Opendoor lost nearly $1 billion in third quarter amid slowdown

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Opendoor, an iBuying pioneer that is now the biggest company of its kind, revealed on Thursday that it lost nearly $1 billion in the third quarter of this year as it battled a critical market downturn for a generation.

In total, Opendoor suffered a net loss of $928 million between July and September, according to the company’s earnings report. That’s up from a loss of just $57 million in the third quarter of 2021. However, Opendoor’s revenue jumped 48% year-over-year from about $2.3 billion in the third quarter of 2021 to around $3.4 billion this year.

In a letter to shareholders, Opendoor attributed $573 million of its net loss to “inventory valuation adjustments,” or in other words, the reduced value of homes Opendoor has in inventory. The letter says that excluding this forward-looking adjustment, the adjusted net loss was $328 million, compared to $18 million a year ago.

In a call with investors, Opendoor’s chief financial officer, Carrie Wheeler, further explained that the adjustment is a “non-monetary charge to account for expected losses.” She also described the move as “taking those losses, resetting expectations.”

The company’s earnings report further shows that cash reserves fell from around $1.7 billion at the end of 2021 to around $1.3 billion at the end of September.

However, Wheeler said on the investor call that the company has “a lot of capital to get through this and move forward.” Speaking about conditions in this current period, she also said that Opendoor expects home price depreciation to continue.

“We don’t feel constrained by capital,” Wheeler continued on the call. “We feel well capitalized for this time.”

Opendoor co-founder and CEO Eric Wu also weighed in via a statement on Thursday, saying “we are well capitalized with the balance sheet to navigate this rapid market transition and emerge even stronger.” Wu also said that “navigating a market transition that only happens once every forty years has required us to operate with urgency and discipline to manage risk and overall inventory health.”

“In the third quarter, we accelerated the resale velocity of our existing inventory and significantly increased spreads on new acquisitions,” Wu continued. “These actions ensure that we are prioritizing sales to improve the health of our inventory on a resale basis, and that our post-Q2 acquisition cohorts are positioned to perform in line with our contribution margin targets.

During the investor call, Wu also said that “we’re at the peak of uncertainty right now,” which in turn is prompting Opendoor to become more risk averse.

Opendoor released its latest earnings in August, when it revealed it had generated $4.2 billion in revenue, but posted a net loss of $54 million. It was a turnaround from the first three months of the year, when Opendoor posted its first-ever profitable quarter, with a net profit of $28 million.

In total, Opendoor lost $954 million between the start of 2022 and the end of September. The vast majority of those losses — which are significantly higher than the $471 million the company lost in the first nine months of 2021 — occurred in the third quarter. The company’s “inventory valuation adjustments” on existing homes were a major contributor to the company’s total losses in 2022.

Opendoor’s losses highlight the challenges facing the iBuying business model right now, and Opendoor announced its earnings just a day after announcing it was laying off about 550 workers, or about 18% of its workforce. The company also severed ties with some third-party vendors and embarked on various other cost-cutting measures. The efforts follow news in September that the company was selling homes at a loss for the first time.

During Thursday’s earnings call, Wu said one of Opendoor’s cost-cutting measures is to reduce the time it takes to renovate homes. To this end, the average duration of a renovation has fallen from 23 days in the first quarter of this year to 15 days in the third quarter.

Heading into the earnings report, Opendoor shares were trading in the mid-$2.30 range on Thursday afternoon. Shares of the company were trading about 10 times higher a year ago, and like many real estate companies, the company peaked in February 2021, when shares hit over $34. The weakening market has caused the stock prices of many real estate companies to plummet since then, particularly this year, and Opendoor has been among the hardest hit.

Thursday’s earnings report sent stock prices plummeting after hours trading, with the price at times hovering near all-time lows. By the time the executives wrapped up their investor call, shares were selling for $2.30.

Opendoor had a market capitalization of around $1.47 billion as of Thursday’s market close.

While profits for all major companies are attractive at the moment given the weakening housing market, Opendoor is one of the most closely watched companies this earnings season. While a traditional broker makes money on every transaction and has relatively low costs because agents are mostly independent contractors, iBuyers must sell homes above their purchase price to earn money. the money. It’s a complicated proposition in any market, and Opendoor’s enemy-turned-friend Zillow finally gave up the practice last fall despite 2021’s record-breaking real estate market.

Opendoor continued, however, even as house prices stagnated or even declined in some places thanks to rising interest rates. The shift to slow or negative price appreciation, fewer transactions and less demand has many real estate watchers watching Opendoor closely for how iBuyers can weather the current storm.

In an August letter to shareholders outlining the company’s earnings at that time, Wu said Opendoor was “prioritizing inventory health by reducing the price of our existing inventory based on the market.”

While Opendoor is by far the largest dedicated iBuyer, it’s not the only player in the space. Rival Offerpad also focuses on quickly buying and reselling homes, and thus has come under intense scrutiny among industry watchers lately. The company announced its results on Wednesday and revealed that it lost $80 million, a result that reversed a three-quarter streak of profits. Offerpad’s earnings highlighted the very difficult landscape that iBuyers are currently facing.

Despite the uphill battle iBuyers are facing right now, Opendoor also announced the launch of Opendoor Exclusives on Thursday. In a statement, the company described the offering as “a new managed marketplace” allowing “home buyers and sellers to transact directly with each other.” The statement explains that the marketplace works by allowing sellers “to review offers from direct buyers alongside their Opendoor offer.” Meanwhile, “buyers will see homes first before they touch” the multiple listings service.

The marketplace is already active in the Austin and Dallas-Fort Worth metro areas, and the company plans to roll it out to all of its markets by the end of next year.

In Thursday’s press release, Wu highlighted the new offering, saying “this moment has also allowed us to aggressively move towards our vision for the overall market, which is a trusted market leveraging our platform to connect buyers and sellers”.

“Our belief is that by creating a better, more efficient and more transparent marketplace,” Wu added, “we can improve the experience and outcomes for buyers and sellers alike.”

Update: This post has been updated after publication with additional information from Opendoor’s earnings report and background to its investor call.

Email Jim Dalrymple II