Placing a $155k bet on Opendoor, down 98%. Good luck to me.
Account 1:
https://preview.redd.it/r5v1mlodyo0f1.png?width=1706&format=png&auto=webp&s=d394da9e1b376526ca981408f2d1a18d39d20ba1
Account 2:
https://preview.redd.it/km20mj7fyo0f1.png?width=1702&format=png&auto=webp&s=a1867507137f8ac942dc23d0817e1447efc376df
I know 99% of you idiots won’t read this, but for the rest:
- Stock dropped 98% but is far from bankrupt. It just refinanced its debt and has $1.1B capital, $693M cash, enough to weather the housing market for two years or more.
- Company has been downsizing and focusing on unit efficiency the past two years, following the Carvana restructuring playbook.
- Made a billion dollars flipping houses in 2021, but is struggling in a frozen housing market. When Jerome Powell fixes the housing market Opendoor will start making money again.
- Has financing and staff to scale revenue by 3x, it's just waiting on the housing market
- Opendoor has been learning important things about how real estate works, like:
- Real estate agents exist for a reason
- Home prices go up in the summer
- Now that Opendoor knows how real estate works, it will make more money
- Opendoor is down in April because the hedge funds shorted it to kick Opendoor out of the Russell 2000. When the ETFs tracking Russell sell their shares on June 27 and the shorts cover, Opendoor will probably go back up to $2.
Click here for Opendoor’s financials in Google sheets.
Change in business plan:
Opendoor is a corporate home-buyer. They used to be in the business of buying homes at above market value, sitting on them a few months, then flipping them at a profit. This was a great business model in 2021, but not so good in 2022 when home prices stopped rising. Opendoor bought 35k homes that year, and ended up selling them for a billion dollar loss.
Since then, Opendoor has pivoted strategies, and now buys homes for about 10% less than they’re worth, then sells them at a profit. It’s actually a fair deal for customers: instead of paying 5% in agent fees and having to negotiate with buyers for months, they can pay 10% and skip the home selling process.
One problem though, is customers tend to overvalue their homes, so they tend to think Opendoor is overcharging them. A normal customer interaction goes like this:
- Customer has a $500k house, and thinks it’s worth $600k
- Customer goes to Opendoor.com and gets a quote for $450k
- Customer thinks, “hahahahahaha I knew these guys were crooks, they want $150k to sell my house, I’m selling with a realtor instead”
- Realtor agrees Opendoor is a bunch of crooks, because realtor competes with Opendoor
It's been a truly terrible marketing funnel. Opendoor only converts 1% of its prospective customers at a cost of $14k per house.
The new business plan is this:
- Customer goes to Opendoor
- Opendoor says, would you like to talk to a local real estate agent?
- Customer thinks, "yes of course I don't trust you crooks"
- Agent tries to convince the customer that Opendoor's offer isn't bad
- If the customer sells, Opendoor wins. Otherwise, the agent sells the house, Opendoor collects a commission and still wins.
It's a much, much better business plan. Nobody wants to sell their house without talking to a real estate agent first, because they don't trust corporations. Now that Opendoor has figured that out, expect revenue to go up and marketing cost per house to go down.
Opendoor no longer lighting as much money on fire
Look at this chart:
https://preview.redd.it/f870nejv0p0f1.png?width=640&format=png&auto=webp&s=7ad9dc55bb34e1e364ac77fd85df1a0416af2723
Do you see where it says, profit per house, -$65k? That was the Zirp era. Home prices started going down, and the CEO decided he was going to buy eve