BUILDER R E P O R T

CAN OPENDOOR SURVIVE A REAL ESTATE SLUMP?

OpenDoor is under immense pressure as interest rates rise, home prices decline, and the company's losses pile up. Wall Street lost all faith in the company, with its share price plummeting 97% from 2021 highs

Opendoor's cash offers and quick closing process were a tremendous value proposition for sellers who avoid realtors, open houses, and home staging.

However, overly optimistic pricing models, mounting debt loads, and stale inventory exposed significant flaws in the iBuying model The writing is on the wall, with peers like Zillow and Redfin closing their iBuying divisions following substantial losses.

Opendoor is pivoting to an asset-light marketplace model similar to Airbnb to survive. But facing a real estate downturn, the bears think it's too little too late for Opendoor, making rapid execution of the turnaround plan vital to Opendoor’s survival

BOTTOM LINE. . .

Even though Opendoor got off to a good start, going public in excellent conditions for home buying post-COVID, many Wall Street analysts have turned bearish on the stock, continually slashing price targets.

The iBuying business is capital-intensive, requiring lots of debt while carrying low margins and considerable downside exposure if home prices decline.

Furthermore, whether Opendoor's pricing model has, any predictive power is debatable The company has overpaid for homes at multiple points in the postCOVID real estate cycle, leading to losses.

Even when conditions were favorable throughout 2020-2021, Opendoor failed to book a profit With mortgage rates rising at record speed in 2022, home sales volumes slowing, and home prices declining, many ask if the company is planning a turnaround too late in the real estate cycle

Because it can be argued that iBuyers like Opendoor only fare well in a rising real estate market, all signs indicate that more pain is ahead for Opendoor Given the mounting losses and significant debt, some short sellers predict bankruptcy.

March 2023

With a massive debt and inventory overhang on the company amid rapidly rising interest rates, Opendoor looks to transition a portion of its business to an assetlighter model

The main initiative on this front is their Opendoor Exclusives program, which operates as a real estate marketplace that nicely layers on top of Opendoor’s existing business Essentially, after making an offer to a seller, Opendoor also gives their network of buyers in the Opendoor Exclusives program a chance to outbid Opendoor Should that occur, Opendoor collects a fee on the transaction without the need to buy the house itself

Opendoor sees Exclusives as the future of its business, aiming for at least 30% of its total transactions to go through its marketplace by the end of 2023. In a recent interview with tech blog Stratechery, former CEO Eric Wu detailed that his longterm vision has always been for Opendoor to shift from their lowmargin house flipping business into a high-margin marketplace model.

Facing a significant debt and inventory pile with poor future funding prospects, it's door-die time for Opendoor. Looking forward, the company is likely to face struggles as it continues to write down the value of its inventory while revenue declines as the company flips fewer houses.

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