In December 2020, Opendoor (NASDAQ: OPEN) completed its IPO via SPAC, raising net proceeds of $970 million. Although Opendoor is new to the public market, it was one of the first iBuyers promising homeowners an instant cash offer for their properties and allowing them to bypass the traditional home sales process.
Its early start back in 2014 allowed it to expand rapidly and earn market share. Now it faces a stacked deck of deep-pocketed competitors. However, like other iBuyers such as Zillow (NASDAQ: ZG), Redfin (NASDAQ: RDFN), and Offerpad, Opendoor stopped buying homes when the pandemic hit and took some time to resume operations.
The company's first public earnings statement shows the pause led to a decline in revenue for the company in 2020 overall. For the full year 2020, it sold 9,913 homes, down about half compared to 18,799 for the prior year. Total revenue was $2.58 billion, as compared to $4.74 billion in 2019.
The good news is that the company chopped away at its net loss. In 2020, it was $286.8 million, down from $339.2 million in 2019.
A plan for rapid expansion
Earlier this year, Opendoor announced it would be raising $680 million for further expansion. It plans to offer iBuying in 42 areas this year, on track toward its goal of operating in the top 100 markets in the United States, which represent over 70% of homes sold in the country. On the earnings call, CEO Eric Wu said the goal for Opendoor is to be "the best place to sell a home online and seamlessly move."
Like many other real estate companies right now, Opendoor is pursuing the goal of developing a one-stop-shop for real estate transactions. It already offers mortgage, title, and escrow services. Its most recent program involves cash offers for homebuyers. This allows homebuyers in competitive markets to make an all-cash offer backed by Opendoor. Buyers must be preapproved and have 120 days to get a mortgage either through Opendoor or another lender.
While the second half of 2020 had the company in recovery mode, it expects to be full speed ahead for 2021. Opendoor is expecting total revenue of between $600 million and $625 million in the first quarter of 2021 and will launch in six new markets.
What the future could hold
The current robust environment for homebuying should make demand for Opendoor's homes strong, but it will face increasing competition in the new markets it enters. Unlike Zillow and Redfin, the bulk of Opendoor's revenue comes from iBuying. That makes it very vulnerable to market fluctuations as it tries to build out the other arms of its business.
Another consideration is Zillow's recent announcement that it's turning Zestimates into cash offers in 20 markets to start with. This move may help Zillow gain ground in the cities where it competes with Opendoor head to head. Opendoor's early start and greater market share are good advantages, but the company will have to prove it can innovate quickly alongside its competitors. The recent infusion of funds should help it do just that.