eResearch | Last month, Opendoor Labs, a technology company with an online real estate platform, announced plans to list publicly through a merger with Social Capital Hedosophia Holdings II (NYSE: IPOB), a special purpose acquisition company.
Opendoor raised a total of $1 billion, which included $600 million from a private equity placement. The remaining $400 million was raised from institutional funds such as BlackRock (NYSE: BLK) and Healthcare of Ontario Pension Plan.
The deal provided Opendoor with a proforma enterprise value of $4.8 billion, with $1.5 billion of cash on the balance sheet. Based on last year’s revenue, Opendoor trades at an EV/Revenue of 1x, which is expected to decrease to 0.5x by 2023.
FIGURE 1: Opendoor Funding History (2014-Present)
| Announce Date | Proceeds (US$) | Investor/Lead |
| 09/27/2018 | $400M | SoftBank Vision Fund |
| 06/13/2018 | $325M | General Atlantic, Access Technology Ventures, and Lennar Corporation |
| 12/01/2016 | $210M | Norwest Venture Partners |
| 10/14/2015 | $80M | Access Technology Ventures |
| 02/26/2015 | $20M | GGV Capital |
| 08/27/2014 | $10M | Khosla Ventures |
Source: eResearch; Crunchbase
Since 2014, to fund its inventory of properties, Opendoor raised over $1 billion in equity from various investment firms and institutions. In addition, Opendoor recently received access to more than $2 billion in debt financing from top banks.
The transaction is expected to be completed by Q4/2020.
Opendoor
Opendoor buys homes directly from consumers at a service charge between 6% and 9%, while operating an online real estate marketplace. Opendoor reduces the closing time of home transactions to as little as 14 days from the traditional average of 87 days.
The marketplace launched in 2015, making Opendoor the first real estate company to provide consumers with the ability to view homes virtually and submit offers online.
Opendoor’s proprietary pricing engine collects 100 different data points related to a home’s condition, which is used to value a seller’s property.
The average holding period for a property on Opendoor’s platform from acquisition to resale ranges from approximately 90 to 110 days.
FIGURE 2: Opendoor Platform
The platform is a one-stop shop that streamlines property transactions online, removing middlemen such as agents while providing a virtual open house for buyers.
Opendoor’s current offerings include:
- Title and escrow, which integrates title insurance and escrow services with affiliated companies.
- Buy with Opendoor, which provides an online marketplace for home buyers.
- Opendoor Home loans (launched 2019), which offers online mortgage and refinancing services.
- List with Opendoor (launched 2020), which allows sellers to list on the platform.
Last year, Opendoor’s platform generated over 1.6 million virtual visits, averaging 4,500 visits per day, and resulting in almost 19,000 homes sold.
FIGURE 3: Opendoor Markets
Opendoor currently operates in 21 U.S. markets, including cities such as Atlanta, Las Vegas, Los Angeles, Orlando, and Phoenix. Since launch, Opendoor’s platform has served approximately 80,000 home owners with over $10 billion in properties sold.
Opendoor’s management team brings past experiences from companies such as Airbnb, Amazon (NASDAQ: AMZN), Capital One Financial (NYSE: COF), Lyft (NASDAQ: LYFT), Netflix (NASDAQ: NFLX), Square (NYSE: SQ), Trulia, and TPG Global.
Financials
From 2017 to 2019, Opendoor grew revenue by 571% to $4.7 billion, as it expanded across more markets and acquired more customers. In Q1/2020, Opendoor reached a $5 billion annual run-rate, representing almost 20,000 homes sold annually.
FIGURE 4: Opendoor Homes Sold & Revenue (2017-2020)
However, due to the COVID-19 pandemic, Opendoor experienced a suspension in operations in the second quarter of this year. In H1/2020, Opendoor reported revenue of $1.9 billion, a 12% drop from the prior year’s comparable period, due to home sales decreasing by 13%.
In addition, as Opendoor focuses on growth, it expects to continue expanding losses as it invests in acquiring customers and scaling its platform. In H1/2020 Opendoor reported a $118 million net loss, with a $339 million net loss in 2019.
This year, in an effort to de-risk its balance sheet, Opendoor quickly reduced its inventory while maintaining its average resale price. In July, Opendoor held only $172 million in inventory, down from $2 billion in February.
iBuying Market
Opendoor markets itself as a leader and a pioneer in the iBuying market, which offers consumers a modern, end-to-end real estate platform to buy and sell homes online.
In the S-4 filing, Opendoor stated that last year, more than 5.3 million homes were sold, representing more than $1.6 trillion in transactions. Opendoor believes it can capture a significant share of this market as it disrupts how consumers buy homes.
As the pandemic forces several countries to enter a second wave of lockdowns, more consumers are expected to seek online options for home purchases.
Other companies in the iBuying market include, Zillow (NASDAQ: ZG), Offerpad and Redfin (NASDAQ: RDFN).
