The Bull Case for Opendoor
Has the embattled iBuyer sorted out its unit economics and found a way to grow?
Executive Summary
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. 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 80%+ from 2022 and performance has varied significantly between markets.
Can the company get back to growth while maintaining positive unit economics? Geographic mix of purchase volume and comments from management leave clues.
Introduction
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.
In this piece, we take a closer look at Opendoor’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 and may be headed for better days soon.
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 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.
The transaction level data can be rolled up to generate cohort analyses of Opendoor’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 Opendoor’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 Opendoor, a cohort analysis asks the questions “For homes that Opendoor 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 Opendoor, 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 Opendoor’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: 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 breaks 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.
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