iBuyers Making Moves

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Home-Flipper Opendoor Hit With Losses in Echo of Zillow Collapse​

Company lost money on 42% of its August resales after it failed to anticipate slide in housing demand.

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As I've been saying for a while it's not that the current market is difficult it's that house flipping is not a scalable business. I've been flipping Real Estate for 40 years and seen many who made money all the way up crash and burn when markets turn.

Opendoor Technologies lays off about 18% of workforce​

Property-selling platform Opendoor Technologies Inc is laying off about 550 employees, Chief Executive Officer Eric Wu said on Wednesday.
"We're navigating one of the most challenging real estate markets in 40 years and need to adjust our business," Wu said in a blog post. The job cuts will result in an 18% reduction of Opendoor's workforce.
Federal Reserve Chair Jerome Powell said in September the U.S. housing market will probably go through a "correction" after a period of "red hot" price increases that have put home ownership out of reach for many Americans.
Opendoor had already reduced its workforce by more than 830 positions, according to Wu.
The company, which was earlier backed by SoftBank Group, went public via a reverse merger with a SPAC in 2020.

Opendoor's shares have fallen more than 80% so far this year.

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Seattle’s Redfin to cut workforce by at least 13%, stop flipping homes

Seattle Times business reporter
The cooling housing market is driving yet another round of layoffs at a Seattle-based company.

The online real estate brokerage Redfin plans to lay off 862 employees nationwide and shut down its house-flipping business, RedfinNow, the company announced Wednesday. The layoffs will cut the company’s workforce by at least 13% and include 75 jobs in Washington.

The cuts are “awful but we can’t avoid it,” CEO Glenn Kelman told employees in an email sent before 6 a.m. PST. The cuts come in response to the slowing housing market, Kelman wrote, and “this layoff assumes the downturn will last at least through 2023.”

Kelman thanked departing employees. “I’m sorry that we don’t have enough sales to keep paying you,” he wrote.

Workers will be laid off across several divisions of the company, including 264 people working on RedfinNow and 197 lead agents, about 9% of the company’s lead agents. Of the total cuts, 218 employees will be offered a different role at Redfin, a company spokesperson said.

The cuts follow an earlier round of nearly 500 layoffs at Redfin in June and scores of other job cuts across the real estate industry as fewer people buy homes and home prices begin to slide.

Zillow, also based in Seattle, cut 300 employees nationwide in late October. The brokerage Compass laid off 84 employees in Washington. And Flyhomes, a Seattle startup that promised to make average homebuyers competitive with all-cash offers, cut a fifth of its staff this summer. Other real estate companies, from mortgage lenders to brokerages, have cut jobs across the country.

Across Washington, more people are employed in real estate jobs now than in the run-up to the 2008 housing crash, but that number has dropped from 63,000 to 60,900 since June. The data, from the state Employment Security Department, includes various real estate and rental-related jobs, including agents, appraisers and landlords. Most real estate agents and appraisers are independent contractors, though Redfin employs agents directly.

Redfin’s employee head count is down 27% since April due to layoffs and attrition, including the latest cuts, and that would swell to 29% if all the employees offered new jobs opt to leave, Kelman wrote. The company will announce its quarterly earnings Wednesday afternoon.

Redfin’s share price has been in steady decline, falling from a peak of nearly $97 in February 2021 to under $4 on Tuesday. Zillow saw a similar free fall, dropping from a peak of nearly $204 to $33.

RedfinNow was an attempt at iBuying, a new take on house flipping that relies on algorithms to help determine prices.

After competitor Zillow shut down its iBuying division last year, Redfin executives defended their flipping efforts, saying they were buying and reselling homes on a smaller, more manageable scale.

Now, Kelman describes the undertaking as “a staggering amount of money and risk for a now-uncertain benefit.”

“We’ve tied up hundreds of millions of dollars in houses that you yourself wouldn’t want to own right now,” Kelman wrote to employees.

RedfinNow properties are likely to lose between $22 million and $26 million in 2022, Kelman said. The company will write down $18 million in inventory because it paid more for the homes than it now estimates they could sell for, according to an SEC filing.

The company reported it was sitting on about $265 million worth of homes at the end of October, and is under contract to sell another $92 million worth. Redfin plans to finish the purchase of homes it has agreed to buy, then renovate and sell those properties “quickly.”

Redfin is relying on offloading homes fast. The company said it expects to have about $85 million worth of inventory on hand by the end of January and to finish selling all the homes by mid-2023.

The “bulk” of the layoffs will occur Wednesday, though some will take place next year after the house-flipping business is completely wound down.

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These bubbly housing markets look like busts—and they just sank Redfin’s flipping business
Some markets have gone straight from Pandemic Housing Boom to Pandemic Housing Bust.

Phoenix skyline framed by saguaro cactus and mountainous desert
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Redfin is throwing in the towel.

On Wednesday, Redfin told shareholders that it plans to shutter its homebuying program. As it does so, it will lay off 862 employees—or 13% of its workforce.

What’s going on? While the ongoing housing correction has hit the entire country, it’s particularly sharp in bubbly housing markets like Phoenix and Las Vegas. Those markets have gone straight from Pandemic Housing Boom to Pandemic Housing Bust. They’re also the places where iBuyers like Redfin and Opendoor have significant exposure.

These so-called iBuyer programs don’t operate like normal flippers. Instead of creating value through renovating homes, they instead use algorithms to make speedy offers directly to sellers, the service being that it reduces the hassle for sellers. As long as iBuyers can quickly resell the home, things should go smoothly. However, if home prices begin to fall, things can go south very fast.

That downside scenario, of course, is here.

“We notice immediately when fewer people are on our website and fewer are signing up for tours… We’re sitting on $350 million worth of homes for sale that we bought with our own money, or worse bought with borrowed money. And what we always told investors is that we would protect our balance sheet by acting quickly. We don’t have hope as a strategy. We immediately started marking down things,” Redfin CEO Glenn Kelman recently told Fortune.

By the end of January 2023, Redfin expects to reduce its portfolio of homes down to $85 million. And by the end of the second quarter of 2023, all of its homes should be sold off.

Nationally, the lagged Case-Shiller Index shows U.S. home prices fell 1.3% between June and August. However, in pandemic boomtowns, that home price correction is much greater. According to the Burns Home Value Index, Phoenix home values have already fallen 10% from their 2022 peak.

On one hand, iBuyers are getting pinched by housing busts in markets like Phoenix. On the other hand, iBuyers are also helping to accelerate housing busts in markets like Phoenix.

"These iBuyers adjust [home] prices almost like clockwork if a home doesn't sell. So in submarkets where they have a presence they are also price setters in a faster way than past cycles," Rick Palacios Jr., head of research at John Burns Real Estate Consulting, tells Fortune.

Redfin CEO Glenn Kelman agrees that iBuyers, along with other investors who piled into the market during the boom, are helping to drive home prices down faster this time around.

“When the shiitake mushrooms hit the fan, you [investors] want to get out first. The way to do that is to figure out where the lowest sale is, and be 2% below that. And if it doesn’t sell in the first weekend, move it down [again],” Kelman recently told Fortune. “My take is that because builders and iBuyers account for more inventory, that leads to a faster correction."

Not long after the Federal Reserve kicked into inflation-fighting mode, unsold housing inventory began to climb across the country. As of October, inventory levels are up 33% on a year-over-year basis. However, in bubbly markets where iBuyers are exposed, inventory growth is much more pronounced. In Phoenix, active listings for sale on realtor.com are up 173% on a year-over-year basis; markets like Austin and Salt Lake City are up 136% and 117%, respectively.

For most sellers, there's a psychological aspect to home prices: They don't want to lower their price tag unless economics forces their hand. That's just not how algorithm-run iBuyer programs work. They want out first, and they aren't afraid to cut aggressively in order to do so.

Look no further than this three-bedroom home in Las Vegas. In April, Redfin bought the home for $600,000. Just weeks later, Redfin listed it for sale in at $624,900. But it was too late: The Las Vegas housing market had already moved into correction mode. Fast-forward to November, and the listing just got taken off the market after a series of price cuts brought its list price to $524,900.

Even after all these aggressive price cuts, iBuyers still have a tremendous amount of inventory to offload in bubbly markets. In Phoenix alone, Parcl Labs estimates, iBuyers still own around $1 billion worth of units.

"Their [iBuyers] sales transactions alone accounted for nearly 10% of all Phoenix sales activity in September. As more pressure builds for them to exit their positions, they will likely become more aggressive in their pricing; this will continue a downward spiral until prices reach a point where demand enters to stabilize it," Jason Lewris, cofounder of Parcl Labs, tells Fortune. "All of the conditions are there for a crash [in Phoenix]."

Why are markets like Phoenix and Las Vegas rolling over so fast? Moody's Analytics chief economist Mark Zandi points to detached fundamentals. Nationally, Moody's calculates, the typical U.S. housing market is "overvalued" by around 23%. However, the firm says markets like Phoenix and Las Vegas are "overvalued" by over 50%. For comparison, Phoenix and Las Vegas were "overvalued" by 51% and 54% respectively just as the housing bubble peaked in 2006.

Heading forward, Zandi expects U.S. home prices to decline by around 10% from peak to trough. But in "significantly overvalued" markets like Phoenix, he estimates prices will fall between 15% to 20%. And if a recession hits, he says, that decline in "significantly overvalued" markets could be between 25% to 30%. (You can find Moody's forecast for 322 housing markets here.)

Ironically, Redfin's iBuyer woes might make Zillow executives feel smart—or at least lucky.

Back in November, Zillow announced it'd halt its failed iBuyer program—which was notoriously overpaying for homes—and sell off its remaining homes through early 2022. It turns out, Zillow sold off its homes at the peak of the Pandemic Housing Boom. While Zillow lost a lot of money, it could've lost a lot more.

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FTC approves final order against Opendoor Labs | News​

The Federal Trade Commission finalized a consent order against Arizona-based Opendoor Labs designed to prevent the online real estate business from deceiving consumers about how much money they could save by selling their home to Opendoor, as opposed to selling on the open market.
Advertised as an “iBuyer,” Opendoor claimed to use cutting-edge technology to save consumers money by providing “market-value” offers and reducing transaction costs compared with the traditional home sales process.
According to the FTC’s complaint, the company cheated potential homesellers by tricking them into thinking that they could make more money selling their home to Opendoor than on the open market using the traditional sales process. The FTC alleged Opendoor pitched potential sellers using misleading and deceptive information, and in reality, most people who sold to Opendoor made thousands of dollars less than they would have by selling their homes using the traditional process.
The final order requires Opendoor to pay $62 million, which is expected to be used for redress of effected consumers. It also prohibits Opendoor from making the deceptive, false, and unsubstantiated claims to consumers about how much money they will receive or the costs they will have to pay to use its service.
The order also required Opendoor to have competent and reliable evidence to support any representations made about the costs, savings, or financial benefits associated with using its service and any claims about the costs associated with traditional home sales.

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Opendoor CEO Eric Wu steps down amid turbulence

CFO Carrie Wheeler to lead the struggling company, which lost nearly $1B in Q3 2022

Opendoor Technologies CEO Eric Wu is stepping down at the iBuyer amid turbulence in the housing market and mounting financial losses.
Carrie Wheeler, the company’s chief financial officer, will ascend to the role as CEO and Wu will become president of marketplace, the company said late Thursday.
The news comes one day after Wu canceled his scheduled presentation at the Credit Suisse annual technology conference in Scottsdale, Arizona on Wednesday.
“Over several years, I built conviction that our third-party marketplace is what homebuyers and sellers need, will fundamentally change how all homes are transacted and is a critical piece of Opendoor’s future. Thus, I’ve made the decision to focus my time and energy on building and delivering on this vision,” Wu said in prepared remarks Thursday. “More importantly, I know firsthand that Carrie’s depth of experience and leadership will be foundational to our success in this next chapter.”
Wheeler spent 21 years at private equity giant TPG and headed up the firm’s retail investments. She joined Opendoor in 2020.
“I am honored to have the opportunity to lead Opendoor as we transform the way to buy and sell real estate,” Wheeler said in a statement Thursday. “We’ve built a solid financial foundation with a strong balance sheet and liquidity position that sets us up to not just manage through this current housing cycle but emerge stronger with market leadership.”
Opendoor pioneered the iBuying model, but is now one of only two large players still in the space (Offerpad being the other). Opendoor lost nearly $1 billion in the third quarter and had to write down inventory by $573 million after losing money on thousands of home sales. It laid off 18% of its staff and expects to lose money again in the fourth quarter.
In addition to Wheeler becoming CEO and Wu transitioning to president, Andrew Low Ah Kee resigned as company president.
The company has been trying to reinvent itself somewhat in recent months. In the summer it launched Opendoor Exclusives, an online platform for homebuyers to browse and buy properties being sold by the iBuyer. Last month, the company announced that it would be opening the platform to home sellers as well.
The properties listed on the platform are on a first-come, first-serve basis, which eliminates bidding wars, price negotiations and the need for real estate love letters. Prospective homebuyers can use the online platform to reserve and fill out a contract for the home. In addition, Opendoor says that homebuyers may back out of the purchase at any time and receive a full refund on their earnest money deposits.


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iBuying on the brink: Where does the controversial homebuying model go from here?​

Industry analyst Mike DelPrete on Opendoor's shakeup and the future of the business​

iBuying was feared to do to real estate agents what Expedia did to travel agents — render them extinct. So far, however, it’s the iBuyers that are facing extinction, one by one.
First it was Zillow, which bowed out of the iBuying game after racking up $900 million in losses and getting bruised on the stock market. Then, Redfin, which said last month it could no longer remain competitive in the space due to rising interest rates. Meanwhile, Offerpad was threatened with delisting by the New York Stock Exchange after its stock price fell below $1 (it’s currently at $0.66).

The pioneer of the model, Opendoor, is still standing, barely. The company lost a whopping $928 million last quarter, its market cap has fallen under $1 billion from a high of $18 billion and its stock price has plummeted 90 percent so far this year, to $1.54. These are all ingredients for a C-suite shakeup, which is what happened last week. The company’s co-founder, Eric Wu, stepped down as CEO, to be replaced by CFO Carrier Wheeler, and president Andrew Kee resigned.

To make sense of the news and to put iBuying in perspective during this wacky housing market, I enlisted the help of Mike DelPrete, a residential technology analyst whose columns and original research have been crucial in helping me to understand the model. What follows is an edited and condensed version of our conversation. (You can catch the full chat in video here)

Opendoor is at the forefront of what I call “the home as a commodity” challenge: Turning the single-family home into a markable, tradeable asset like a barrel of oil. But they’ve had consistent losses.​

What attracted me to this business back in ’15, ’16, was it was the only business trying to redefine how real estate is transacted right at scale. Everyone else was trying to digitize the process. Opendoor was coming to the party with a totally different way to get from Point A to point B.

This idea of commoditizing a house was a pretty radical departure. But iBuying has had a difficult year. iBuying was designed with recessions and cooling housing markets in mind, and buyer’s markets and sellers markets, all of that. No problem. But [a] global pandemic? Not so much. And the effect that that has had on the real estate market over the past two years has just been insanity. It is a rollercoaster where the highs have never been higher, and the lows have never been lower. That’s what killed Zillow last year, and that’s what punched Opendoor in the face this year. It’s the velocity — you can go up, you can go down, but if it just drops off a cliff, you’re in trouble. And this business model, when you have tens of thousands of homes in inventory, um, you don’t go off a cliff really well.

Where does Opendoor go from here? What’s your take on Eric Wu’s tenure?​

The business has grown tremendously. We’re talking about activity in the billions of dollars, we’re talking about homes in the hundreds of thousands, thousands of employees. So this business has gone from nothing to a very significant player in this space. Obviously right now, it’s a total struggle. On the one hand, this is Eric kind of waking up and saying, “alright, I’m done. I want to focus on something else.” On the other hand, it’s pretty easy to believe it’s a company in crisis. The stock is down some god awful percent. To be fair, the whole market is down, but it’s kind of leading the pack. You can easily imagine a scenario where Opendoor’s investors, and perhaps more importantly, their creditors, have simply lost confidence in the business.

The other thing was this idea around the whole transaction: We’re going to be buying and selling homes. We’re also going to attach mortgage and title and escrow and all these adjacent services. Opendoor shut down its entire mortgage operation last month when they laid everyone off. So you look at that and you’re like, wow, there’s some significant pivoting going on at that business.

“Out of any industry or asset class, houses must be the hardest to commoditize simply because they are not commodities.”
Let’s take a step back from the short-term crises that companies like Opendoor have faced since the pandemic. If we just kind of ignore those and say, those are all solved, we’re in a normal market for a moment. You go back to where we were in 2019. There was no credible path to profitability. The path to profitability was supposed to be going to scale, adjacent services, improving unit economics. I think it’s fair to say those really haven’t panned out yet. They were profitable last year in a crazy market where home prices were just going nuts. But that’s not normal. So what does normal look like and can they achieve any semblance of profitability in a normal market? We’re yet to see it.

The next big question becomes investor patience — how long can they stomach such losses?​

That’s what’s great about capitalism in the public markets. You have the wisdom of crowds to give us a quantifiable answer to that question, which is the stock price. If you’re measuring Opendoor just on its stock price, then investors have run out of patience and they’re pretty pessimistic on the future of the business.

What about its third-party marketplace product, which Wu is now going to helm?​

The guys at Datadoor track this and as of right now, there’s 34 Opendoor listings on it and five third-party listings. So this is a baby. It’s still really, really early in terms of what that can do for the company. It makes sense from a narrative standpoint to say, “this is the future, it was always the plan to get into the marketplace, this asset-light product.” But when you hear somebody describe it, it just sounds a lot like the traditional process.

Let’s get to the emotional stuff. There was a lot of fear among real estate agents about what iBuying would mean for their future. There’s probably a fair bit of chest-thumping going on now in the agent community.​

I’m sure there are agents that are like, “I told you, this would never work.” And that’s really disappointing. It’s great to see innovation and disruption in this space. And just because something has always been done a certain way doesn’t mean it should always be done that certain way. Let’s try to constantly improve and do so in a way that’s good for consumers. So celebrating the failure of any company in this space, I think that’s a little bit of a low blow. But we should acknowledge it — like you can’t go to the other side here. You can’t just believe all the hype and the press releases from these companies.

How far do you think this commoditization of the home can go?​

To commoditize something, there needs to be low differentiation: The products are all the same, the price point is low. If all the options are the same, I’m just going to choose the lowest price option. I can’t answer the question to say, this is how far we can go in housing. But what I can offer is that out of any industry or asset class, houses must be the hardest to commoditize simply because they are not commodities. Every piece of real estate is different by definition. My house is different from the house next door. It’s also worth a lot of money. Real estate is the largest transaction a consumer will undertake in their lifetime — how do you commoditize that? I’d put that last on my list of industries that are going to get disrupted really quickly with technology. The evidence proves that there’s more people using agents now than ever before. We’ve had billions of dollars come into this industry [to disrupt it through technology], but the gravitational field of the traditional industry and agents and expert advisors is really strong.

“It’s the velocity — you can go up, you can go down, but if it just drops off a cliff, you’re in trouble.”
Opendoor had 1.3 percent market share last year. That’s huge, that’s really big business. But that’s a company that has billions of dollars going out there and buying up houses. It’s straightforward to get to that market share if you have a lot of capital and a lot of reach. But in terms of a winning business model that’s going to succeed, to make money and that consumers are going to use outside of a niche offering, that’s a bit trickier.

What other models are working or have promise?​

Any new model that’s trying to innovate how people buy and sell homes, it’s usually from a financial perspective more than anything else, right? If I gave you a billion dollars, what could you do with it? Well, you could pull an Opendoor and just buy houses from people, that’s cool. You could pull a Compass and acquire agents and brokerages and build market share, that’s cool, too. Power buyers — you could let people buy homes with your money so they don’t have to worry about getting pre-approved in a certain amount of time, that’s pretty cool, too. What we’re going to see now is [models targeting] home affordability. Prices are just crazy. And with rising interest rates, people can’t afford them. So I’m keeping an eye on solutions that are trying to address the affordability issue. That’s where we’re going to get some interesting innovation over the next 12 to 18 months.

David Goldsmith

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Opendoor Slows Home Acquisitions Amid Strategic Shift​


After a brutal Q3 in a rapidly shifting market, Opendoor has significantly slowed down its pace of home acquisitions.

Why it matters: Profitable or not, an iBuyer mustbuy homes to generate revenue and remain relevant.
  • Opendoor's drop in purchase volume was rapid and extreme, but not dissimilar to changes in the past.
  • Opendoor has demonstrated an ability to quickly ramp up and down -- a sensible feature, and not a bug, of iBuying.

Lower purchase volumes mean less homes coming to market, resulting in fewer sales generating less revenue.

But Opendoor's bigger challengeis being able to resell its homes for a profit.
  • It's difficult to imagine a sustainable business model selling homes for less than it bought them for, regardless of fee.
  • The rubber hits the road with Opendoor's buy-to-sale premium, and the following chart from Datadoor.io shows that, improving purchase cohorts or not, Opendoor continues to sell homes at a loss.

A four year view of the same buy-to-sale premium, this time from YipitData, shows that Opendoor is well and truly in uncharted territory (and not in a good way).

What to watch: With a rapidly changing market, reeling from unprecedented financial losses, and operating under new leadership, Opendoor is undergoing a transformative moment in its history.
  • It appears to be buying fewer homes while shifting towards more asset-light models, such as Opendoor Exclusives and Power Buying (Buy with Opendoor and Opendoor Complete).
  • All of which raises an interesting side question: If Opendoor is buying significantly fewer homes and is guiding more consumers to its Power Buyer products, why would Zillow want to partner with them?
The bottom line:Homes are the fuel that powers the Opendoor machine.
  • As Opendoor dramatically slows down its purchase of homes, it will lose less money — but it also loses its ability to make money.
  • Think about it: If a coffee shop loses money on each coffee it sells, the solution is not to sell less coffee; it’s figuring out a way to sell coffee profitably.

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Less iBuying could limit Opendoor’s potential: analyst​

Mike DelPrete examines firm’s strategy shift and partnership with Zillow

Opendoor is buying fewer homes as it reels from heavy losses.
While that will cut expenses, it could also limit the company’s future profits and jeopardize its partnership with Zillow, according to a report by analyst Mike DelPrete.

“If a coffee shop loses money on each coffee it sells, the solution is not to sell less coffee, it’s figuring out a way to sell coffee more profitably,” DelPrete, a professor at the University of Boulder Colorado and investor, says in the report.
Opendoor appears to be relying more on Opendoor Exclusives (its off-market offerings) and Opendoor Complete (a platform where consumers buy and sell homes) because they require fewer assets, DelPrete said.

The pivot comes two months after Opendoor co-founder Eric Wu stepped down as CEO to head the company’s marketplace product.
Zillow and Opendoor in August agreed on a multi-year partnership that gives homeowners selling through Zillow the option to sell to Opendoor and potentially to use other Zillow services in the transaction.
But DelPrete appeared confused by Zillow’s strategy of steering its users to a company that is scaling back its iBuying and offering services that compete with Zillow’s.

“If Opendoor is buying significantly fewer homes and is guiding more consumers to its Power Buyer products, why would Zillow want to partner with them?” DelPrete asked in the report.

DelPrete noted that Opendoor bought fewer than 4,000 homes last quarter, its lowest amount since 2021. It had bought more than 8,000 in the third quarter and roughly 14,000 in the second.
New Opendoor weekly listings dropped below 200 in January, the lowest levels since the peak pandemic months of April 2020 through January 2021.
Opendoor lost nearly $1 billion in the third quarter of last year, the most recent period for which data is available. The company attributed most of that loss to a $573 million writedown in home values and suggested that number could grow.
Opendoor laid off 18 percent of its workforce, or 550 people, after posting its third-quarter results. Its stock price plunged last year to about $1 but has more than doubled during the market’s run-up since then, closing yesterday at $2.16. It peaked at about $35 per share in early 2021.


David Goldsmith

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Mike DelPrete
to me
18 hours agoDetails
This article first appeared as an Inman Intel exclusive, and I'll be publishing more with Inman throughout the year.
'Go Big or Go Home': Opendoor's High-Stakes Game of Disruption
Opendoor recently posted its Q4 financial results, revealing mega losses alongside early signs of a possible turnaround.

Why it matters: In 2022, Opendoor experienced an absolutely devastating test of its business model – a worst case scenario event – and survived.

The damage was brutal in terms of financial losses, but the company is still around and operating, whereas most companies would have succumbed to this type of existential event.

Behind the numbers: Opendoor posted a net loss of $1.4 billion in 2022, on top of already sizable historical losses.

Opendoor, and many other venture-funded disruptors, are burning billions of dollars to grow new business models – and the lack of profitability just doesn’t matter.

The most noteworthy fact is that Opendoor lost $1.4 billion in 2022 and is still operating (albeit with a new CEO).

Cash is king: Manufactured financial metrics aside, Opendoor has plenty of (but not unlimited) cash reserves.

Opendoor ended 2022 with $1.3 billion in cash, cash equivalents, and marketable securities – down from $2.2 billion at the beginning of the year.

That’s cash burn of $934 million – massive losses, but a scenario that Opendoor was able to weather without raising additional capital (or going bankrupt).

Like many companies, Opendoor is racing to cut its operating expenses as quickly as possible.

In November, it laid off about 18 percent of staff, and just recently announced that it had reduced its run-rate expenses by approximately $110 million.

Operating expenses are trending significantly lower – a positive sign for a company looking to conserve cash (note: sales, marketing and operations flex up and down based on the number of home sales).

The focal point upon which the future of the business rests is when Opendoor will turn the corner and stop selling homes for a loss.

Homes that Opendoor purchased in Q3 and Q4 are performing much better, with positive gross margins.

Yes, but: The first homes to sell always have the best gross margins – over time, with price reductions, gross margins fall – as expertly illustrated by Datadoor.io.

What to watch: Cash, cash, cash – Opendoor’s future as a going concern rests on its ability to fund loss-making operations.

With $1.3 billion in the bank and the worst behind it, the company appears to have plenty of runway.

The bottom line: Opendoor is playing a high-stakes game of disruption.

With billions in the bank and billions in losses, the company is living by the creed, “go big or go home.”

After experiencing its single largest challenge in a challenging history, Opendoor persists – which may be the biggest takeaway from a brutal year.

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David Goldsmith

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Mike DelPrete
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17 hours ago

Opendoor Recalibrates to a New Environment​


Opendoor is rapidly recalibrating its business to a new environment: operating expenses have been cut in half while purchase volumes are down to levels not seen since the pandemic.

Why it matters: A sustainable future for Opendoor revolves around tight cost control and operational efficiency, reducing customer acquisition costs through partnerships, and finding the right balance between offer quality and purchase volumes.

Opendoor’s monthly purchaseshave dropped eightfold, to levels not seen since the early days pandemic.
  • The company has gone from purchasing 160 homes per day in June 2022 to purchasing less than 20 homes per day during the first three months of 2023.

Opendoor is purchasingfewer homes by choice – and doing so by offering less competitive offers to homeowners (offer quality).
  • This creates a greater “spread” and improves Opendoor’s ability to resell the homes for more on the open market, giving it a buffer against future market uncertainty – and exposure to profitable upside.
  • For example, in the Zillow + Opendoor seller options marketplace, Opendoor’s cash offer is usually considerably lower than Zillow’s estimated market value.

This quarter, Opendoor invented a helpful new financial metric, AdjustedOperating Expenses, which excludes variable costs related to selling a property: broker commissions, holding costs, and transfer fees and taxes.
  • What it reveals is Opendoor’s fixed operating expenses, a helpful measure when thinking about cost control, expense management, and operational efficiency.
  • The net result is clarity around Opendoor’s recent cost-cutting: fixed operating expenses are down $100 million, or 50 percent, from Q2 2022, driven through a reduction in advertising spend, layoffs, and other cost-cutting measures.

Opendoor invested $200 million in advertising during 2022, including a significant shift to brand marketing (Opendoor’s marketing team visited my class this semester).
  • But in a shifting environment, Opendoor has slashed its advertising spend by half during the first quarter of 2023 compared to the same time last year.

A side effect of this shiftis skyrocketing customer acquisition cost (CAC), as measured by total advertising spend divided by the number of homes purchased in a period.
  • Compared to 2022, Opendoor’s CAC has tripled to $16k during the first quarter of 2023 – a very unsustainable number in the long term, but one reflective of sustained brand marketing coupled with markedly fewer purchases.

The bottom line: With $1.3 billion in cash, Opendoor has the time and space to retreat, regroup, and realign the business to not only stem its losses, but position itself for future growth.
  • The evidence shows that Opendoor is making significant changes to become a more efficient operation.
  • Just cutting expenses at the current purchase volumes is not a sustainable strategy – but it is an important first step as the company reorients for the future.

As I mentioned above, it was great to welcome Opendoor's marketing team to my University class this semester to talk about the shift to -- and power of -- brand marketing. A very engaging discussion. And just one of many great sessions and speakers this semester!