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Real EstateIPO / M&A

iBuyer Offerpad claims profitability, pre-IPO

Ibuyer states it earned $9 million in second quarter ahead of merger with Spencer Rascoff-lead SPAC

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Offerpad CEO Brian Bair

Humans have yet to colonize Mars, but we apparently have created a profitable instant homebuying company.

Offerpad, the six-year-old, Chandler, Arizona-based company, which has plans to go public later this year, reported $9.2 million in net income for the second quarter of 2021 after losing $16.6 million in the second quarter of last year. The company also reported $379 million in revenue for the second quarter, a 32% year-over-year jump.

Offerpad’s core business is exactly that of eight-year-old Opendoor. Buy a home for cash, charge a 5% service fee, resell the home.

But the positive net income contrasts not just with Offerpad’s previous quarters but that of Opendoor, which posted a $144 million loss in the last quarter.

It also differs from Zillow, which made an overall $10 million in the second quarter but lost $59 million from its iBuying segment even before taxes, depreciation, and amortization.

Opendoor and Zillow margins from reselling an instantly bought home are more than offset from the operational expenses – advertising, administrative work – that comes with running almost any business.

Offerpad would seem to enjoy sizable resale margins. There was a $31,500 difference between the cost of what Offerpad bought a home for, and what they sold it for, company Chief Financial Officer Michael Burnett announced on an earnings call that was absent Wall Street analysts. Offerpad reported selling 1,259 homes in the quarter.

Burnett acknowledged “rapid home price appreciation” throughout the real estate market but quickly added, “We do not view normalizing price appreciation to be a material headwind.”

Offerpad filed papers with the Securities and Exchange Commission in March to merge with Supernova Partners Acquisition Company, a special purpose acquisition company helmed by former Zillow CEO Spencer Rascoff.

The merger is expected to be completed Aug. 31, company CEO Brian Bair said during the call, at which point Offerpad will “shortly thereafter” become a publicly traded company with shares of stock available on Nasdaq.

Until then, Offerpad does not have the reporting requirements, including financial disclosures, of other publicly traded companies.

How much Offerpad may be valued at remains to be seen. The company’s SEC filings indicate a hoped-for valuation around $3 billion.

Opendoor, which also became public through a SPAC, has a market capitalization of $9.9 billion. The San Francisco-based company does a significantly higher volume of business than Offerpad including the sale 3,481 homes in the second quarter.

Also, Offerpad itself does not expect profits to continue. Burnett stated on the call they may lose money in the coming two quarters thanks to marketing costs and building up their product and engineering teams.

Going forward, Bair said that money from mortgage and title will ensure future profitability, with Offerpad, “The most capital efficient company in our industry.”

Added Bair, “We will take home buying from chaotic to controlled.”

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