Opendoor Reports Q4 2023 Earnings
Opendoor beat guidance, delivering on prioritizing operational rigor.
Executive Summary
Opendoor (NASDAQ: OPEN) reported earnings earlier this afternoon after the market close. In after hours trading, the stock is close to flat, trading down 0.30% after closing the regular trading day down 2.47%.
Opendoor struggled in early 2022, buying 5,000+ homes per month in May 2022 and June 2022, losing an average of $25k+ per home in spread between purchase price and sale price.
The company has improved unit economics since, generating $40k+ in spread profit per home for properties purchased Jan 2023 to April 2023. May through July 2023 are looking like they’ll settle in the $25k in gross margin range. 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.
However, purchase volume is down 75%+ from 2022 and performance has varied significantly between markets.
Looking forward, management plans to work towards its goal of delivering positive adjusted net income by responsibly growing purchase volume; however, it doesn’t believe the requisite purchase and resale volume can be reached in 2024.
Introduction
In Q4 2023, Opendoor purchased 3,683 homes, an increase of 17% quarter-over-quarter and above prior expectations of roughly 1,000 homes per month; 2,364 homes were sold, generating $870 million of revenue, a decrease of 11% quarter-over-quarter but above the guided range of $800 million to $850 million in revenue.
Opendoor delivered a gross profit of $72 million, representing an 8.3% gross margin; contribution profit was $30 million, representing a 3.4% contribution margin. This was ahead of the company’s implied contribution margin guidance range of 1.9% to 2.9%.
Going forward, management plans to work towards its goal of delivering positive adjusted net income by responsibly growing purchase volume, however, it doesn’t believe the requisite purchase and resale volume can be reached in 2024.
Purchase volume remains down significantly from 2022, when aggressive property acquisitions led to significant losses with properties purchased during that period being sold for $25k-$30k+ less on average than they purchased them for (not taking into account Opendoor's commission or renovation and holding costs).
On a unit basis, recent purchase cohorts have been strong, generating $40k+ in gross profit on average per unit. Opendoor will be a company to watch closely in 2024 as it plans to return to growth while balancing risk and navigating higher rates.
Data Overview
SFR Analytics has a uniquely detailed view into the performance of Opendoor’s business through a two step process:
Entity matching and reconciliation
Ex: All legal entities like “OPENDOOR C LLC”, “OPENDOOR D LLC”, etc. are identified and linked back to Opendoor
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 Opendoor’s purchase and sale activity at the transaction level.
Analysis & Results
Opendoor (NASDAQ: OPEN) has had a difficult time in the public markets since listing via a SPAC in December 2020, with the stock trading down as much as 95% from the highs it reached in February 2021.
At a high level, the purchase volume and cohort curve charts paint a clear picture: Opendoor acquired a lot of homes in early 2022, and it didn’t work out well. Across the 5,000+ homes acquired in each of May and June, we estimate that Opendoor lost an average of $25k+ per home on the spread difference between purchase price and sale price. Framed differently, we estimate that Opendoor generated $100m+ in gross margin losses for each of these cohorts.
Starting in July 2022, the company quickly pumped the brakes on acquisition volume, acquiring fewer than 1,000 homes per month by the end of 2022, and keeping close to that pace throughout 2023, with a slight uptick in October 2023. While Opendoor 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 $40k+ in gross margin profit per home.
It’s worth noting, however, that Opendoor’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, Opendoor’s gross profit per property has swung over $100,000+ 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
Opendoor grew purchase volume from roughly 2,500 units per month at the beginning of 2022 to over 5,000 per month at its peak in May and June of 2022. As results began to weaken, Opendoor significantly reduced the number of homes it purchases.
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 Opendoor’s business: while Jan 2022 - March 2022 were gross margin profitable cohorts, losses mounted quickly, with slight losses in the April 2022 cohort turning into $100m+ in gross margin losses for each of the May 2022 and June 2022 cohorts, and more than $50m in gross margin losses in July 2022. Since slowing the bleeding with a slightly negative August 2022 cohort, Opendoor has generated gross margin profits in each cohort from September 2022 to present; however, lower purchase volume for these cohorts means that they’ve contributed less total gross profit, posting between $15m and $25m, compared to $50m+ each in Jan 2022, Feb 2022, and March 2022.
Unit-Based Gross Profit
While Opendoor’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 $40k+ in gross margin per property.
Market-Level Breakdown & Future Outlook
While Opendoor 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 Opendoor’s purchase mix as well as commentary from management on recent earnings calls suggest what’s to come for the company.
Note: the remainder of this article is available to paid subscribers, sign up below for access. Paid subscribers get full access to weekly data-rich articles about the SFR market and select additional articles only available to paid subscribers.