And then there were two: Opendoor, Offerpad sniff iBuying opportunities

Opendoor’s revenue nearly doubled from the previous quarter

National /
Nov.November 10, 2021 07:00 PM

From left: Brian Bair, chief executive officer, Offerpad, and Eric Wu, chief executive officer, Opendoor (Offerpad, Opendoor, iStock)

Instant home-buying isn’t dead just because one of three major iBuyers got the entire market dead wrong.

At least that’s what Opendoor said Wednesday as it reported buying more than 15,000 homes in the third quarter — a record — and said losses narrowed as revenue rose.

Opendoor’s loss narrowed to $57 million from $144 million in the previous quarter as revenue almost doubled to $2.3 billion.

The iBuyer expects revenue to be between $3.1 billion and $3.2 billion by the fourth quarter, indicating sequential growth of 39 percent. Comparable figures from a year ago weren’t provided because the company only went public in the fourth quarter of 2020.

Offerpad, which went public by merging with a SPAC in September, said its loss narrowed to $15.3 million and revenue almost tripled to $540 million.

All eyes have been on Opendoor — the biggest iBuyer in the game — in the days after Zillow ditched the business completely. Opendoor’s stock jumped as much as 16 percent to $24.53 in the days following Zillow’s announcement, but has since fallen to about $19.50.

iBuyers turn a profit by purchasing homes, making necessary repairs and putting them back on the market as quickly as possible.

Unfazed by the news of Zillow’s departure, Opendoor boasted a record-breaking 15,181 homes bought in the third quarter, up 79 percent from the second quarter. It sold 5,988 homes during that time, up 72 percent from the previous quarter.

Offerpad also had a positive quarter: It acquired 2,753 homes in the third quarter, an increase of 258 percent. It sold 1,673 homes during that time, an increase of 123 percent.

Zillow was more confident earlier this year when it reported earning $1.5 billion in revenue from its iBuying business during the first half of 2021. CEO Rich Barton predicted $20 billion in revenue annually in three years. He was wrong.

Signs of the failing business model appeared this summer, but the cracks really started to show in October when Zillow paused on its buying due to a backlog of purchased properties. Meanwhile, Opendoor was turning up the heat, amassing billions in new borrowing capacity in an effort to acquire more than 40,000 homes with an average price tag of $350,000 per home.

Weeks later, an investigation from Insider found that almost 64 percent of the homes listed for sale were for less than what Zillow had paid for them, a median difference of $16,000. It was hard for Zillow to forecast home prices months in advance using its Zestimate, an automated property valuation tool meant to forecast prices.

When asked about pricing volatility and how much margin compression Opendoor’s business model can withstand, Opendoor emphasized its ability to react to changing market conditions quickly when pricing homes.

“We’re very good at this,” said Carrie Wheeler, Opendoor’s chief financial officer. “We have seven years of investment in the data, in the modeling and in our team that allows us to continuously improve how we model and approach home price valuations.”

While Zillow Offers used pricing specialists and agents to resolve discrepancies in buying properties, they mostly relied on the algorithm to get the work done. Zillow ended up paying thousands over market prices, and the company reported $1.2 billion in revenue for its home segment in the third quarter, missing its expectations and losing $328 million.

The damage was done: Zillow left the home-flipping business and announced plans to lay off a quarter of its staff. With Zillow out of the picture, Opendoor continued with its business as usual.

“The value proposition is resonating,” Opendoor CEO Eric Wu said. “It resonated before Zillow was in the category, and it will continue to resonate as we continue to expand nationwide and drive deepening market share within our existing cities.”

As of Sept. 30, the company had 17,164 homes on its balance sheet that represented $6.3 billion in value.

Expansions in Opendoor’s buybox since the end of 2019 drove 45 percent of its acquisitions in the third quarter, and the company expanded to five new markets bringing its total to 44.

Opendoor also acquired three companies, including Pro.com, Skylight and RedDoor, and launched Opendoor Complete, which streamlines all of its products and services into a single experience.





    Related Articles

    arrow_forward_ios
    Matt Lauer exposes Hamptons estate to the market
    Matt Lauer exposes Hamptons estate to the market
    Matt Lauer exposes Hamptons estate to the market
     Fredrik Eklund and the property (Getty, Steve Frankel)
    Fredrik Eklund lists Bel Air mansion for rent as family moves to “forever home”
    Fredrik Eklund lists Bel Air mansion for rent as family moves to “forever home”
    Gordon Ramsey and his Lucky Cat restaurant (Lucky Cat)
    Gordon Ramsay to open first South Florida restaurant in Miami Beach
    Gordon Ramsay to open first South Florida restaurant in Miami Beach
    695 E Main Street in Stamford (Wikimedia)
    Northeast Capital JV grabs Stamford office campus for $235M
    Northeast Capital JV grabs Stamford office campus for $235M
    Shvo launches sales at Mandarin Oriental condos on Fifth Ave
    Shvo launches sales at Mandarin Oriental condos on Fifth Ave
    Shvo launches sales at Mandarin Oriental condos on Fifth Ave
    U.S. shopping mall values have struggled in recent years before valuations tanked in the wake of the pandemic amid an e-commerce boom.
    US mall values plummeted by one-third in 4 years
    US mall values plummeted by one-third in 4 years
    Year of the ‘Revenge Traveler’
    Year of the ‘Revenge Traveler’
    Year of the ‘Revenge Traveler’
    The City Council reached a deal on a bill that will require new buildings with fewer than seven stories to go electric in 2024, and then will apply to buildings taller than that in 2027.
    New buildings must go electric under City Council deal
    New buildings must go electric under City Council deal
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...