving scale, margins and cost structure improvements amidst rapidly changing market dynamics. CFI came in at approximately $(38)M, primarily attributable to CAPEX and the purchase/proceeds of marketable securities. CFF came in at approximately $(1.334)B, attributable primarily to an inflow of $2.23B and an outflow of $(3.6)B associated with proceeds and principal payments on non-resource asset backed debt. FCF and FCF less SBC margins improved substantially this quarter in comparison 2019A-2021A, a phenomenon that is likely to continue heading into Q2’22.
KPIs and Non-GAAP Measures
Before moving onto some projections, there are a few KPIs and Non-GAAP measures that can help us gain insight into further Opendoor dynamics as well as their Unit Economics overall. First-off, Opendoor has continued to expand into new markets, with presence in 45 in total, entering into one new market QoQ, an effort that will further Opendoor in its journey to have presence across the entirety of the US.
Opendoor’s inventory dipped QoQ as well, coming in at approximately 13,360 homes in Inventory in Q1’22. With strong demand and high sell-through rates, this was to be expected. In lieu of demand likely slowing down in the back-half of the year, this inventory should build up over the next few quarters.
Despite that fact, management still anticipates growth to be sustained despite the aforementioned market dynamics.
Lastly, we can gauge Opendoor’s Unit Economics through its Contribution Profit, Contribution Profit After Interest and associated margins, values that depict Opendoor’s ability to generate returns homes sold in a given time frame, less the costs associated purchasing, renovations and repairs, holding and selling costs and interest costs associated with senior financing (in the case of the latter metric).
As Opendoor continues to infiltrate and mature into new/infantile markets, Unit Economics are likely to continue to improve, with the LHS of the following figure outlining the CM dynamics one can expect as markets start to develop:
Looking forwards to next quarter, the street currently has Opendoor achieving $4.28B in Revenue (according to Koyfin Estimates), with slight profitability on an EBITDA and EBIT basis. Similar to last quarter, these values are likely underestimations, setting Opendoor up for another beat. In order to corroborate these assertions, Datadoor, the best online source for accurate and high-grade iBuying data, was kind enough to provide me with the following preliminary estimates for Q2’22:
10,400-11,700 homes sold
$4.3B-$4.8B in revenue
12.8% Gross Profit Margin
Net Income Positive
Using the middle range of these estimations, and the average proportions for some key values including depreciation and amortization, interest expenses and other income - net, using past annual and quarterly data as reference points, I completed the following napkin math to outline a likely preliminary Q2’22 scenario (highlighted cells are my assumptions):
In short, this upcoming quarter should represent a nice top-line beat in conjunction with Opendoor’s second quarter of sustained profitability, a positive given the uncertainty in both housing and markets overall at the moment.
Before making some general and conclusive statements regarding Opendoor, I thought it would be useful to discuss the main pain points that investors have with the company’s story overall as well as ponder a few happenings with regards to the company’s future trajectory. The first talking point is how Opendoor will be able to sustain growth and overall success in different housing market directions. Understanding one of Opendoor’s primary operating levers is of the utmost importance here. Functionally, the entirety of the company’s value proposition is liquidity. The home-buying process is traditionally painful and riddled with inefficiencies that lead to turnaround times that often span months. Opendoor’s ability to charge fees is thus contingent on their ability to offer sellers access to said liquidity in an expedited time frame that is more hassle-free and enjoyable from start to finish. The company then has the ability to set fee levels that match the status of the market, making adjustments to drive the seller conversion levels required to continue spurring business success. In a hot housing market, like we’ve seen over the last few years, fees stay relatively low, since selling a home is easier. In this scenario, Opendoor makes up for lower fees with higher volumes. On the opposite end of the spectrum, if the housing market is slowing down, liquidity is evidently more valuable, and Opendoor can charge higher fees and still maintain high levels of conversion to make up for likely lower volumes.
Interconnected to the above dynamics is the ability for Opendoor to manipulate the dynamics of their spread, i.e. the delta between the Buy to Sale Premium and Home Price Appreciation, i.e. Spread = Buy to Sale Premium - Home Price Appreciation. In Q1’22, many touted the fact that Opendoor’s first quarter of sustained profitability was driven by favourable Home Price Appreciation dynamics, assumptions that are false when one starts to dig a little deeper into the company’s spread during that time:
As one can see, the company’s HPA was not very high when you start to average out Q1 values, insinuating that functionality of the company’s pricing dynamics overall and the associated ability to generate Buy-to-Sale Premiums that are noticeable was the primary driver behind profitability. Tying this back into how Opendoor can function within different market dynamics, the company’s spread can be used to maintain profitability. With housing market tailwinds, or in a good market, the company can be primarily reliant on the appreciation of homes to drive value, whereas in a poor market or a slowdown, the company can leverage the AVM in order to up their spread via higher buy-to-sale premiums and thus make up for slower volumes. This functionality should, theoretically, allow for Opendoor to sail across any seas of uncertainty.
The next talking point loops in the discussion above with the capital intensive nature of Opendoor’s business, i.e. whether or not company will be able to navigate different interest rate or housing market dynamics with their balance sheet exposure to housing as a whole. Being that the company primarily leverages debt for the purchase of homes, they evidently have exposure to both interest rates and holding costs as well as to any appreciation/depreciation of the home’s value that occurs in between the buy and sell period. The risks that are associated with these phenomena are reduced (albeit still present) by the company’s holding period. On average, this spans approximately 120 days, which for the sake of simplicity I will say results an inventory turnover rate of 3 turnovers/year. The company is thus exposed to changing market dynamics within that time frame. Being that history doesn’t repeat itself, but often rhymes, it is useful to look at past market declines as a proxy of sorts to how Opendoor may fare in one of these environments. The following was outlined in the most recent company earning’s call:
“Notwithstanding, real estate prices have tended to move slowly in market declines. Outside of the GFC, there have been only 6 quarters of HPA declines out of 188 since 1975, all very modest at around 1% or less. This further renders a sharp housing downturn unlikely in our view. And even during the GFC, the largest price decline sustained in a single quarter was down 3%.”
The excerpt above, when paired with the company’s relatively expedient holding times, insinuates the fact that Opendoor, even if we were in a catastrophic housing scenario, would likely be able to intelligently weather the metaphorical storm, though time will tell if this is the case. This far into the company’s history, we’ve seen how Opendoor can handle one black swan event. With the emergence of the pandemic, the company had to undertake diligent efforts to survive, laying off a substantial part of their workforce in order to keep afloat amidst an environment where iBuying saw a drastic downturn. Despite a few quarters of underwhelming performance, they were able to come out on the other side better than ever, a positive for those that have true belief in the company as a whole.
Moving on to the interest rates front, there is evidently the risk of the company being able to service their debt in an environment where interest rates are higher, however, this can likely be easily navigated with an intelligent use of aforementioned spread dynamics. Using the assumption we made earlier about how the average turnover rate for inventory is 3 times/year and a hypothetical interest rate raise of 1-2%, the associated interest rate drag per house would be in the range of 33-66bps. In this case, bps could then be transferred over to the spread, with Opendoor offering 33-66bps less for each home, an action that would likely have negligible impact on conversion rates. Again, this napkin math pushes me in the direction of Opendoor being able to deal with these problems head-on, an assumption which would of course be contingent on the company’s tech continuing to function very well.
Moving on, it is worth pondering a few more things with regards to the Opendoor story. First off, we can contemplate the continued room for growth. Although it is unreasonable to believe iBuying encapsulates the entirety of all real estate transactions, 2021 saw iBuyer purchase market share reach 1.3%, a value that I believe is most definitely capable of continuing to grow. With the competitive dynamics of the market itself, particularly how Zillow left a noticeable void in the iBuying space prime for Opendoor’s taking, it is likely that Opendoor continues to capture the majority of the future growth of this space, as outlined below:
In addition, Opendoor is likely to benefit from maturity of presence in the markets they have entered recently. Looking at the regions with the most iBuying presence, as well as Opendoor’s top metro regions as gauged by transactions measured from the end of March to the end of April (per Datadoor), we can evidently conclude that Opendoor has the best presence in markets that are the most developed, which by association leads to these areas having the best unit economics by way of contribution margin. It is not unreasonable to assume that as Opendoor continues to scale into newer areas, alongside iBuyer penetration as a whole, that profitability metrics will work their way towards the metrics associated the most mature markets, over time.
Lastly, and as as alluded to earlier within the opportunity section of the report, Opendoor has a massive opportunity in front of it with respect to ancillary services. Opendoor’s core business is, at its root, low margin and capital intensive, however, further branching out into areas of home spend such as landscaping, moving and maintenance services, etc. would be able to negate, at the very least, some of the high-exposure to the aforementioned business dynamic negatives (if you want to call them that). Some of the best software companies I’ve analyzed have been enormously successful with leveraging negligible incremental CAC once they have a customer in their ecosystem and bundling them with additional offerings, and although direct parallels can not be drawn between Opendoor and these counterparties, I see no reason for Opendoor to not have sustained success with offering customers bundles of ancillary services once they have been intertwined with the ecosystem.
From this research I was able to take away the fact that iBuying is both an enormous opportunity, and one that is met with hosts of skepticism by most, a phenomenon that is likely not unwarranted or undeserved. Many have tried to make associated business models work and have failed miserably, and looking back decades from now, Opendoor could be one of those unlucky dreamers. However, based on the research I’ve completed on the company thus far, they are doing all of the right things. With technology that has been executing in a pristine manner thus far, management focused on the opportunity at hand, and the ability to pull a variety of levers to theoretically navigate real estate environments of all shapes and sizes, the company may be able to survive the onslaught of negativity it has met thus far. I am a sucker for ambition, and Opendoor’s story lacks none of that. I have no position in Opendoor, however, I will be continuing to monitor the company going forwards in order to both continue to deepen my understanding of this space as a whole, and monitor financial performance to determine whether or not growth and sustained profitability amongst rapidly changing market dynamics is still possible. My biggest concern right now is how Opendoor will be able to navigate a poor housing market. I understand how they will theoretically handle the scenario, however, I would like to see a few quarters of execution within an extremely bad real estate environment in order to ensure my assumptions regarding their capabilities are correct. Over the last decade+ we have been in a environment of ever-dwindling interest rates, a phenomenon that has likely resulted in irregular housing behaviours by historical standards, being that many consumers could reach for homes that they would traditionally have not been able to afford by way of mortgages with very low rates. With so much consumer uncertainty around the corner, I would like to see how Opendoor handles an environment with low demand to see if they are able to maintain a reasonable inventory turnover rate and leverage their technology to maintain a spread that keeps them growing despite lower volumes. I lean on the side of optimism here and will be watching with that type of mindset accordingly.
Change is inevitable, and the disruption it causes often brings both inconvenience and opportunity. This report was one of the most challenging I’ve completed thus far. The complexities of iBuying have not been lost on me and in order to wrap my head around how Opendoor fits within this space took more reading than i’d like to admit. Coming out the other side, Opendoor is a fascinating company and out of sheer intellectual curiosity I will be monitoring them going forwards. I hope this report was as enjoyable to read as it was to create. Thank you for spending the time with my work.
If you want to read more about Opendoor, these articles were very helpful to honing my understanding of the company:
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