iBuyers falling flat

David Goldsmith

All Powerful Moderator
Staff member
Opendoor projects revenue plummeted 45% in 2020

iBuyer also discloses it's looking to raise $700M in stock offering​

After Covid forced Opendoor into a five-month homebuying limbo in 2020, the newly public company is projecting a 45 percent drop in annual revenue.
The instant homebuying startup projected $2.58 billion in 2020 revenue, down 45 percent year-over-year from $4.7 billion, it said in a regulatory filing Tuesday. It anticipates losing between $98 million and $103 million on an EBITDA basis. That’s compared to a net loss of $339 million in 2019.
Opendoor shared the preliminary financials in conjunction with a disclosure that it is looking to raise more than $600 million through a stock offering, just six weeks after it went public via a SPAC. It plans to offer 24 million shares of its common stock.

Opendoor is yet to price the shares, but estimated net proceeds based on a closing price of $26.12 on January 29. The company could raise just under $700 million if underwriters at Citigroup and Goldman Sachs exercise their shares.

Opendoor currently operates in 21 markets around the U.S. It sold nearly 19,000 homes in 2019. In the filing, Opendoor said it plans to invest in existing and new markets, and will add to its working capital. “The principal purposes of this offering are to increase our capitalization and financial flexibility,” the filing stated. In addition, the Company plans to continue to invest to double the markets it serves in 2021.”

Like other iBuyers, Opendoor suspended homebuying in March when the pandemic threw the housing market into disarray. Between February and July 2020, Opendoor reduced its inventory to $172 million from over $1 billion, according to previous financial reports.
For the first nine months of 2020, Opendoor generated $2.3 billion in revenue, compared to $3.5 billion during the same period in 2019. Its net loss was $198.9 million, down from $247.4 million.

Led by CEO Eric Wu, Opendoor buys homes from owners who want the certainty of a quick closing. After making minor improvements, it aims to sell at a premium and also make money on ancillary services.
The San Francisco-based startup went public in December after merging with a blank-check firm sponsored by Chamath Palihapitiya. Ahead of trading, Opendoor’s valuation soared to $18 billion, about three times its enterprise value of $5 billion in September when it struck the deal with Palihapitiya. The stock closed at $31.25 per share on December 21.

The shares have dipped over the past six weeks. Opendoor’s stock closed at $28.47 per share on Tuesday, up from $26.25 a day prior, giving it a market cap of just over $15 billion.
After going public, Opendoor had $1 billion in cash. But homebuying is an extremely capital-intensive business, and the startup is likely looking to build on its momentum and the liquidity in the financial markets to grow its market share. Earlier Tuesday, brokerage giant Realogy announced a $200 million offering of senior notes, adding to $1 billion raised over the past 12 months.

Opendoor has projected $10 billion in revenue by 2023. It said by capturing 4 percent of the U.S. housing market, it can be a $50 billion company.
 

David Goldsmith

All Powerful Moderator
Staff member
www.mikedp.com/articles/2021/3/9/the-ibuyer-financial-bloodbath-continues

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Massive iBuyer Financial Losses Continue​


The “Reinvention of Real Estate” comes with a staggering price tag. In 2020, the two largest iBuyers, Opendoor and Zillow, lost a total of $607 million buying and selling houses. That’s a loss of about $40,000 on each home bought and resold, about $1.6 million every single day, or about $1,100 per minute in 2020.
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And that $607 million is on top of the $650 million lost in 2019 — well over $1.2 billion in the past two years.

Opendoor's Challenging 2020​

Opendoor accumulated losses at a quickening pace during a challenging 2020. Like Zillow, it stopped buying houses earlier in the year, and its recovery since has been slow. This has corresponded to a striking decline in the number of homes sold throughout the year, especially compared to last year.
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As expected, Opendoor’s decision to pause listing new homes for sale in late 2020 led to a dramatic drop in home sales in Q4 2020. Without a corresponding drop in corporate overhead expenses, Opendoor’s financial metrics reached a new milestone: a net loss of over $100k per home.
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But it's almost certainly a temporary setback. On the plus side for Opendoor, and as a result of building up inventory in late 2020, it's going to have a blowout Q1 2021.

A Revealing Fourth Quarter​

The key financial drivers for each iBuyer were quite different in the last quarter of 2020. Opendoor managed to blow Zillow away with a gross margin of 15.4 percent — which is a combination of service fees, price appreciation, renovation expenses, and ancillary revenue streams. Opendoor was better able to monetize the transaction.
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The subsequent cost drivers show an equally revealing story. Especially Opendoor’s record-low selling costs of 2.1 percent. The bulk of this fee is brokerage commissions. The drop from 3 percent earlier in the year is notable, and is likely the result of Opendoor continuing to push down the buyer agent commissions offered on its houses.

Holding costs and interest expense are also lower — by about half — from earlier in the year, and both iBuyers appear evenly matched (aside from a slight interest expense advantage to Opendoor).

Good for Consumers​

Despite their staggering financial losses, the evidence suggests that Zillow and Opendoor remain staunchly pro-consumer. Both businesses are determined to pass a financial benefit on to consumers alongside a streamlined experience:
  • Opendoor lowering its service fee for homeowners, now down to 5 percent.
  • Zillow Rewards offers savings when consumers bundle its services together.
  • Opendoor offering savings when using its in-house services.
  • Both iBuyers paying very close to fair market value.
Contrast this with another real estate tech disruptor, Compass, which is self-admittedly obsessed with agents (and not consumers). The difference shows. Compass’ strategy of gaining market share and promoting exclusive listings available only on its platform is good for business, but not for consumers.
 

David Goldsmith

All Powerful Moderator
Staff member
Opendoor revenue bounces back in Q1

iBuyer reported $747M in revenue, down from $1.2B in 2020​

Opendoor had some good news to share in its second earnings call as a publicly traded company.
The company reported $747 million in revenue in the first quarter of 2021, an increase of 200 percent from the previous quarter, it announced Tuesday. The earnings were a result of Opendoor reselling 2,462 homes, a 190 percent jump from the previous quarter.

The quarterly growth was driven by more homes on the market and transactions moving at a faster pace, according to chief financial officer Carrie Wheeler. The average resale price was also higher, due to low rates, a record low number of homes available and pent-up demand.

“Our teams are working hard and are focused on expanding the buybox and launching new markets,” said Eric Wu, Opendoor CEO and founder. “We’re expanding the types of homes we’re operating in, the different price points, and really the goal is to serve every home in all the markets we offer it in.”

Still, Opendoor’s first quarter revenue was down from the same period last year, when revenue hit $1.25 billion. Its net loss during the first quarter of 2021 was $270 million, up from $63 million during the first quarter of 2020.

The company also announced that it expanded into six new markets in the first quarter, including San Diego, California, and Asheville, North Carolina. It’s on track to reach its goal of being in 42 markets by the end of the year.
The company bought 3,594 homes, a 24 percent year-over-year increase and a 78 percent increase from the fourth quarter. Offer requests were up 175 percent, and buybox coverage increased by 25 percent from the fourth quarter of 2020.

Opendoor is a leader in the nascent-but-growing iBuyer sector. It makes cash offers for homes, and recently launched a program that helps buyers land homes by providing the capital upfront. It went public in December after merging with a blank-check firm backed by investor Chamath Palihapitiya.
 
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