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Opendoor loses more money than Zillow in 2021

Fast-growing iBuyer doubles both net losses and revenue growth in eventful 2021

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Zillow has been pilloried for diving headfirst into iBuying only to announce the money-losing enterprise’s demise in November. Meanwhile, Opendoor, the OG of an iBuying company with a national presence and patina of technological prowess, was upheld as doing things right.

“If you read our SPAC filings,” Opendoor co-founder Keith Rabois, who is no longer part of company leadership, tweeted in November, “We explained how our algorithms actually work vs. Zillow’s which are horrible.”

Fast forward to Thursday, and Opendoor reported losing $662 million in 2021. That exceeds Zillow’s $528 million loss for the year.

It also surpasses by 161% Opendoor’s 2020 loss of $253 million.

Opendoor’s losses came after iBuyer Offerpad announced it made $6 million in net income for 2021.

Opendoor’s losses did come amid massive growth. The company tallied $8.0 billion revenue, which mostly stems from a 5% sales fee charged to home sellers and proceeds from flipping homes. That’s good for a 211% year-over-year revenue gain.

Opendoor resold 21,725 of the homes it bought in 2021, up 119% from 2020. The company also grew the price range for which it buys homes and where it operates. It is now in 44 markets, compared to 23 at the end of 2020.

But like real estate brokerage Compass, another company significantly financed by the SoftBank Vision Fund, Opendoor has constructed an empirically money-losing business model with little sign of reversing course.

In addition to operations losses, Opendoor has a negative investing cash flow of $476 million. Additionally, the company has $5.7 billion in unsold real estate inventory. Carrie Wheeler, Opendoor’s Chief Financial Officer, assured investors that the company has financing for “over $10 billion” in inventory.

Opendoor CEO Eric Wu repeatedly pointed out that adjusted earnings before interest taxes deductions and amortization, or Adjusted EBITDA, was a positive $58 million.

Opendoor’s official earnings report with the Securities and Exchange Commission warns investors that “Adjusted Net Loss and Adjusted EBITDA are supplemental measures of our operating performance and have important limitations.” Both measurements make Opendoor’s $525 million in 2021 stock-based compensation magically disappear. Adjusted EBITDA takes extra steps including wiping out $119 million toward asset-backed debt facilities.

Wu declared that Opendoor had an “outstanding” quarter and “Every homeowner in the U.S. wants to start the journey with an Opendoor offer.”

The CEO broadly addressed analyst questions.

Ygal Arounian, managing director of equity research at Wedbush Securities, asked about balancing growth with contribution margin, which means the revenue Opendoor generates for each home subtracted by the costs.

Wu said that the company has the “optionality” to focus more on contribution margin than growth, but the CEO did not suggest a rebalancing act.

One hypothetical path to profitability is ancillary services, particularly Opendoor mortgage loans and title insurance. Wu did say that Opendoor has become one of the biggest title agencies in the country, but he did not elaborate. The company did not break out its title and mortgage earnings. Opendoor acquired mortgage broker RedDoor, which can preapprove a loan applicant “within 60 seconds,” in November.

Another possible profitability path is Opendoor’s partnerships, including with homebuilders like Lennar, a longtime investor in the iBuyer.

Ryan Tomasello, an analyst at KBW, asked if the partnerships are “driving a material portion of your volume.”

Wu did not answer. “The partnerships are extremely beneficial to both partners and consumers,” he said, repeatedly adding that they create a “Win, win, win situation.”

The CEO concluded the call with a note on his company’s determination.  

“No one is working as hard as us to build a digital, integrated, seamless consumer experience,” Wu said.

Correction: An earlier version of this article reported that Opendoor’s net losses increased 261% in 2021; it was 161%.

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