Offerpad ($OPAD) Breakdown
Purchase volume, unit economics, and performance by region.
Executive Summary
Offerpad accelerated acquisition pace in early 2022, acquiring almost 1,500 homes in June 2022 alone. However, these purchases make up the worst cohort Offerpad has had recently on a unit basis, losing $10k+ per property in gross margin.
The company has improved unit economics since, generating $50k+ in spread profit per home for properties purchased Jan 2023 to April 2023. While not fully baked, newer cohorts are showing similarly profitable early performance. Detailed metro-level profit breakdowns of the most recent cohorts are available for paid subscribers at the end of this article.
While unit economics have improved, purchase volume fell 90%+ from mid-2022 to early 2023 at around 100 homes per month. Since then, purchase volume has recovered to 250+ homes per month.
Introduction
Offerpad (NYSE: OPAD) has had a difficult time in the public markets since listing via a SPAC in September 2021, with the stock trading down as much as 95%+ from the highs it reached a few weeks after listing.
In this piece, we take a closer look at Offerpad’s performance, using transaction-level data to highlight where the iBuyer has struggled in the past and reveal recent signs that the company has improved its unit economics.
Data Overview
Before diving into the results, it’s helpful to put into context what data is used to support the analysis and why it provides a clearer picture than aggregated historical financials. SFR Analytics has a uniquely detailed view into the performance of Offerpad’s business through a two step process:
Entity matching and reconciliation
Ex: All legal entities like “OP GOLD LLC”, “OP SPE PHX1 LLC”, etc. are identified and linked back to Offerpad
Processing of nationwide deed and assessor data, updated daily
For all home sales nationwide, datapoints like the buyer, seller, sale date, sale amount, loan amount, property address, etc.
The combination of complete entity matching and reconciliation with daily updated deed and assessor data means visibility into all of Offerpad’s purchase and sale activity at the transaction level.
The transaction level data can be rolled up to generate cohort analyses of Offerpad’s performance segmented by time period and region (see more details below in the Methodology Overview section), which serves as a leading indicator for headline figures like revenue, margins, and profitability. Additionally, looking at the transaction level purchase data can be used to get a near real-time indicator of Offerpad’s purchase volume, which can be used ahead of earnings calls to track the company’s progress towards growth targets.
Methodology Overview
The foundation of this piece is built around a cohort analysis of purchase activity. In the case of Offerpad, a cohort analysis asks the questions “For homes that Offerpad purchased in a given period of time/region, what has performance been? Were they able to sell those homes for more than they purchased them?”
A useful first cut is grouping purchases by month nationwide for Offerpad, then following those purchases over time to find the cumulative gross profit (sale price less purchase price across all properties) generated by a group of purchases. A related view of that is to divide the cumulative gross profit by the number of purchases to get a unit-level gross profit by cohort.
Taking this a step further, the analysis can be extended by segmenting Offerpad’s purchase activity by geography to understand where it has been successful and where it has struggled.
Analysis & Results
At a high level, the purchase volume and cohort curve charts paint a clear picture: Offerpad acquired a lot of homes in early 2022, and it didn’t work out well. Across the 1,400+ homes acquired in June 2022, we estimate that Offerpad lost an average of $10k+ per home on the spread difference between purchase price and sale price. Framed differently, we estimate that Offerpad generated $10m+ in gross margin losses for the June 2022 cohort.
Starting in July 2022, the company quickly pumped the breaks on acquisition volume, acquiring just over 100 homes per month by the end of 2022. Acquisitions stayed low through Q1 2023 and have since picked up to 300+ per month in Q3 2023. While Offerpad slowed acquisition volume significantly, along the way it also improved its unit economics, reversing its gross margin losses with homes purchased in Jan 2023 through April 2023 generating $50k+ in gross margin profit per home.
It’s worth noting, however, that Offerpad’s performance varied significantly by time period and market, a topic explored further in the section Market-Level Breakdown & Future Outlook. In Phoenix, for example, Offerpad’s gross profit per property has swung over $80,000+ between the between 2022 and 2023 cohorts.
Note: properties in non-disclosure states have been excluded from the gross margin cohorts, due to limited price information available, see footnote for additional details.
Purchase Volume
Offerpad grew purchase volume from roughly 800 units per month at the beginning of 2022 to over 1,400 per month at its peak in June of 2022. As results began to weaken, Offerpad significantly reduced the number of homes it purchased.
Trends in purchase volume varied by geography, along with unit-level performance, a topic explored further in the section Market-Level Breakdown & Future Outlook.
Gross Profit
Market conditions changed quickly for Offerpad’s business: while Jan 2022 - March 2022 were strong gross margin profitable cohorts, performance shifted, with a flat return in the May 2022 cohort following by $10m+ in gross margin losses in the June 2022 cohort. Since slowing the bleeding with a $4m gross margin loss July 2022 cohort, Offerpad has generated gross margin profits in each cohort from August 2022 to present; however, lower purchase volume for these cohorts means that they’ve contributed less total gross profit, posting between $2m and $10m, compared to $15m+ each in Jan 2022, Feb 2022, and March 2022.
Unit-Based Gross Profit
While Offerpad’s lower purchase volume means that recent cohorts haven’t generated as much absolute gross profit as early 2022 cohorts, they’ve been some of the best on record on a unit basis, generating $50k+ in gross margin per property.
Market-Level Breakdown & Future Outlook
While Offerpad struggled in 2022, it’s performance wasn’t evenly distributed across cities. In fact, while some cities struggled mightily, others held up relatively well. Changes in Offerpad’s purchase mix may suggest what’s to come for the company.
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