Opendoor Technologies has taken on the modest mission of changing the way Americans buy and sell houses. Opendoor is a pioneer in the “iBuyer” market, in which companies buy houses for their own account and then sell them, without a traditional real estate broker. Opendoor isn’t the only player here— Zillow Group and Redfin also have iBuyer arms—but it’s the purest bet on the idea.
Opendoor (ticker: OPEN) came public Dec. 21 via a merger with a special purpose acquisition company created by investor Chamath Palihapitiya. Shares of the SPAC—Social Capital Hedosophia II—rallied after the mid-September announcement of the merger agreement. Ergo, the stock has roughly doubled since the original announcement, but it is down slightly since completion of the merger.
On Thursday, Citigroup analyst Nicholas Jones picked up coverage of Opendoor with a Buy rating and a $34 price target. In a research note, Jones writes that the company is “disrupting norms associated with America’s largest asset class by providing home sellers a solution that gives more certainty and control over traditional transaction processes, which are often disjointed and stressful.”
Jones believes home sellers and buyers alike will be attracted to the model. The analyst notes that he views the opportunity as so large and early that there is plenty of room for multiple players. He doesn’t see Zillow (Z) or Redfin (RDFN) as direct competitors, and instead thinks their success should help consumers think of iBuying as a viable channel. He estimates Opendoor will have 0.7% of the U.S. residential real estate market by 2023.
Jones contends the business is a straightforward one. “Once a bid from Opendoor is accepted, Opendoor buys the home as-is and charges a fee (6%-10%), which is somewhat comparable to the average commissions real estate agents charge,” he writes. “The fee is in exchange for the convenience offered to sellers.” Opendoor then makes necessary repairs and relists the house on its own platform. “Buyers can use its app or website to self-tour or virtually tour homes, shop for financing, submit an offer, and close on their timeline.”
Jones notes that in 2019 Opendoor sold about 19,000 homes, generating $4.7 billion in revenue and taking about 1.7% of all transactions in 21 markets. He projects 2021 revenue of $4 billion, growing to $7.4 billion in 2022.
If you really want to think big, Jones presents a “blue sky scenario” in which Opendoor 30 years from now takes 20% of the U.S. residential real estate market, and hits its long-term adjusted Ebitda (earnings before interest, taxes, depreciation, and amortization) margin goal of 4% to 6%. By his calculation, that would lead to $330 billion in sales and $16.5 billion in adjusted Ebitda. Of course, a lot of things could happen between now and 2051.
Opendoor stock is down 2.5%, at $27.58, in recent trading. The S&P 500 is down 0.4%.