After eight years, Opendoor has logged its first profitable quarter.
The San Francisco-based iBuyer’s shares soared more than 15 percent in early trading Friday after it reported record revenue of $5.2 billion for the first quarter, a nearly seven-fold increase from a year ago.
First-quarter profit came to $28 million, or $0.04 per share, up from a net loss of $270 million, or $0.48 per share, last year, far outstripping Wall Street’s — and its own — earnings expectations.
Opendoor, along with its competitors Offerpad and Redfin, has struggled recently to convince investors of the profitability and durability of iBuying, which came under scrutiny last fall after Zillow’s attempt at it failed. Their share prices are all down substantially this year — Opendoor’s by nearly 50 percent — and analysts have downgraded them in anticipation of turmoil in the housing market.
Algorithm-powered iBuying, which involves buying, renovating and flipping homes, is tricky enough in good times, when home prices are stable or climbing. To succeed, iBuyers must reliably estimate home values across disparate markets, marshall the resources to renovate, and shoulder the cost of carrying inventory.
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Zillow’s case laid bare how steep that challenge is, and now rising interest rates and a volatile macroeconomic climate have further clouded the housing market. Home flipping en masse doesn’t work when prices are declining, or conversely, if few can afford to buy.
Opendoor claims to have refined its estimate tools and risk management with its expansion into 48 markets, including most recently the San Francisco Bay Area, Long Island and the lower Hudson Valley — which have among the nation’s most expensive and idiosyncratic housing.
“These past eight years of investments and hard work on our cost structure, automation, technology platform and pricing engine are enabling us to deliver durable margin improvements as we scale,” CEO Eric Wu said on an earnings call Thursday.
Paying less for homes has helped. CFO Carrie Wheeler said the company has taken a “conservative” approach to valuing homes in light of recent economic uncertainty, which she said may precipitate a slowdown of the housing market in the second half of the year.
The company’s tools and systems are “able to dynamically adjust to changing conditions,” Wheeler said on the earnings call. “Our systems and margin structure are designed to be durable across different housing environments.”
Opendoor bought more than 9,000 homes during the first quarter and sold 12,600, more than five times the sales volume in the 2021 quarter, “demonstrating rapid consumer adoption,” the company said.
Its contribution margin, a profitability metric that factors in the costs of carrying and selling home inventory, was 6.4 percent, compared with 10.2 percent a year ago.
Opendoor owned some 13,300 homes at the end of March — a more than five-fold increase year-over-year — worth a combined $4.7 billion.
The company expects revenue of $4.1 billion to $4.3 billion in the second quarter.
Arizona-based Offerpad, which after Zillow’s exit is Opendoor’s nearest iBuyer competitor, reached profitability in the fourth quarter of 2021.