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Opendoor $OPEN / $IPOB SPAC 
Grew +150% YoY pre-COVID - but that came to a FULL STOP
Transforming UX, Pricing & Purchasing in REAL ESTATE market
Led by TIER-1 management (ex-Bain Cap., TPG, McKinsey, GS)
Can it win against $Z $RDFNHere is an EASY thread
Opendoor $OPEN is an online real estate company founded in 2014 by Keith Rabois, Eric Wu, Ian Wong and JD Ross
In 2018, it raised $ 400m from Softbank Group and $ 300m from General Atlantic in 2019 https://techcrunch.com/2018/09/27/opendoor-just-raised-400-million-in-funding-from-softbanks-vision-fund/
In 2018, it raised $ 400m from Softbank Group and $ 300m from General Atlantic in 2019 https://techcrunch.com/2018/09/27/opendoor-just-raised-400-million-in-funding-from-softbanks-vision-fund/
In 2014, the startup advertised itself as:
“work with sellers directly to purchase home[s],”
“work with local partners to rehab, maintain, and improve our portfolio of properties,”
“work with sellers directly to purchase home[s],” “work with local partners to rehab, maintain, and improve our portfolio of properties,”
“partner with local brokers and Realtors to market, list on [the multiple listing service], and resell to retail buyers and investors”By Jordan Novet From
https://venturebeat.com/2014/05/29/heres-investor-keith-rabois-bold-new-home-selling-startup-opendoor/
In EASY terms:
Sellers submit their property’s details and Opendoor makes an as-is cash offers
Opendoor then refurbishes the house it purchased and relists it for sales
$OPEN is an "instant buyer” (iBuyer) as they purchase property as-is and pay in cash in an instant
Sellers submit their property’s details and Opendoor makes an as-is cash offers Opendoor then refurbishes the house it purchased and relists it for sales $OPEN is an "instant buyer” (iBuyer) as they purchase property as-is and pay in cash in an instant
Is that all? Well here is all you can do with Opendoor:
Sell to Opendoor
Sellers share a video walkthrough and upload some of the property’s details
Opendoor makes an instant cash offer for the property “as-is”
Sell to Opendoor Sellers share a video walkthrough and upload some of the property’s details Opendoor makes an instant cash offer for the property “as-is”
List with Opendoor
Opendoor advances up to $ 10k for repairs (interest-free) Sellers just pay 5% in fees for selling with Opendoor Local experts assist sellers during the sale
Buy from Opendoor Users browse through open listings & can visits houses with tour assistants (unassisted tours are also possible in certain localities)
Users submit basic information required to close the sale (personal information, financial records, payment method)
The user makes an offer through the Opendoor app or by email
In certain localities, buyers can “return” their home to Opendoor under certain conditions https://www.opendoor.com/w/terms#guarantee
Finance with Opendoor Buyers don’t have to pay for application origination, underwriting or processing fees and down payment comes in at minimum 3% A mortgage consultant helps home buyers during the process
Buyers can now refinance their home
Great! So this is:
A well-designed user interface that removes the hurdles of buying or selling a home
But how is Opendoor paying the right price and acquiring the right homes?
A well-designed user interface that removes the hurdles of buying or selling a home But how is Opendoor paying the right price and acquiring the right homes?
Well, it all comes down to DATA, as Opendoor has
25m home level data inputs
145 unique features per inspection and 175.000 on-site inspections
Improvements in its model’s accuracy enable it to make 63% of its offers automatically in Q1 ’20 vs 41% in Q1 ’18
25m home level data inputs 145 unique features per inspection and 175.000 on-site inspections Improvements in its model’s accuracy enable it to make 63% of its offers automatically in Q1 ’20 vs 41% in Q1 ’18
And these improvements are possible thanks to massive amounts of data
“We look at every single transaction that's been conducted in any of our markets since at least when transactions are recorded, which normally goes back 10 years.”
“We look at every single transaction that's been conducted in any of our markets since at least when transactions are recorded, which normally goes back 10 years.”
“So we have at least the last 10 years of data of all the transactions that have happened along with every single parcel that exists in these markets” Ian Wong by Kevin McAllister for Protocol https://www.protocol.com/opendoor-selling-real-estate-pandemic
Who is at the helm?
Opendoor is a founder-led company as Eric Wu is CEO and Ian Wong serves as CTO
Management has deep experience from TIER-1 investment and management consulting firms and leading tech companies
Here is a closer look at Opendoor’s key people
Opendoor is a founder-led company as Eric Wu is CEO and Ian Wong serves as CTO Management has deep experience from TIER-1 investment and management consulting firms and leading tech companiesHere is a closer look at Opendoor’s key people
Eric Wu
Co-founder and Chief Executive Office at Opendoor
Founded http://Movity.com , a location data analytics company (acquired by http://Trulia.com in 2011)
Graduated from the University of Arizona with a bachelor of science in Economics
Co-founder and Chief Executive Office at Opendoor Founded http://Movity.com , a location data analytics company (acquired by http://Trulia.com in 2011) Graduated from the University of Arizona with a bachelor of science in Economics
Ian Wong
Co-founder and Chief Technology Officer that leads Opendoor’s team of engineers & data scientists
Previously, he built machine learning applications at Square and Prismatic
Got degrees in Electrical Engineering and Statistics from Stanford
Co-founder and Chief Technology Officer that leads Opendoor’s team of engineers & data scientists Previously, he built machine learning applications at Square and Prismatic Got degrees in Electrical Engineering and Statistics from Stanford
Carrie Wheeler
Chief Financial Officer and independent board member at Opendoor
Spent 21 years at TPG as Partner and Head of Retail & Consumer Investing and started as an analyst at $GS
Earned her Bachelor of Commerce (with Honors) from Queen’s University
Chief Financial Officer and independent board member at Opendoor Spent 21 years at TPG as Partner and Head of Retail & Consumer Investing and started as an analyst at $GS Earned her Bachelor of Commerce (with Honors) from Queen’s University
Megan Meyer Toolson
Head of Operations at Opendoor
Previously, spent almost 2 years at Bain Capital and over 2 years at McKinsey & Company as a Business Analyst
She earned her MBA from Stanford Graduate School of Business
Head of Operations at Opendoor Previously, spent almost 2 years at Bain Capital and over 2 years at McKinsey & Company as a Business Analyst She earned her MBA from Stanford Graduate School of Business
Great! So here we have a strong management team
And a strong product, driven by data and changing the customer experience
How large is the market?
And a strong product, driven by data and changing the customer experienceHow large is the market?
The whole Opendoor story started when Peter Thiel (co-founder of $PLTR and $PYPL) suggest to Keith Rabois:
“[…]Peter Thiel suggested that I come up with an idea to innovate in residential real estate,”
“[…]Peter Thiel suggested that I come up with an idea to innovate in residential real estate,”
“It’s the largest part of the economy unaffected by the Internet. And that was definitely true then” - Keith Rabois
By Jordan Novet for Venture Beat
By Jordan Novet for Venture Beat
Yes, the largest part of the economy unaffected by the internet, mainly run by sales agents
There a 2m active real estate agents in the USA
1.36m of those are Realtors: they have a real estate license and are members of the National Association of Realtors (NAR)
There a 2m active real estate agents in the USA 1.36m of those are Realtors: they have a real estate license and are members of the National Association of Realtors (NAR)
Great! But what do home buyers do FIRST? Go online or talk to an agent?
12% of the 22 to 29 year olds contacted a real estate agent
While over 20% of the +55 year olds contacted a real estate agent
Over 40% of 22 to 54 year olds looked FIRST for a property online
12% of the 22 to 29 year olds contacted a real estate agent While over 20% of the +55 year olds contacted a real estate agent Over 40% of 22 to 54 year olds looked FIRST for a property online
Where did buyers found the home they purchased?
62% of the 22 to 29 year olds found it online
While over 35% of the +55 year olds found it through a real estate agent
Over 55% of 22 to 54 year olds found it online
62% of the 22 to 29 year olds found it online While over 35% of the +55 year olds found it through a real estate agent Over 55% of 22 to 54 year olds found it online
Here is the full report from the NAR
https://www.nar.realtor/sites/default/files/documents/2020-generational-trends-report-03-05-2020.pdf
https://www.nar.realtor/sites/default/files/documents/2020-generational-trends-report-03-05-2020.pdf
So property hunting is moving online, are real estate firms also making the switch?
According to the NAR, 46% of Real Estate Firms cited keeping up with technology as one of the biggest challenges for the next 2 years
Here is the full report
https://cdn.nar.realtor/sites/default/files/documents/2019-real-estate-in-a-digital-age-08-22-2019.pdf
According to the NAR, 46% of Real Estate Firms cited keeping up with technology as one of the biggest challenges for the next 2 yearsHere is the full report
https://cdn.nar.realtor/sites/default/files/documents/2019-real-estate-in-a-digital-age-08-22-2019.pdf
So how could the real estate’s agents role evolve?
Buyers have more data at hand (online pictures, listing information and history)
Gone are thus the days where real estate agents would present the raw information to buyers
Buyers have more data at hand (online pictures, listing information and history) Gone are thus the days where real estate agents would present the raw information to buyers
Buyers now review properties online and solicit the help of a real estate agent for the documentation, price negotiation…“In the near future, buyers will look to real estate agents as strategic experts to help make sense of all this data” https://www.forbes.com/sites/forbesrealestatecouncil/2020/03/18/the-future-of-homebuying-three-predictions-for-2025/
This looks very much aligned with what Opendoor proposes
Easily browse properties online
Visit a home with a tour assistant or on your own
Solicit the help of an agent for financing matters / documentation needs
Easily browse properties online Visit a home with a tour assistant or on your own Solicit the help of an agent for financing matters / documentation needs
Going from a complex and time consuming process
Find a trustworthy agent
Repair and renovate the house
List the house, negotiate offers and wait for closing
Find a trustworthy agent Repair and renovate the house List the house, negotiate offers and wait for closing
To a simple fast and certain process
Buyers can easily browse through listings
Offers and payments are fully digitised and backed by Opendoor
Users can request assistance from agents
Buyers can easily browse through listings Offers and payments are fully digitised and backed by Opendoor Users can request assistance from agents
This translates into a Net Promoter Score (NPS) of 70, for comparison:$NFLX has a NPS of 68
$AAPL has a NPS of 68
$AMZN has a NPS of 62
$CVNA has a NPS of 84
$UBER has a NPS of 37
However not everyone is as optimistic about these “instant buyers” (also called “iBuyers” as their purchase property as-is and pay in cash in an instant)
Collateral Analytics has found that iBuyers on average charge higher fees than traditional agents
Collateral Analytics has found that iBuyers on average charge higher fees than traditional agents
Driven by the need for these iBuyers to compensate for liquidity risks and carrying costsHowever, Collateral Analytic’s report end with:
“For some sellers, needing to move or requiring quick extraction of equity, this is certainly worthwhile”
This is exactly what Opendoor is targeting as their CTO explained:“What we've seen is that customers not only crave convenience now, […] They also really want assurance that [the process] is safe” Ian Wong by Kevin McAllister for Protocol https://www.protocol.com/opendoor-selling-real-estate-pandemic
Another study, by Mike DelPrete who focussed on Zillow and Opendoor found that these iBuyers almost paid fair value:
“The evidence in this research study strongly suggests that iBuyers are offering close to fair market value for the homes they purchase” Mike DelPrete by Jeff Andrew for Curbed https://archive.curbed.com/2019/11/12/20960037/ibuyers-zillow-opendoor-fair-offers
Great! So Opendoor offers a fair deal to customers
But isn’t it taking on TOO MUCH RISKS? What if the market collapses?
Home prices tend to decrease in a downturn - an unexpected downturn that was not forecasted by Opendoor’s models could have a considerable impact
But isn’t it taking on TOO MUCH RISKS? What if the market collapses? Home prices tend to decrease in a downturn - an unexpected downturn that was not forecasted by Opendoor’s models could have a considerable impact
“[…] bear significant risks if prices decline. A downturn in home prices, not forecast by the iBuyer market analysts could be devastating as they ramp up their business platforms” By Collateral Analytics
From https://collateralanalytics.com/wp-content/uploads/2019/08/CA-RESEARCH-iBuyers-A-new-choice-for-home-sellers-but-at-what-cost.pdf
From https://collateralanalytics.com/wp-content/uploads/2019/08/CA-RESEARCH-iBuyers-A-new-choice-for-home-sellers-but-at-what-cost.pdf
Opendoor already went through a downturn Due to the pandemic, the Commerce Department reported that new home sales were down 15.4% versus the previous year
This led Opendoor to lay off 35% of its workforce and suspended home buying $OPEN managed to effectively cut down on expenses and keep its losses under control
What else should we watch? Well, the iBuyer market is competitive, here are some players:
· Zillow Offers
· RedfinNow
· Knock
· Entera
· Offerpad
· We Buy Ugly Houses
· Houzeo
· Zillow Offers
· RedfinNow
· Knock
· Entera
· Offerpad
· We Buy Ugly Houses
· Houzeo
The leading players (Zillow, Redfin, Opendoor) have a similar offerings A competitive edge might be acquired through improved pricing models But in the long run, this might end in a “fees”-war between the leading players
Financials Check Note: period is 9 months ended September 30
Total revenue decreased by 34% YoY to $ 2.3B in 2020 down from $ 3.5B in the previous period Opendoor stopped buying homes during the pandemic
Sales reached $ 4.7B in 2019 (full year), up 159% from $ 1.8B in 2018 Sales grew 157% from $ 711m over the 2017 to 2018 period
Gross margins stood at 7.8% in 2020 up from 6.5% in the previous period Operating expenses decreased 26% to $ 301m from $ 409m
Net loss reached $ 119m down from a loss of $ 247m a year earlier
Opendoor had current assets stood at $ 923m versus current liabilities of $ 179m Opendoor got about $ 1B in cash following the SPAC merger
What do number tell? This is a competitive market with thin margins “Opendoor thinks it can generate $458 million in “contribution profit” by 2023, or 4.7% of revenue. That’s still a pretty thin margin” by Chris Bryant for Bloomberg https://www.bloomberg.com/opinion/articles/2020-10-14/opendoor-is-a-13-5-billion-spac-sensation-that-will-buy-your-house
THE BOTTOM LINE The real estate market is digitising as a new generation of buyers favour online tools Opendoor’s refreshed UI and customer experience attract customers in droves as it managed to grow sales at +150% over the 2019 to 2017 period
Opendoor is a founder-led company and management has as pristine track record Despite the recent downturn in sales, Opendoor managed to safeguard its financial position and rebound post-COVID
The iBuyers market is competitive and strongly correlated to the state of the broader economy Margins are thin and heavy competition might decrease these in the long run
We take a small speculative stake for now We will increase if $OPEN manages to improve its margins while growing it sales back to pre-COVID levels We will cut if margins decrease or if $OPEN fails to take the lead in the iBuyers market
$DHER.DE is on our watchlist To Be Reviewed SOON Disclaimer - This is not investment advice in any form and investors are responsible for conducting their own research before investing.
Sources
✑ Investor presentation
✑ Company website
✑ TechCrunch
✑ Crunchbase
✑ Crunchbase
✑ Collateral Analytics
✑ Curbed
✑ Forbes
✑ Protocol
✑ I Sold My House
✑ Mike DelPrete
✑ Venture Beat
✑ Reuters
✑ Bloomberg
✑ Collateral Analytics
✑ Curbed
✑ Forbes
✑ Protocol
✑ I Sold My House
✑ Mike DelPrete
✑ Venture Beat
✑ Reuters
✑ Bloomberg
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