Is Opendoor the Amazon of Buying Homes or Just Another Carvana?
It’s rough for capital-intensive and unprofitable startups right now. Anything associated with the cooling housing market or SPACs is also being marked down. Opendoor Technologies Inc. ticks many of those boxes — yet it might be unfairly maligned.
Founded in 2014, the San Francisco-based company pioneered iBuying, a whizzy name for digitally-enabled home flipping, though it abhors the description.
It went public in 2020 via a blank-check firm created by “SPAC King” Chamath Palihapitiya who called it his “next big 10x idea.” Others proclaimed it the “Amazon of homes.” I was more skeptical. Last year, it sold more than 20,000 homes and lost more than $100 million, excluding stock-based compensation.(2)
Disrupting a very large market, buying and selling big-ticket items at scale, and removing friction from an often frustrating transaction all remind me of Carvana Inc.’s approach to selling used cars online. But those similarities aren’t helping right now: Carvana’s debt-fueled expansion went off the rails earlier this year as demand unexpectedly slowed, causing the stock to collapse.
So far, Opendoor’s execution has been better, though its shares have fallen almost as much, hurting retail investors and hedge fund backers like D1 Capital Partners LP and Altimeter Capital Management LP. Dan Loeb’s Third Point LLC sold its Opendoor stake during the first quarter of 2022.
Opendoor’s $3 billion market capitalization is now only a little more than its cash pile. Nearly $1 billion of its 0.25% coupon convertible bonds maturing in 2026 are priced at less than 60 cents on the dollar, or an eye-watering yield to maturity of 14%. One concern, though, is what happens to Opendoor’s inventory of 13,000 homes if house prices suddenly go into
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