Opendoor SPAC IPO is completed: should you be investing?

spac-ipo

In September, the property technology firm Opendoor said that it would become public through a merger with Social Capital Hedosophia II, a niche acquisition firm, operated by Chamath Palihapitiya.

Ok, the merger is done. Opendoor Technologies is legally a stand-alone public firm listed on the Nasdaq stock exchange with “OPEN” next to it. Opendoor received around USD1B from the deal, which it want to use to accelerate growth and increase its marketplace share.

Since the initial public offering is done, will investors accept Opendoor for the portfolio?

What is Opendoor doing?

They are an iBuyer. So, rather than buyers needing to list and sell their home to a private home purchaser, Opendoor purchases houses straight from those who own homes and intends to sell them straight to sellers (for a gain, naturally).

Of course, Opendoor is not alone in this, and neither the biggest name doing this. Zillow and Redfin also got their iBuyer program. But Opendoor is focusing just on iBuying. The firm has some conventional broker services, but iBuying is the main one.

Opendoor plans to extend its operations across the U.S. and hopes to be the all-in-one place to purchase and sell an asset. The firm wishes to remove customer pain points as it sells — to be exact, the time it requires. Clients can acquire instant cash deals for their homes via Opendoor and may close any time: no exhibits, no open houses, etc.

It isn’t a low cost stock, and profits could be sparse

There is a massive business opportunity here. About six million residencies were sold in the US last year, resulting in a marketplace value of around USD2 trillion based on the median selling price of houses. Overall, residential properties in the States are part of a twenty trillion marketplace.

Since its launch, over 700k cash deals have been requested on the Opendoor website. The company’s revenue was roughly USD4.7b last year. It sold almost 19,000 houses. However, the company’s adjusted EBITDA amounted to a net loss of $218m, which means that Opendoor ended up without around $11,500 for each home.

To be certain, some of the losses are due to the reinvestment of Opendoor in the expansion of its enterprise – sales increased by 161 percent y-on-y last year – even with that, Opendoor is not a firm deemed profitable.

That’s the biggest issue, from an investor’s point of view. It is not a matter of if the business potential is huge or whether there is a need for a method to purchase and sell real estate assets quickly (there is). It’s a matter of whether this can be achieved profitably on a scale. None of the big iBuyers have yet found out how to profit.

Furthermore, Opendoor is a costly stock. It now has a marketplace capitalization of approximately $18 billion. This is around 4 times the sales of a company that has no known instances of being profitable on a scale.

To further explain, Opendoor does not need a wide margin or a large marketplace share to support its valuation at the moment. If it rises to only two percent of the real estate marketplace and brings in a profit of $5k per asset, the annual profit will be around $600 million. And that doesn’t include sales for its broker services.

Conclusion

If Opendoor is in the position to scale its iBuying enterprise with success —and can find out how to do so with profit —there is no doubt that this could be a big market opportunity. Though, these are major issues herem and this is not a low-cost stock.

If you’re searching for a speculative game with a huge reward possibilities and a high risk tolerance and lots of time, consider Opendoor.