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Opendoor, an iBuying pioneer that today is the largest company of its kind, revealed Thursday that it lost nearly $1 billion in the third quarter of this year as it struggled against a generation-defining market downturn.
In total, Opendoor suffered a net loss of $928 million between July and September, the company’s earnings report shows. That’s up from a loss of just $57 million during the third quarter of 2021. However, Opendoor’s revenue did jump 48 percent year over year, from about $2.3 billion in the third quarter of 2021 to about $3.4 billion this year.
In a shareholder letter, Opendoor attributed $573 million of its net loss to “inventory valuation adjustments,” or in other words the reduced value of the homes Opendoor has in inventory. The letter states that excluding this forward-looking adjustment, adjusted net loss was $328 million, compared to $18 million a year ago.
In a call with investors, Opendoor Chief Financial Officer Carrie Wheeler further explained that the adjustment is a “non-cash charge to recognize expected losses.” She also described the move as “taking those losses, resetting expectations.”
The company’s earnings report further shows that cash reserves have dipped from about $1.7 billion at the end of 2021 to about $1.3 billion as of the end of September.
However, Wheeler said during the investor call that the company has “plenty of capital to navigate this period and to go forward.” Speaking of the conditions of this current period, she also said that Opendoor expects home price depreciation to continue.
“We don’t feel capital constrained,” Wheeler continued during the call. “We feel well-capitalized for this time.”
Opendoor co-founder and CEO Eric Wu also weighed in Thursday via a statement, saying that “we are well-capitalized with the balance sheet to weather this rapid market transition and emerge even stronger.” Wu also said that “navigating a once-in-forty-years market transition 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 have significantly increased spreads on new acquisitions,” Wu continued. “These actions ensure we are prioritizing sell-through to improve the health of our inventory on a resale basis, and that our post Q2 acquisition cohorts are positioned to perform inline with our contribution margin targets.
During the investor call, Wu also said that “we’re at peak uncertainty in this moment,” which is in turn prompting Opendoor to become more risk-adverse.
Opendoor last reported earnings in August, at which time it revealed it had generated $4.2 billion in revenue, but racked up a $54 million net loss. That was a turnaround from the opening three months of the year, when Opendoor posted its first-ever profitable quarter, with a net income of $28 million.
In total, Opendoor lost $954 million between the beginning 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 — took place during the third quarter. The company’s “inventory valuation adjustments” on existing homes were a major contributor to the company’s total 2022 losses.
Opendoor’s losses highlight the challenges facing the iBuying business model right now, and Opendoor reported earnings just a day after it announced that it was laying off about 550 workers, or roughly 18 percent of its workforce. The company also cut ties with some third-party vendors and embarked on a variety of other cost-cutting measures. Those efforts follow news from September that the company was selling homes at a loss for the first time ever.
During Thursday’s earnings call, Wu said that one of Opendoor’s cost-cutting measures involves reducing the amount of time it takes to renovate homes. To that end, the average length 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, shares in Opendoor were trading in the mid $2.30 range Thursday afternoon. Shares in the company were trading for about 10 times more a year ago, and like many real estate companies the firm hit a high point in February 2021, when shares fetched more than $34. A weakening market has sent many real estate firms’ share prices plummeting since, especially this year, and Opendoor has been among the hardest hit.
Thursday’s earnings report sent share prices falling in after hours trading, with the price at times hovering near its all-time low. By the time executives wrapped up their investor call, shares were going for $2.30.
Opendoor had a market cap of about $1.47 billion as of the close of the market Thursday.
While every big company’s earnings are of interest right now given the weakening housing market, Opendoor is one of the most closely watched companies this earnings season. Whereas a traditional brokerage makes money on every transaction, and has relatively limited costs because agents are mostly independent contractors, iBuyers need to sell homes for more than their purchase price in order to make money. That’s a complicated proposition in any market, and Opendoor’s foe-turned-friend Zillow ultimately gave up on the practice last fall despite 2021’s record-hot housing market.
Opendoor has soldiered on, however, even as home prices have flatlined or even declined in certain places thanks to rising interest rates. The shift toward slow or negative price appreciation, fewer transactions and less demand has many real estate observers closely watching Opendoor for signs of how iBuyers can weather the current storm.
In an August letter to shareholders describing the company’s earnings at that time, Wu said Opendoor was “prioritizing inventory health by reducing the price of our existing inventory in line with the market.”
Though Opendoor is by far the largest dedicated iBuyer, it isn’t the only player in the space. Rival Offerpad also focuses on quickly buying and reselling homes, and has also thus been the subject of scrutiny among industry observers of late. The company reported earnings Wednesday and revealed that it lost $80 million — a result that reversed a three-quarter profitable streak. Offerpad’s earnings highlighted the highly challenging landscape iBuyers currently face.
Despite the uphill battle facing iBuyers right now, Opendoor also announced on Thursday the debut of Opendoor Exclusives. In a statement, the company described the offering as a “a new managed marketplace” for ”home buyers and sellers to transact with one another directly.” The statement explains that the marketplace works by letting sellers “consider offers from direct buyers alongside their Opendoor offer.” Meanwhile, “buyers will be the first to see homes before they hit the” multiple listing 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 it’s markets by the end of next year.
In Thursday’s earnings statement, Wu pointed to the new offering, saying that “this moment has also enabled us to move aggressively towards our vision for the entire market, which is a trusted marketplace leveraging our platform to connect buyers and sellers.”
“Our belief is that by building a better, more efficient, and more transparent marketplace,” Wu added, “we can improve the experience and outcomes for both buyers and sellers.”
Update: This post was updated after publication with additional information from Opendoor’s earnings report, and with context from its investor call.