This is the best DD article I have ever read...Thank you. I own OPEN, Z and RDFN. The only thing that worried me about OPEN was choosing to go the SPAC route. Of all the decks I have of companies choosing the SPAC financing, the insiders get rich on the front end at the expense of the market. Honestly, I have not read the prospectus on OPEN, I am only making assumptions based personal bias. Though financial variables will shift, this middleman model needs to be gutted because it is costly and time consuming. This is AMZN style disruption. Personally, I would take a 10% hit on the price of my house JUST to move it quickly.
I feel like you are definitely seeing the bull case. Opendoor is getting rid of all middlemen for sure, in a vast market. Thanks for reading and commenting! The 2020 investor presentation is an easy read and worth a look if you have time!
Can you give me a pro case for a SPAC? You seem to be comfortable with the model....I see front end greed. Not being critical....I JUST DO NOT SEE THE financial benefit for the company or the investor.....except for the SPAC taking money on the front end. In a capitalist environment, this is antithetical to what is right/wrong. See Ayn Rand...any of of her books will do :) I am all about gutting the real estate complex :)
In a traditional IPO the bankers like Goldman Sachs and JP Morgan take massive fees at the frontend underpricing the company and giving the first shares to their best clients. In most SPACS and especially in $OPEN's case there are little to no fees and money comes in form of a talented sponsor who stays on the board and is a long term partner for the company. Y
ou should read up on Bill Gurley's opinions on traditional IPOs to see the full extend to which the big banks rob startups going public... it's a total joke. The only right decision for a company going public is a direct listing or SPAC.
This is excellent. I guess your $6.0 mm in incremental interest = 300K * 20% equity * 10,000 per quarter; actually not sure I understand how you got incremental interest from the equity ... but I think the bigger question (surprised I haven't seen this, I will take a look at their 10K) is their overall return on capital. If I see their ROC (e.g., EVA) is durable, then I think it's a buy for me. This is a capital intensive business so I think that's the piece this missing in the argument. But THANK YOU for OPENing my eyes to OPEN, great job here. I will be reading this twice.
Exactly right with this math here. Thank you so much for reading and commenting.
Somehow the Opendoor thesis has been flying under the radar, but it truly is an exceptional business. Let me know what you find when you check out their 10k, would be great to hear your impression.
awesome, I really will come back after I pencil out the ROC economics, and feel free to ignore unless this is helpful/correct, but: if they finance 300K with 80% debt, did you maybe mean 300K * 80% debt * +1.0% incremental interest * 10K/quarter = $24.0 million. No, you probably don't mean that (thinking out loud), they likely securitize off BS ... I still think it maybe underestimates b/c the thing is: they ultimately need to finance MOST of the purchase. I think you might be applying the 1.0 to the equity which has implicit cost. Thanks!!
Interesting — I assumed they only paid interest on the part they owned. I borrowed this math from Loup Ventures (link below). If this is wrong it would be good for me to know, as it will affect my modeling. Even 4x it’s a manageable number, but I want to be accurate.
Thank you (totally) for that source. At first blush, if their 2x% equity stake (on average) is financed entirely by OBS debt, the calculation makes sense; but "direct financial" impact isn't the total funding cost. To me (because I will BUY OPEN once I figure this out:) it's really just a question of the unit ROC economics. If they are paying cash to the seller, and they warehouse the house, the key economic question is how do those margins survive/thrive the total capital cost. It's just especially important b/c this business is so capital intensive.
Thank you Doctor! This is a fun reading against a humorously-serious and forward-looking mind of a logical writer. After I read your analysis and look at what is happening around our life, I am asking myself one question: which industry can escape digitalization? My answer is NONE. If not this OpenDoor, I believe there must be another "door open" for carrying out digital transformation for real estate. I am hoping Eric Wu's team would take a look at your article and make OpenDoor an Amazon-grade company where "buy & Sell books" is just the beginning. OpenDoor needs to create its own "AWS" around people's living space to truly take off...
Excellence is rare and I found it here. Kudos, Tyler. Listen, I've been diligently looking the other way into macro for 4 decades (I'm naturally a big picture guy) and if I'm correct (and I am, just can't know the timing when you know the what, as quantum physics points out) we are collectively just now heading into a complete 'reset' of the whole global economic/financial system. An 'Exponential Vortex' of epic (Prometheus) proportions. It would not be an overstatement to possibly say even 'Biblical'. Remember what mom and dad advised "Look both ways" before crossing. One has to get both right. Flywheel! And what I see is all roads lead to physical GOLD. The current system is founded on debt based fiat, which is currently experiencing its 'end game' (massive printing MMT). As a doctor you will appreciate this analogy. It's exactly like the system is a patient on life support (free copter money drugs) now totally dependant, and forget 'normalization/taper/raise rates', there will be no getting off the machines. And any hint that the drug supply will be even reduced will send the patient into convulsions, requiring ever moooore drugs, until expiry. (hyper stagflation collapse/death). On 'the other side', it will be the necessity of financial Trust which will in shortest supply and highest demand, and only Gold will have it. (why all major CB's hold it in reserve on BS). So my advise is to be your own CB and hold your savings in physical Gold in your personal possession. Everything, including all your fav equities will be on massive sale and only available to those who possess liquidity with real value outside the destroyed debt based fiat system. I'm ready and willing to answer any questions you or others may have on the subject. I personally intend to be transforming some of my Gold into OPEN/PLTR/SOFI/SNOW/U/S/NETUPST/MQ/ELO/ESK/NFG/PANW/ARVN/PATH
Absolutely Incredible! Throughly enjoyed every aspect of your analysis of OPEN from the start with the Prometheus references to the Connor McGregor power phrase which made me laugh! Awesome content! I just subscribed 🤝
Hello doctor, I feel safe titling you as your wisdom and brains are self evident. Just read this prophecy of yours on Seeking Alpha and I wholeheartedly agree. I follow Luke Lango on Investor Place (are you two friends?) and I was actually long on OPEN since last Sept. before I found Luke. He is also a disrupter believer and his team digs them up five days a week. I would love to hear your take on any other long plays you envision as you do this one. I was in PLTR last Dec. and, have you looked at LAZR? I follow Thiel and up and comers like Austin Russell from following George Gilder of “Life After Google”.
I’m in Colorado Springs since leaving my home of L.A. 26 years ago. I miss the food and the ocean, I was a body surfer, but nothing else. It’s difficult to get people in the “flyover” places to really see what’s coming. I feel totally alone and misunderstood. There is no urgency or vision here. Great place to raise your children and slow down but I do miss the pace of the Coast also sometimes. I was too young when I left the Navy in ‘81 after being stationed at Moffett Field, where Microsoft now has an office, to see what was happening. We used HP programmable calculators when we were tracking Russian subs off our coast during the Cold War and I just wanted to get back to the girls in L.A. Too soon old and too late smart. I thin I’ve rounded the turn and I’m not playing catch up anymore so pleaaase, I would appreciate you sharing your insight sir.
I held a State Healthcare license in CO for 18 years and also taught Anatomy at UCCS, was a Realtor and Insurance agent while trying to survive the mid 2000’s, and also owned an Auto Dealership. I was injured on Thanksgiving of 2018 and I’ve had 16 surgeries since 2017. I appreciate a good doctor. Thank you Mr. Oakland!
I do not see any economic gain for the seller--still paying 7% and probably getting less than the market price. Since they don't pay a realtor any commision, why are they charging so much? I would not use them.
Hey David, thanks for the comment. The seller is the one who pays the realtor fee, usually 6%. Opendoor charges only 5%, not 7%, so that 2% savings adds up quickly ($7k in savings on their average home).
Home buyers usually don’t pay agent fees.
As a last note, Opendoor paid on average 107% asking price in Q2. Mike Delprete wrote about it on his website.
Great stuff man. Your best yet. Thoughts on RKT in the space? I think they are underrated and poised with a pretty good wedge (mortgages), NPS, culture, tech, and flywheel of their own. OPEN is my numero uno though. I also find DOMA pretty attractive from an investment standpoint. It's happening (disruption of this antiquated model)....
Thanks so much for the comment and feedback. Definitely trying to be incrementally better with each article.
RKT is an interesting company, although it's growing the wrong way (revenue and earnings with negative growth through 2023, at least per estimates).
I am leaning heavily into the fastest growing companies gaining marketshare in the largest industries. In that regard I have stayed away from RKT. Interesting trade idea though. I had never heard of DOMA and found very little about it - it may be the least covered stock I have looked up in a few months. Added it to my watchlist, will keep an eye out.
I had OPEN at 20$, and I averaged buying 200 stocks to 14.5$. I already believed a lot in this company, but being european was not so easy to investigate deeply american housing market...cheese, what a report. Congrats!
My only doubt are about the possible reduction of the FED's balance sheet. How much would that affect Opendoor? let's see. I still belive in it a lot.
Thanks for the comment. Unfortunately, the numbers and figures from the verbose article you posted are woefully inaccurate, which makes it challenging to consider with any degree of seriousness.
Bears often sound smart, but when they start outlining their arguments next to bulls who have truly done the research, it all falls apart.
Opendoor works ok until a downturn hits. In Q2 they made $900 in profit for every home sold. This was at the peak of bidding wars.
Would you risk $300k for that return? Opendoor charges 5% plus 1% in closing costs, compared to 6% traditional realtor plus closing costs (about 1%). A 1% operating margin (not profit) is nothing to get excited about.
Tyler, you said Opendoor isn't understood by the market, but it's easily understood. Using Opendoor's website is literally a current look at the company's prospects. Opendoor only works in a rapidly appreciating environment. Right now, Opendoor owns 1,600+ homes in Texas, about a third have been on the market for more than a month (similar in all their markets). The 1% margin is long gone. Each home they put on the market increases supply and hurts them. They're a victim of their own success (they tried creating a monopoly).
There's no growth excuse either. Once someone sells to Opendoor, there's no market share gain for Opendoor. It's like selling your car to CarMax, it's one and done. 20 years from now someone might consider Opendoor when they sell again, but there's no competitive advantage for Opendoor. The exact opposite happened with Amazon: market share, free delivery, Costco style membership fee, all led to the richest man in the world.
Opendoor isn't getting rid of middlemen, they're just trying to replace them.
Tyler, you mentioned Opendoor paid 107% of asking. Look at their site - the bidding wars are gone. Zillow is doing price cuts on their Zillow Homes owned properties every week. They're going to hemorrhage money.
Opendoor will stumble along like most zombie companies, but it's no game changer.
This is the best DD article I have ever read...Thank you. I own OPEN, Z and RDFN. The only thing that worried me about OPEN was choosing to go the SPAC route. Of all the decks I have of companies choosing the SPAC financing, the insiders get rich on the front end at the expense of the market. Honestly, I have not read the prospectus on OPEN, I am only making assumptions based personal bias. Though financial variables will shift, this middleman model needs to be gutted because it is costly and time consuming. This is AMZN style disruption. Personally, I would take a 10% hit on the price of my house JUST to move it quickly.
I feel like you are definitely seeing the bull case. Opendoor is getting rid of all middlemen for sure, in a vast market. Thanks for reading and commenting! The 2020 investor presentation is an easy read and worth a look if you have time!
Can you give me a pro case for a SPAC? You seem to be comfortable with the model....I see front end greed. Not being critical....I JUST DO NOT SEE THE financial benefit for the company or the investor.....except for the SPAC taking money on the front end. In a capitalist environment, this is antithetical to what is right/wrong. See Ayn Rand...any of of her books will do :) I am all about gutting the real estate complex :)
In a traditional IPO the bankers like Goldman Sachs and JP Morgan take massive fees at the frontend underpricing the company and giving the first shares to their best clients. In most SPACS and especially in $OPEN's case there are little to no fees and money comes in form of a talented sponsor who stays on the board and is a long term partner for the company. Y
ou should read up on Bill Gurley's opinions on traditional IPOs to see the full extend to which the big banks rob startups going public... it's a total joke. The only right decision for a company going public is a direct listing or SPAC.
This is excellent. I guess your $6.0 mm in incremental interest = 300K * 20% equity * 10,000 per quarter; actually not sure I understand how you got incremental interest from the equity ... but I think the bigger question (surprised I haven't seen this, I will take a look at their 10K) is their overall return on capital. If I see their ROC (e.g., EVA) is durable, then I think it's a buy for me. This is a capital intensive business so I think that's the piece this missing in the argument. But THANK YOU for OPENing my eyes to OPEN, great job here. I will be reading this twice.
sorry, i meant, i think you are doing (but I'm not sure): 300K * 20% equity * +1.0% * 10K/quarter = $6.0 million
Exactly right with this math here. Thank you so much for reading and commenting.
Somehow the Opendoor thesis has been flying under the radar, but it truly is an exceptional business. Let me know what you find when you check out their 10k, would be great to hear your impression.
awesome, I really will come back after I pencil out the ROC economics, and feel free to ignore unless this is helpful/correct, but: if they finance 300K with 80% debt, did you maybe mean 300K * 80% debt * +1.0% incremental interest * 10K/quarter = $24.0 million. No, you probably don't mean that (thinking out loud), they likely securitize off BS ... I still think it maybe underestimates b/c the thing is: they ultimately need to finance MOST of the purchase. I think you might be applying the 1.0 to the equity which has implicit cost. Thanks!!
Interesting — I assumed they only paid interest on the part they owned. I borrowed this math from Loup Ventures (link below). If this is wrong it would be good for me to know, as it will affect my modeling. Even 4x it’s a manageable number, but I want to be accurate.
https://loupfunds.com/ibuyers-can-manage-macro-risks/
Thank you (totally) for that source. At first blush, if their 2x% equity stake (on average) is financed entirely by OBS debt, the calculation makes sense; but "direct financial" impact isn't the total funding cost. To me (because I will BUY OPEN once I figure this out:) it's really just a question of the unit ROC economics. If they are paying cash to the seller, and they warehouse the house, the key economic question is how do those margins survive/thrive the total capital cost. It's just especially important b/c this business is so capital intensive.
Thank you Doctor! This is a fun reading against a humorously-serious and forward-looking mind of a logical writer. After I read your analysis and look at what is happening around our life, I am asking myself one question: which industry can escape digitalization? My answer is NONE. If not this OpenDoor, I believe there must be another "door open" for carrying out digital transformation for real estate. I am hoping Eric Wu's team would take a look at your article and make OpenDoor an Amazon-grade company where "buy & Sell books" is just the beginning. OpenDoor needs to create its own "AWS" around people's living space to truly take off...
Big day today.
Thesis intact and then some. Wow. Great ER.
Excellence is rare and I found it here. Kudos, Tyler. Listen, I've been diligently looking the other way into macro for 4 decades (I'm naturally a big picture guy) and if I'm correct (and I am, just can't know the timing when you know the what, as quantum physics points out) we are collectively just now heading into a complete 'reset' of the whole global economic/financial system. An 'Exponential Vortex' of epic (Prometheus) proportions. It would not be an overstatement to possibly say even 'Biblical'. Remember what mom and dad advised "Look both ways" before crossing. One has to get both right. Flywheel! And what I see is all roads lead to physical GOLD. The current system is founded on debt based fiat, which is currently experiencing its 'end game' (massive printing MMT). As a doctor you will appreciate this analogy. It's exactly like the system is a patient on life support (free copter money drugs) now totally dependant, and forget 'normalization/taper/raise rates', there will be no getting off the machines. And any hint that the drug supply will be even reduced will send the patient into convulsions, requiring ever moooore drugs, until expiry. (hyper stagflation collapse/death). On 'the other side', it will be the necessity of financial Trust which will in shortest supply and highest demand, and only Gold will have it. (why all major CB's hold it in reserve on BS). So my advise is to be your own CB and hold your savings in physical Gold in your personal possession. Everything, including all your fav equities will be on massive sale and only available to those who possess liquidity with real value outside the destroyed debt based fiat system. I'm ready and willing to answer any questions you or others may have on the subject. I personally intend to be transforming some of my Gold into OPEN/PLTR/SOFI/SNOW/U/S/NETUPST/MQ/ELO/ESK/NFG/PANW/ARVN/PATH
I like you great analysis. Long but worth reading.
Absolutely Incredible! Throughly enjoyed every aspect of your analysis of OPEN from the start with the Prometheus references to the Connor McGregor power phrase which made me laugh! Awesome content! I just subscribed 🤝
Hello doctor, I feel safe titling you as your wisdom and brains are self evident. Just read this prophecy of yours on Seeking Alpha and I wholeheartedly agree. I follow Luke Lango on Investor Place (are you two friends?) and I was actually long on OPEN since last Sept. before I found Luke. He is also a disrupter believer and his team digs them up five days a week. I would love to hear your take on any other long plays you envision as you do this one. I was in PLTR last Dec. and, have you looked at LAZR? I follow Thiel and up and comers like Austin Russell from following George Gilder of “Life After Google”.
I’m in Colorado Springs since leaving my home of L.A. 26 years ago. I miss the food and the ocean, I was a body surfer, but nothing else. It’s difficult to get people in the “flyover” places to really see what’s coming. I feel totally alone and misunderstood. There is no urgency or vision here. Great place to raise your children and slow down but I do miss the pace of the Coast also sometimes. I was too young when I left the Navy in ‘81 after being stationed at Moffett Field, where Microsoft now has an office, to see what was happening. We used HP programmable calculators when we were tracking Russian subs off our coast during the Cold War and I just wanted to get back to the girls in L.A. Too soon old and too late smart. I thin I’ve rounded the turn and I’m not playing catch up anymore so pleaaase, I would appreciate you sharing your insight sir.
I held a State Healthcare license in CO for 18 years and also taught Anatomy at UCCS, was a Realtor and Insurance agent while trying to survive the mid 2000’s, and also owned an Auto Dealership. I was injured on Thanksgiving of 2018 and I’ve had 16 surgeries since 2017. I appreciate a good doctor. Thank you Mr. Oakland!
Holy sweet innocent baby jesus what a read. I mean, my friggin god. Bartender, I’ll have another please.
I do not see any economic gain for the seller--still paying 7% and probably getting less than the market price. Since they don't pay a realtor any commision, why are they charging so much? I would not use them.
Hey David, thanks for the comment. The seller is the one who pays the realtor fee, usually 6%. Opendoor charges only 5%, not 7%, so that 2% savings adds up quickly ($7k in savings on their average home).
Home buyers usually don’t pay agent fees.
As a last note, Opendoor paid on average 107% asking price in Q2. Mike Delprete wrote about it on his website.
Great stuff man. Your best yet. Thoughts on RKT in the space? I think they are underrated and poised with a pretty good wedge (mortgages), NPS, culture, tech, and flywheel of their own. OPEN is my numero uno though. I also find DOMA pretty attractive from an investment standpoint. It's happening (disruption of this antiquated model)....
Thanks so much for the comment and feedback. Definitely trying to be incrementally better with each article.
RKT is an interesting company, although it's growing the wrong way (revenue and earnings with negative growth through 2023, at least per estimates).
I am leaning heavily into the fastest growing companies gaining marketshare in the largest industries. In that regard I have stayed away from RKT. Interesting trade idea though. I had never heard of DOMA and found very little about it - it may be the least covered stock I have looked up in a few months. Added it to my watchlist, will keep an eye out.
DOMA is working on eating the title/escrow process with software and AI. Will be a good acquisition for someone likely.
Hello Tyler.
I had OPEN at 20$, and I averaged buying 200 stocks to 14.5$. I already believed a lot in this company, but being european was not so easy to investigate deeply american housing market...cheese, what a report. Congrats!
My only doubt are about the possible reduction of the FED's balance sheet. How much would that affect Opendoor? let's see. I still belive in it a lot.
Take care and thank you!
Here is some cold water for you.
https://homefeed.medium.com/the-delusion-behind-opendoors-virtuous-cycle-a57222fef6de
Thanks for the comment. Unfortunately, the numbers and figures from the verbose article you posted are woefully inaccurate, which makes it challenging to consider with any degree of seriousness.
Bears often sound smart, but when they start outlining their arguments next to bulls who have truly done the research, it all falls apart.
Good luck to you 👍🏻
Opendoor works ok until a downturn hits. In Q2 they made $900 in profit for every home sold. This was at the peak of bidding wars.
Would you risk $300k for that return? Opendoor charges 5% plus 1% in closing costs, compared to 6% traditional realtor plus closing costs (about 1%). A 1% operating margin (not profit) is nothing to get excited about.
Tyler, you said Opendoor isn't understood by the market, but it's easily understood. Using Opendoor's website is literally a current look at the company's prospects. Opendoor only works in a rapidly appreciating environment. Right now, Opendoor owns 1,600+ homes in Texas, about a third have been on the market for more than a month (similar in all their markets). The 1% margin is long gone. Each home they put on the market increases supply and hurts them. They're a victim of their own success (they tried creating a monopoly).
There's no growth excuse either. Once someone sells to Opendoor, there's no market share gain for Opendoor. It's like selling your car to CarMax, it's one and done. 20 years from now someone might consider Opendoor when they sell again, but there's no competitive advantage for Opendoor. The exact opposite happened with Amazon: market share, free delivery, Costco style membership fee, all led to the richest man in the world.
Opendoor isn't getting rid of middlemen, they're just trying to replace them.
Tyler, you mentioned Opendoor paid 107% of asking. Look at their site - the bidding wars are gone. Zillow is doing price cuts on their Zillow Homes owned properties every week. They're going to hemorrhage money.
Opendoor will stumble along like most zombie companies, but it's no game changer.
Your numbers are inaccurate here. The correct ones are above in the article for reference. Good luck to you.