OPEN - Nov 10 Earnings

OpenDoor Technologies Inc. has its earnings call scheduled for 5pm (ET) next Wednesday, November 10, 2021. They provide a digital platform for buying and selling real estate, using an “iBuying” platform. Between the last earnings call and before Zillow’s earnings call, the stock had climbed about 66%, from about $15 to $25. After Zillow’s earnings call, when they stated they would be exiting the home buying/renovating/selling market, OPEN’s stock tanked about 15%, likely based on the premise that if Zillow was having trouble in this market due to labor/material cost issues, that OPEN would also be having this issue. After two days of drops, OPEN rose about 15% yesterday, November 4th, but it is back down about 8% so far today (1:25PM), November 5th.

If this drop is purely associated with Zillow’s issues, I think that this is a mistaken association and OPEN should rise on earnings, because their business model does not rely on buying houses to “flip” them for maximum sale price (by renovating/remodeling and reselling). OPEN’s model is to buy houses for cash that are in good shape, keeping closing time short for buyers (maybe with minor repairs, which would be on the homeowner, as far as I understand it), and then resell them as soon as possible. They charge the seller a fee, similar to a real estate agent mediated sale, between 5 and 14%, which is dependent on how long they anticipate holding the property before sale. They are not buying houses that need work, the expectation is that the house should be ready to be sold, they are just helping the buyer get out of the house after than they would be able to if they were waiting for a sale on their own. So, as long as OPEN is accurately pricing the houses so they aren’t holding them very long, this should be pretty lucrative.

I had some discussion related to OPEN with someone in #spy-qqq-earnings last night, some of that can be found below:

kaisersose FWIW. I sell houses to open door and the like. They all overpay. I will say OD has started to get more accurate with their repair costs but they pay far more than any local investors I sell to. Zillow wasn’t very aggressive in my market but OPAD and OPEN are.
DakkJaniels that’s good info, thank you. Do you have an idea how long they hold those houses?
kaisersose Both OPEN and OPAD turn them around pretty quick. Some are immediate if they’re in good enough condition. But they both buy shit that I could list myself and not get what they pay. Something has to give at some point. None of the iBuyers seem to have figured it out just yet. I don’t see how it’s sustainable. OPEN has the best shot IMO.
DakkJaniels wait, just so I understand are they basically just relisting for the price they paid? are they going lower? higher? they also take ~5% of whatever their offer is, right?
kaisersose 8%, hence the brokerage comment above
DakkJaniels yeah it sounds like they do repairs, but they take that out of the cost, right? It sounded like they give you a list of things that need to be done
kaisersose They do but the some/most of the folks coming out to look at repairs don’t know what things cost. But as I said they’re starting to figure that side out better. But they still grossly overpay. OPEN doesn’t require near the seasoning requirement for someone like me to have owned something before they’ll buy it.
DakkJaniels I think I’d be ok with “overpayment” as long as they aren’t taking a lose on the property resale. They are probably trying to make it up with volume, I would think. What are your thoughts on that?
although, it does seem that they do have a loss from operations, so that does need to get figured out, but gross profit is like 13% of revenue which is nice - they just need to work on low
kaisersose Well I’m okay with overpayment so long as it’s to me. But yes they are doing volume and are getting more aggressive with their direct mail. I’ve received mailers every month for the last 3 months. They’re a bit of a hybrid ibuyer/ibroker. No agents or real boots on the ground other than the contractors that go out and do bids and repairs.
DakkJaniels are you doing home flipping yourself, and then just unload it to them? I think as long as they can get their overhead costs under control (or increase volume enough to make this less relevant) their model could work
kaisersose No I market to their criteria as a local buyer and then close on it and sell to them. When executed properly I know what they’ll pay before I even show up to make an offer on the home. I’ve had to adjust my thinking because I can pay more than I normally would pay for these house based on what I know they’ll pay.

There is also some DD on Reddit regarding OPEN and their CEO Co-founder and Executive Chairman: https://www.reddit.com/r/wallstreetbets/comments/qlyhml/open_the_most_undervalued_moat_of_all_time/

I think the problem with Zillow is that they were trying to predict what they could potentially get for a house after performing renovations. In OPEN’s case, while kaisersose indicated they are “overpaying”, I think they are just paying what it takes to get the transaction to move quickly - local investors might not pay as much because of their smaller size and/or because they are looking to make renovations to improve the sale value and want to conserve as much cash as they can.

Prior Quarters Key Metrics

So looking at key metrics, gross profit had dropped from Q4 2020, but it was moving up in the latest results. I do like that it is still double digits. The number of markets they are in also increased by 44% in Q2, compared to 29% Q1, however, based on their FAQ, it looks like they are in just 5 additional markets for this quarter up (13%).

One thing that I do not like is that growth in revenue and sales slowed in Q2 compared to Q1, with growth in purchases, inventory, and inventory value also increasing substantially in Q2 compared to Q1. The growth in homes purchased was three times greater than their growth in selling these homes, so hopefully they pulled back so they aren’t keeping too much money tied up in inventory. Looking at the CEOs co-founder’s tweets that were in the Reddit DD, he was bragging about being positive on gross profit, so maybe this isn’t really an issue for them (if he can be trusted, of course).

Another thing that I noticed was that the average cost of their inventory ended up being larger than the revenue they gained per home sold in Q2, when typically the revenue per home was larger than the cost of inventory. The number of houses. Since the number of homes sold exceeded their home in inventory for the prior quarter, I don’t know that this is necessarily an issue, since this could be attributed to moving into pricier areas (which would be good for their revenue generation).

Period Ended
(in thousands, except percentages) Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020
Key Metrics
Total Markets 39 27 21 21 21
Total Revenue $1,185,386 $747,274 $248,886 $338,613 $739,827
Homes Purchased 8,494 3,594 2,016 799 461
Homes Sold 3,481 2,462 849 1,232 2,924
Homes in Inventory 7,971 2,958 1,827 661 1,094
Inventory $2,723,648 $840,632 $465,936 $151,512 $263,709
Revenue per home sold $340.53 $303.52 $293.15 $274.85
Average Cost of Inventory $341.69 $284.19 $255.03 $229.22
Non-GAAP Financial Measures
Adjusted Gross Profit $159,674 $97,038 $38,228 $33,073 $51,125
Selling Costs (26,813) (17,340) (5,243) (8,909) (22,128)
Holding Costs (5,299) (3,552) (1,528) (4,151) (8,900)
Selling Costs per House Sold $(7.70) $(7.04) $(6.18) $(7.23) $(7.57)
Holding Costs per House in Inventory $(0.66) $(1.20) $(0.84) $(6.28) $(8.14)
Selling Costs as percent of per House Revenue 2.262% 2.320% 2.107% 2.631% 2.991%
Holding Costs as percent of Inventory Cost 0.19% 0.42% 0.33% 2.74% 3.37%
Contribution Profit $127,562 $76,146 $31,457 $20,013 $20,097
Contribution Profit After Interest $122,865 $72,911 $30,279 $16,362 $11,633
Adjusted EBITDA $25,579 $(2,141) $(27,075) $(20,998) $(21,661)
Adjusted Net Income (Loss) $2,475 $(20,801) $(41,323) $(36,443) $(41,506)
Margins
Total Revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Adjusted Gross Profit 13.5 % 13.0 % 15.4 % 9.8 % 6.9 %
Contribution Margin 10.8 % 10.2 % 12.6 % 5.9 % 2.7 %
Contribution Margin After Interest 10.4 % 9.8 % 12.2 % 4.8 % 1.6 %
Adjusted EBITDA 2.2 % (0.3)% (10.9)% (6.2)% (2.9)%
Adjusted Net Income (Loss) 0.2 % (2.8)% (16.6)% (10.8)% (5.6)%

SimilarWeb Info




Interesting

Discussion on all in one (buy/sell as one transaction) on OpenDoor https://twitter.com/patio11/status/1456282999125790722

Why Zillow failed 🏡 5 Reasons Zillow Is Quitting The iBuying Business For Good

OpenDoor seed deck https://medium.com/pitchdecks/opendoor-series-a-pitch-deck-is-an-example-you-should-follow-7618bf4f03d1

Future work

I want to see if I can find some additional information about their website stats, and also if they have any other info lurking around that I can use to predict how they have done this past quarter.

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Do you have a position on this?

I recently bought 23C for 11/19. I will probably increase my position between now and earnings.

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My only concern here is that home sales tend to slow down in the later part of the year, so I wonder how their guidance will drive sentiment going into the next quarter.

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We were going to sell our house to Opendoor, but it was such a lowball offer that we actually sold to an investor for significantly more. Of course, this was 4 years ago. Still, I find it hard to believe Opendoor is making the same mistake Zillow did.

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While it looks like they were still ramping up at the time, lower Q4 sales results agrees with their 2020 Q4 results, so I would hope that was already considered/factored in. The only thing that would concern me is the similarweb numbers seem down, but I don’t know how that works. Would be nice to know if app downloads have been increasing or decreasing over time as well.

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Yeah, given the cyclical nature of the housing market, I would imagine it’s already priced in that sales will be lower.

That being said, I wonder how the recent price increases in various markets have impacted them. If their sales have maintained I would assume they’ve made out well. If their sales decreased heavily they will come down a lot I think due to sentiment following the bad zillow earnings. I think the sentiment is currently against them. I know they’ve recovered a bit after the zillow earnings, but unless they have stellar numbers or stellar guidance, I think they will have a sell off. People being scared this will become another zillow.

I’ll do some research and see if I can find some evidence supporting this.

Another edit: towards the bull case here. If they come out and essentially say they’re poised to take all of Zillow’s market share in the housing market they might see a huge jump. I’m seeing a few articles which are leaning that direction.

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If anyone has programming experience and would be able to help figure out a way to grab land record info from any of the markets OPEN operates in, that would be awesome. Would be looking for:

  • How many properties OPEN currently owns in the market, and the price they bought them for
  • How many properties were acquired this quarter (July 1st through Sept 30th), and the price they bought them for, as noted above
  • How many properties were sold this quarter, and the price they were sold for
  • The above would be the minimum, but if it’s possible to also get the tax records, to know how much taxes might cost for the property, that would also be good (if they hold the property too long, the property taxes could eat into their margin)

I posted this on the Discord as well:

looking for some help doing DD from someone who might be able to do this quickly (I might be able to figure it out, but it would take me longer) - I want to get all the transactions OpenDoor (ticker: OPEN) has been involved, in the last quarter, in Maricopa County. They have API, but I don’t know if they just give out tokens. https://mcassessor.maricopa.gov/file/home/MC-Assessor-2021-API-Documentation.pdf I was able to get the properties currently owned by OPEN from here: Maricopa County Assessor's Office

I’m basically looking for sale prices when they bought and sold

this website can provide all the records (https://recorder.maricopa.gov/recdocdata/), but they are pdf’s so I’m not sure if there is an easier way to go about this

I basically went to there, clicked one of the transaction records, looked by the property in zillow and could see when the house was bought by OPEN and when it was sold, and what the transaction price was. The Deeds unfortunately do not list the sale price, as far as I can tell

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Here are the first 1000 rows out of 1761 (need to figure out how to get the other part), containing the sales date and sales price for OPEN’s current inventory in Maricopa County, AZ.

sales_data_edited.csv (191.3 KB)

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I have some Python data science experience, I could take a look at this tomorrow and get the total sales from July 1st through Sept 30th but I think you could probably just do an excel filter and not even have to program anything

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Yeah I don’t need programming for that part, I’m looking for programming help with scraping the various land records websites for the data :slight_smile:

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Gotcha, I’ll take a look at it tomorrow!

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Some updated data:
sales_data_edited2.csv (328.8 KB)

image

Very extensive work here, man. Thank you.

After checking the chart, I’m leaning on an upwards breakout above 25…

  • MACD remains strong.
  • RSI has recovered to the upper band right away, with room to move further up.

Barchart Options Chain for Nov 19


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Just grabbed all the land records that have OpenDoor listed as grantor or grantee. Haven’t analyzed yet, but if anyone wants to take a look or attempt to analyze, feel free.

Edit: the data has a bunch of duplicates that needed to be cleaned up. Also I think the only relevant doctype is Deed
Edit2: Here is a revised .csv file, with the duplicates cleaned up and only containing the DEED type.
sales_data_tarrant_edited.csv (914.3 KB)

Transactions:

Average days between sales, for sales that occurred during that period:

Edit3: I noticed some weird stuff with the data still - there are “unique” properties that only have a sell transaction (i.e., there is no transaction where they bought the property), so that means the legal description was probably entered in incorrectly. There are 97 of these transactions. there are also 16 transactions that have no legal description included. This probably gives a decent idea of the buys/sells though, either way, but the average transaction time is probably a little off.

Looking at the above tables, two things I like for this market:
Q3 buys and sells ramped up from Q2 by about 71% and 49% respectively. Q3 revenue guidance was $1.8-1.9B (although Webull says expected revenue is $2.01B), with Q2 revenue at $1.2B. Obviously this is just one market, but if similar growth was achieved in other markets, 1.49*$1.2B = ~$1.79B, without factoring in any price growth (median US home price up 1% on the Q, according to this website) between Q3 and Q2 and any increase in value-add services they include. It also says that price growth was slowing in Dallas/Fort Worth area, which is less good for this particular analysis, but since they are operating in 44 different markets, that may matter less.

The other thing is that looking at Q4 October numbers, they’ve already sold 70% of the houses they sold in Q3. I can’t find any guidance they provided for total 2021 numbers, but Webull says revenue in 2021 is expected to be 6.83B. That number does seem a little high, since I would think Q4 sales should be down (as a seasonal thing). But considering they’ve ramped up sales considerably (at least in this market), that may bode well for hitting this expectation.

If they were to hit the $2.01B target Webull indicates for Q3, that would mean they would need to hit $2.88B in Q4 to meet the $6.83B overall. This would be a 43% increase over their Q3 sales. If their sales ramp up in this market is similar to they have done in other markets, that would mean they would have to sell the same number of houses they sold in October across November and December. This is some data from Redfin regarding pending sales by month - based on this I think it may be feasible:

If anyone can find some more information related to this, to support the bear or bull case, that would be extremely helpful.

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That was four years ago as you stated. A lot has changed in those 4 years. Typically in my market investors are usually the ones to overpay. The sheer volume of an open door allows them to overpay to a certain degree just based on that volume. Additionally they act as nothing more than a brokerage in most of these cases. A brokerage that is willing to buy your home at a discount and take on the liability of selling the home. They charge around 8-10% to the seller on original acquisition. Plus on top of that they charge other dollar amount fees. Where as a typical brokerage charges 6% for a listing agreement and doesn’t have any other fees. OPEN is getting 8-10% on the buy side and then an additional 3% when they sell the property. On top of whatever equity they were able to capture.

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Just wanted to share this youtube video someone shared with me, for a bearish case on OPEN:
https://www.youtube.com/watch?v=aBFjD3cX3go

I don’t agree with this guy’s premise or conclusion. Based on the MLS data researched by others (and assuming that is accurate), it is pretty clear that Zillow was increasing their house purchases and increasing their spend per house in cooling markets, while their competitors were pulling back and spending less. Has the housing market actually “crashed” anywhere? As far as I know, it has not, but some areas have stopped having crazy price appreciation. I think he is just doubling down on his reasoning from his original video. The reason Zillow stopped buying houses was because they were bad at it (I would guess that this was not their core competency) - the guy caught that news and bought puts, which worked out for him.

This guy has a bunch of articles on the iBuying industry that I think are good reads:
https://www.mikedp.com/articles/category/ibuyer

That being said, this is definitely a risky play - earnings can look good, but if OPEN has a significant reduction in it’s outlook, that could make the stock perform poorly, so keep this in mind if you decide to enter this, and size your position accordingly.

Here is a good video from one of the co-founders discussing the data science modeling:

Just found this website that lists a bunch of data for the iBuyers: https://ibuyerstats.com/

Will take a look and see what the stats are looking like for OPEN.

Thought this graph was funny for OPEN, definitely held the line on house inventory for Q3 numbers:

Looks like, of their last 75 sales, they’ve had some (I count 15) where gross margin was negative, but it seems like the majority are positive, with overall margins being positive.

Gross Margin on House Sales, note that this doesn’t include the fee on the buyer purchase:

Transaction speed vs. margin

I’ve emailed them to see if they have the older data (for the whole quarter) available for sale. If so, I make spend a few bucks to get it to confirm which way to go with this.

Edit: I guess they don’t want to sell the older data for some reason… lame.

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