Literally printed this out to read. Really appreciated your writing and well thought out thesis on this company. Keep it up!! Hoping we OPEN Investors are on to something huge!
Your thoroughness and generosity for sharing hours of research are greatly appreciated, and continually renew my conviction in this investment. Please continue the excellent work.
Excellent work Tyler - hope you can keep it up. I think it's very clear that many still don't understand this company. Your piece goes a long way to helping to fix this. JK
Nicely done Tyler. I listened to the OPEN earnings CC yesterday. Very interesting. Their CFO seems quite "hands-on" and "no-nonsense." Their business model presents a very interesting concept.
Excellent thesis. I own real estate as investments and have always thought that the whole damn thing is a racket. Huge fees to copy and paste an 11 page document, rushed buying process, can't trust anyone throughout the entire process. OpenDoor could position themselves as a champion of the average person and bring to real estate something it rarely has; truth and transparency, two things I'd happily pay for.
Hello Tyler, great article! What is in your opinion the value of the backed offer for Opendoor? Do they decrease the holding time of houses or do they earn money with the credit?
What can be the mix between list on opendoor and the capital intensive part of the business looks like in 2025 and beyond? Do you know the reason why the cost for the sales, marketing and operations sector was that high in Q4?
OBO is free for home buyers, but allows Opendoor access to the ancillary verticals associated with buying a home (mortgage, T&E — all transaction services associated above) as well as helping that home buyer sell their home. It’s Opendoor using its balance sheet as a weapon.
I think it will be a healthy mix of first party and third party business, but first party is a much better customer experience.
Sales and marketing higher likely because 1.) stale Q3 inventory 2.) slower selling in winter months 3.) massive scale reached at 10k homes is logistical nightmare 4.) Zillow unloading thousands of homes on the market 5.) selling 60% more homes than Q3 costs more money.
OBO: Thank you that is not a bad idea in general but do you see the risk of defaults of the kredit? In the worst case there is a default and Open is now the owner of the house, which was maybe to expensive.
Mix of list on Open and fist party business: Will be at the end may be like at Amazon.
Sales and marketing: Yes that's clear that the costs are rising if the business is scaling but I mean compared to the revenue. I expected the cost in a S&M around 30 mio less.
Is the ancillary service business in the group of other net income or what do you think is behind this item? I think it was negative for Q4 because Open bought another company. What is your opinion on this?
Sorry for my english and i hope you can understand my points :-)
Here is how to think about Opendoor Backed Offers:
A customer puts an offer down on a house, and it's 'Backed' by Opendoor, so it's as competitive as an all cash offer. The total fee the home seller gives to the home buying agent (Opendoor) is traditionally 2.5%.
The customer applies for a mortgage to cover the purchase. If they can finance the home themselves, Opendoor gives them a 1% rebate. If the customer cannot finance the home themselves, Opendoor keeps that additional 1%. In both cases Opendoor pays its agent 1% commission as well for managing the transaction.
So if customer finances themselves, Opendoor gets 0.5%. If Opendoor finances, it gets 1.5%. In the latter case the customer is still on the hook for financing within a certain period of time. Margin is added in the form of title and escrow, mortgage, and in the future, HOI and warranty.
Feb 27, 2022·edited Feb 27, 2022Liked by Tyler Okland
Any insight into how the markets they entered in 2021 are doing? I was disappointed that it wasn’t disclosed by the company (apologies if it was and I missed it, but I looked and didn’t see any mention about it either in the filings or on the call).
Thank you for your thoroughness and generosity to share this with everyone - greatly appreciated. I am mystified as to why the market does not give it far more respect - hopefully that will start being addressed over the coming quarters.
Thank you! very well written! I have seen their prices being fair even when people where listing foreclosed ruins for a fortune few days back. Also their app/website looks better and quality of the listings very high. I pulled my trigger on a small position today and will definitely check the app out when I am in the market for a home!
You're very good (VERY) in making the difficult seem so easy. Thank you very much for losing all this time to make people like us understand the company. I have 2 university degrees and I'm astonished (I'm good processing info). Congratulations Tyler and thanks again.
Great article with a lot of additional insight surrounding what may be misunderstood about the company and the long game/potential. I was really disappointed with the expense structure they outlined in the Q4 results. However, I wanted to better understand the excitement behind the high conviction supporters out there. This article was enough to convince me to start nibbling and investing in the Opendoor thesis. Thanks for sharing!
Today seems like as decent a day as any to start a position, with the caveat that the Q4 results were likely not enough to dispel too much of that misunderstanding. Hopefully the Q1 numbers are as good as they seem.
Have you, or is there a way, for you to get this report in the hands of Opendoor as there are some great ideas that they may have not thought of on their own and could certainly benefit from adding to their suite of products? I guess I'm asking whether you have an "open door" into their company? LOL
Ideally the Opendoor team is aware of my work, but I imagine they’ve been thinking about everything I outlined and then some. Thank you for the compliment though :)
Nice article Tyler. Strange that you basically skipped past the $536 million of stock-based compensation though. At approx 10% of issued capital, it seems that the SBC largesse did not sit well with the market. Any thoughts about that?
This is a nearly 7,000 word article, so I only focused on aspects I felt were pertinent to the long term success of the business. 10-K’s are for SBC assessment.
That said, this is Opendoor’s first year in the public market, which prompted such a significant amount of SBC in the first year. It’s downtrending as a percentage of revenue each and every quarter, and I don’t think it’s an unreasonable or overly dilutive amount in the context of the long term opportunity. Furthermore, mgmt guided for $75 million SBC in Q4 and ended up paying only $71 million. The market might not like the SBC, but in my opinion the market has been wrong about this company since day one.
Tyler, thank you for the helpful work on OPEN. Bottom-line including SBC is a major point for investors as they will value OPEN on unadjusted GAAP EBITDA and Net Income. the OPEN team executed well but there is a high chance that their model will not work. It will take probably much longer than investors anticipate to prove the opposite. The Goldman Sachs Equity analyst team changed their OPEN model after the earnings call. They forecast > $1 bn SBC for the coming three years ($340 in 22, $363 in 23, and $376 in 24). At the same time, their model suggests that OPEN will post a net loss of $270m in 2025 (in 2025, Operating Income will only reach $140m). I believe it is unfair to stress that OPEN tries to focus on costs in every part of their business if their SBC until 2024 is 7,7x of their Operating Income in 2025. BTW, their Gross revenue has to increase by a factor of 4,7x to reach this low level of profitability in 2025. It is not a question on whether the market is or has been wrong, it is a question on hard fundamentals that OPEN has to prove even at this level of valuation.
Thanks for reading and commenting. In my opinion, those distant net income projections are not remotely accurate. The analysts covering Opendoor have been forced to sharply revise up revenue and profitability after each and every quarter in 2021. 2021's performance was better than double original guidance on the top and bottom line. I strongly disagree that Opendoor will post a net loss in 2025, in fact, I believe Opendoor will be profitable on a GAAP basis in 2023.
Literally printed this out to read. Really appreciated your writing and well thought out thesis on this company. Keep it up!! Hoping we OPEN Investors are on to something huge!
Thank you so much! Glad you enjoyed it!!
Your thoroughness and generosity for sharing hours of research are greatly appreciated, and continually renew my conviction in this investment. Please continue the excellent work.
Excellent work Tyler - hope you can keep it up. I think it's very clear that many still don't understand this company. Your piece goes a long way to helping to fix this. JK
Nicely done Tyler. I listened to the OPEN earnings CC yesterday. Very interesting. Their CFO seems quite "hands-on" and "no-nonsense." Their business model presents a very interesting concept.
Excellent thesis. I own real estate as investments and have always thought that the whole damn thing is a racket. Huge fees to copy and paste an 11 page document, rushed buying process, can't trust anyone throughout the entire process. OpenDoor could position themselves as a champion of the average person and bring to real estate something it rarely has; truth and transparency, two things I'd happily pay for.
We are in the same camp. Having options like Opendoor is so important for progress in the real estate transaction.
Hello Tyler, great article! What is in your opinion the value of the backed offer for Opendoor? Do they decrease the holding time of houses or do they earn money with the credit?
What can be the mix between list on opendoor and the capital intensive part of the business looks like in 2025 and beyond? Do you know the reason why the cost for the sales, marketing and operations sector was that high in Q4?
Kind regards from Germany!
OBO is free for home buyers, but allows Opendoor access to the ancillary verticals associated with buying a home (mortgage, T&E — all transaction services associated above) as well as helping that home buyer sell their home. It’s Opendoor using its balance sheet as a weapon.
I think it will be a healthy mix of first party and third party business, but first party is a much better customer experience.
Sales and marketing higher likely because 1.) stale Q3 inventory 2.) slower selling in winter months 3.) massive scale reached at 10k homes is logistical nightmare 4.) Zillow unloading thousands of homes on the market 5.) selling 60% more homes than Q3 costs more money.
Kind regards from California!
Hello Tyler, thank you for your reply!
OBO: Thank you that is not a bad idea in general but do you see the risk of defaults of the kredit? In the worst case there is a default and Open is now the owner of the house, which was maybe to expensive.
Mix of list on Open and fist party business: Will be at the end may be like at Amazon.
Sales and marketing: Yes that's clear that the costs are rising if the business is scaling but I mean compared to the revenue. I expected the cost in a S&M around 30 mio less.
Is the ancillary service business in the group of other net income or what do you think is behind this item? I think it was negative for Q4 because Open bought another company. What is your opinion on this?
Sorry for my english and i hope you can understand my points :-)
Here is how to think about Opendoor Backed Offers:
A customer puts an offer down on a house, and it's 'Backed' by Opendoor, so it's as competitive as an all cash offer. The total fee the home seller gives to the home buying agent (Opendoor) is traditionally 2.5%.
The customer applies for a mortgage to cover the purchase. If they can finance the home themselves, Opendoor gives them a 1% rebate. If the customer cannot finance the home themselves, Opendoor keeps that additional 1%. In both cases Opendoor pays its agent 1% commission as well for managing the transaction.
So if customer finances themselves, Opendoor gets 0.5%. If Opendoor finances, it gets 1.5%. In the latter case the customer is still on the hook for financing within a certain period of time. Margin is added in the form of title and escrow, mortgage, and in the future, HOI and warranty.
Thanks a lot! Now it is much more clearer to me!
Any insight into how the markets they entered in 2021 are doing? I was disappointed that it wasn’t disclosed by the company (apologies if it was and I missed it, but I looked and didn’t see any mention about it either in the filings or on the call).
Here’s a thread I posted on Twitter prior to earnings which includes some of those data Nick:
https://twitter.com/tyler_okland_md/status/1487794123314589697?s=21
Thanks for this and for your update on new markts via twitter… any thoughts on the new 25% tax proposed in CA for home flippers?
Awesome. Bless you Tyler!!!
Your writing and work are impeccable.
Keep it up🙏..
Thank you for your thoroughness and generosity to share this with everyone - greatly appreciated. I am mystified as to why the market does not give it far more respect - hopefully that will start being addressed over the coming quarters.
Thank you! very well written! I have seen their prices being fair even when people where listing foreclosed ruins for a fortune few days back. Also their app/website looks better and quality of the listings very high. I pulled my trigger on a small position today and will definitely check the app out when I am in the market for a home!
You're very good (VERY) in making the difficult seem so easy. Thank you very much for losing all this time to make people like us understand the company. I have 2 university degrees and I'm astonished (I'm good processing info). Congratulations Tyler and thanks again.
Great article with a lot of additional insight surrounding what may be misunderstood about the company and the long game/potential. I was really disappointed with the expense structure they outlined in the Q4 results. However, I wanted to better understand the excitement behind the high conviction supporters out there. This article was enough to convince me to start nibbling and investing in the Opendoor thesis. Thanks for sharing!
Thanks for reading and commenting Stephen.
Today seems like as decent a day as any to start a position, with the caveat that the Q4 results were likely not enough to dispel too much of that misunderstanding. Hopefully the Q1 numbers are as good as they seem.
Have you, or is there a way, for you to get this report in the hands of Opendoor as there are some great ideas that they may have not thought of on their own and could certainly benefit from adding to their suite of products? I guess I'm asking whether you have an "open door" into their company? LOL
Ideally the Opendoor team is aware of my work, but I imagine they’ve been thinking about everything I outlined and then some. Thank you for the compliment though :)
Nice article Tyler. Strange that you basically skipped past the $536 million of stock-based compensation though. At approx 10% of issued capital, it seems that the SBC largesse did not sit well with the market. Any thoughts about that?
This is a nearly 7,000 word article, so I only focused on aspects I felt were pertinent to the long term success of the business. 10-K’s are for SBC assessment.
That said, this is Opendoor’s first year in the public market, which prompted such a significant amount of SBC in the first year. It’s downtrending as a percentage of revenue each and every quarter, and I don’t think it’s an unreasonable or overly dilutive amount in the context of the long term opportunity. Furthermore, mgmt guided for $75 million SBC in Q4 and ended up paying only $71 million. The market might not like the SBC, but in my opinion the market has been wrong about this company since day one.
Tyler, thank you for the helpful work on OPEN. Bottom-line including SBC is a major point for investors as they will value OPEN on unadjusted GAAP EBITDA and Net Income. the OPEN team executed well but there is a high chance that their model will not work. It will take probably much longer than investors anticipate to prove the opposite. The Goldman Sachs Equity analyst team changed their OPEN model after the earnings call. They forecast > $1 bn SBC for the coming three years ($340 in 22, $363 in 23, and $376 in 24). At the same time, their model suggests that OPEN will post a net loss of $270m in 2025 (in 2025, Operating Income will only reach $140m). I believe it is unfair to stress that OPEN tries to focus on costs in every part of their business if their SBC until 2024 is 7,7x of their Operating Income in 2025. BTW, their Gross revenue has to increase by a factor of 4,7x to reach this low level of profitability in 2025. It is not a question on whether the market is or has been wrong, it is a question on hard fundamentals that OPEN has to prove even at this level of valuation.
Thanks for reading and commenting. In my opinion, those distant net income projections are not remotely accurate. The analysts covering Opendoor have been forced to sharply revise up revenue and profitability after each and every quarter in 2021. 2021's performance was better than double original guidance on the top and bottom line. I strongly disagree that Opendoor will post a net loss in 2025, in fact, I believe Opendoor will be profitable on a GAAP basis in 2023.