In the latest chapter of the special purpose acquisition company (SPAC) boom, we recently learned another real estate technology company will soon become publicly traded. Real estate technology company Offerpad will merge with a SPAC called Supernova Partners Acquisition (NYSE: SPNV).
Here's a rundown of what Offerpad does, what we know about its revenue and profitability, the details of the SPAC deal, and whether it might be worth a look for investors.
What does Offerpad do?
Offerpad is an iBuyer, which essentially means the company buys homes directly from homeowners and sells them directly to buyers.
The idea behind iBuying is to remove some of the biggest consumer pain points of the real estate transaction process. Offerpad (and other iBuyers) provide an all-cash offer to homeowners, eliminating the need to rely on buyers obtaining financing. By selling to Offerpad, homeowners don't need to do any showings or hire an agent and can pick a closing date that works for them.
Of course, the trade-off is that iBuyers generally don't offer full value, so home sellers can typically get a better sale price by simply listing their home on the open market. Offerpad isn't ignoring this part of the industry -- it offers listing services as well.
There are several high-profile companies in the iBuying space. Opendoor (NASDAQ: OPEN), which also went public through a SPAC merger, is the closest competitor business-wise, in the sense it's laser-focused on iBuying. Real estate tech heavyweights Zillow (NYSE: ZG) and Redfin (NASDAQ: RDFN) also have their own iBuying platforms.
While the space has some big players, it's important to point out that real estate sales volume in the U.S. is about $1.6 trillion annually, and about 99% of these sales still take place in the traditional way.
Offerpad was founded in 2015 and has grown impressively since then. It's completed $7 billion of real estate transactions to date, with $1.4 billion in expected 2021 revenue. It's expecting a revenue growth rate of 55% annualized through 2023 as it scales up its operations.
Offerpad sees a big opportunity to scale its business, and in a profitable manner. It has a higher contribution margin (a measure of its profit margin) than both Opendoor and Zillow, currently at $9,000 per home.
Over the long run, Offerpad believes it will scale its business to the point where it has a roughly 4% share of the markets where it operates, which should translate to roughly $23 billion in annual revenue. And it believes it eventually could grow its per-house margin to the $15,000 to $20,000 range.
For starters, it's worth noting that Supernova Partners Acquisition is the SPAC sponsored by Zillow co-founder and former CEO Spencer Rascoff, so Offerpad is about as perfect of a fit for this particular blank-check company as you can find.
The transaction values Offerpad at about $3 billion, inclusive of $650 million in cash that will be provided to the company upon closing of the deal, which will be used to help fuel the company's growth.
How to invest, and should you?
For the time being, to invest in Offerpad you'll need to buy shares of the SPAC, Supernova Partners Acquisition, under the New York Stock Exchange ticker symbol SPNV. The deal is expected to be finalized in the second or third quarter of this year, after which time the company will start trading on the NYSE under ticker symbol OPAD.
On the topic of should you invest, that's another matter. Like any newly public company in the relatively early stages of growth, Offerpad is likely to be a rather volatile stock for the foreseeable future. But if you're a believer in the concept of iBuying as a long-term disruptive force in real estate, this might be one you want to take a closer look at.