All right. Good afternoon, everybody. I'm Stephen Ju with the UBS Internet Equity Research Team. Sitting next to me is the CEO of Opendoor, Carrie Wheeler. Thanks for coming.
Thanks for having us.
I think this is, yeah, your inaugural appearance here.
It is.
Welcome. Yeah. Just kind of getting straight to it, there's a lot of, like, headlines and articles about buyer commissions, et cetera. You know, what changes to your business would be needed if buyer commissions went away? And, you know, if they did go away, how would this impact your, you know, customer base and, I guess, some certain aspects of your business?
Yeah.
Yeah.
Very topical. I'm sure most of you have been following this, series of lawsuits involving NAR, which is about, you know, the practice, the long practice of, sellers' agents and therefore home sellers regulating or establishing what the buyer commission should be and paying that out. A couple of things. First of all, our business model is not based on buyer commission revenue. In fact, for us, it's a cost, and it's a significant cost to our overall structure. If you think about our unit margins that we target, 5%-7% annually, we pay about 2.5% out to the buyer's agent in the form of commissions when we go to resell our home.
So, to the extent that the BBC becomes unbundled over time, which is sort of the base case, how long that takes, time will tell. And those commissions come down over time, I mean, worst case, it's neutral for us. It's a pass-through.
Yeah.
I suspect, depending on how it plays out, there's probably a little bit upside for that in the U.S. over time. I think the most important thing is that we have built the only platform that allows sellers and buyers to transact directly.
Yeah.
Our entire transaction platform is built on giving the customer total transparency into the cost of transaction, total assurance it's going to happen, and to give them choice. So no matter how the ecosystem evolves, it's going to even evolve some more based on these lawsuits, I think we're well positioned to take advantage of those changes and continue to serve buyers and sellers in a better way.
Got it. I mean, I remember that the value proposition, you know, to the consumer has always been, "Hey, you wanna move? Let's get you moved to your next house right away," as opposed to staging your home, et cetera, and going through this time-consuming process.
Absolutely.
So inasmuch as this helps to take down friction, I would have to think that. Well, hopefully, it should, it should be a friction-decreasing event. There's some of the costs in there, but hopefully, this helps to accelerate the volume.
I would hope so.
Yeah.
I mean, I think, one of the challenges for the real estate market has been that this, a lot of buyers think that the agent comes in to them for free.
Yeah.
There's no free lunch, right? There's a tax in the system that's being borne by somebody somewhere.
Yeah.
As buyers think about becoming potentially more discerning about what they want to pay for in terms of advice, I think we can be helpful in that equation-
Got you.
to help serve them.
Got you. I think over the recent past, I mean, you've rolled out a bunch of partnership channels. So can you walk us through what this is, what this is designed to do, versus what you were doing before and what you're seeing so far?
Yeah. We've really focused on expanding those channels-
Yeah
Over the course of this year. For us, these are a way for us to reach more sellers and to do it in a way that is highly efficient from a cost standpoint, from a CAC standpoint for us.
Yeah.
There's really three vectors we talk about. There's homebuilders. We've been doing business with homebuilders for a long time. There's agents, and then there's the online real estate platforms. On the homebuilder front, there's about 90 homebuilders we're in partnership with. And you think about it, it's a real win-win for us and for the homebuilder. For the customer who walks into, say, like, a Lennar showroom on the weekend, and they want to buy that new home, but they have an existing home, they have to figure out how they sell. We can near instantaneously tell them how much equity they have in that current home.
Yeah.
They're totally assured that they can close on it, and they can line up a closing date between the new built home.
Yeah
And the sale of their home. So that's a win. And for the homebuilder, they took that contingent buyer and turned them into a for-certain buyer, and they're guaranteed that that person's going to show up and actually be able to pay for their new home.
Yeah.
So that is a great partnership. That's a trade-in customer, works incredibly well for the homebuilder, for us, and for the consumer. On the agent side, we do business with, thousands of agents, hundreds of brokerages across the country, which I think surprises some people. The agents actually are increasingly thinking about it as a tool in their toolkit.
Yep.
I mean, there are some customers who want to hire an agent, they want to go through the listing process, and they want to maximize value. That's great. There are some customers who choose not to do that for a variety of reasons and prefer not to endure all that, and it makes sense for the agent to show up-
Yeah
At the appointment with a cash offer in hand from Opendoor and show them, "You've got two options here." We actually announced the deal in November with eXp, the largest independent real estate company in the world. All those agents now can go to their eXp portal and their dashboard, and they can pull down an Opendoor cash offer to show up at their listing appointment with.
Yeah.
So again, the win of it is for the consumer, it may be better suited to their needs. For the agent, we pay them a lower commission rate than they might otherwise earn for the full listing, but the return on their time could be substantial, right?
Yeah.
So it's 1% versus a, you know, maybe 2.5. But again, ROI, relative to time, they're running their own business, pretty attractive
Yeah
in certain circumstances. So that continues to grow significantly for us in terms of repeat business and just more and more agents coming to the system. And then the last point is the online real estate players, Zillow, Realtor, and Redfin. We're about or most of the way through with our expansion in terms of being in all our markets. With Zillow, we're at 45 markets as of last quarter. And again, it's just a way for us to get our brand and our service in front of more and more customers.
Yeah.
And that continues to work really well. We've seen since Q1 about a 76% increase in the contracts coming off our partnership channels, and so we'll continue to kind of, I think, expand those over time because, again, those are fixed costs for us, and relative to our overall CAC, they're quite attractive.
Yeah. So, I think, I mean, obviously, you can't discuss the terms in terms of what the exchange of economics are with your partners, but can you elaborate a little bit in terms of how this works with the partners, you know, in terms of how, you know, I guess from a piping standpoint, how this actually works?
From a piping standpoint?
Yeah, or from, you know, like, who, who delivers the traffic and who, you know, where's the exchange of value, et cetera? Yeah.
The home builders are, you know, you know, market-to-market relationship, where we've gone in and sold, you know, the XYZ Atlanta person in their development, and they basically.
Yeah
Know how to work with us. Agents, again, that's a sales motion where we're going and talking to brokerages and agents and striking those deals. And then, Zillow is a top-to-top relationship.
Sure
W here we now are embedded in their platform, and the customer going online, thinking about selling their home, can talk to an agent. They can also click on and get a cash offer from Opendoor, and that customer then comes over to us, and then we-
Yeah
- can talk to them and serve them. So, it's quite elegant in terms of how it works.
Yeah.
It's pretty simple.
Such a good idea. Was there, like, an aha moment, or was it something that you've been working on for some time?
You know, I think the homebuilder thing has been around since the early days.
Yeah.
Started with Lennar as a significant shareholder and investor and supporter of Opendoor. And again, that's just a seamless, perfect trade-in customer relationship.
Yeah.
And then from there, I think the evolution of thinking about how do we, how do we make agents more productive was, like, the next step. And then thinking about online real estate, obviously, some people have left the Opendoor, I mean, the iBuying space and so
Yeah
T hat created opportunity for partnership discussions-
Yeah
- that made sense. And, I think we'll continue to look to expand them.
Okay, sounds good. And I guess stepping back a little bit, at more of a macro view, I guess, you know, can you talk about how the rising mortgage rates have impacted your business generally?
Yeah. I mean, we've been navigating what has been a pretty tough housing market for now, 18 months and counting. And just a really uncertain overall kind of macro economies, everyone here knows. I think what gets lost sometimes in the macro story is, what matters most to Opendoor. So you have high mortgage rates, tough buyer affordability, lots of constraints on being able to buy in a way that works for people. You also have a lot of people locked into very low rates and seller inertia, like, "How do I ever give up that 3% mortgage?" And I think what gets lost is what matters for us most is home stability. I mean, sorry, price stability.
While volumes have been quite depressed over the last year and change, it is much less important than whether or not prices are stable. What we've seen so far this year is constrained supply, you know, historically low listings coming onto the market. Against that, depressed supply has been pretty resilient buyer demand.
Yeah.
And they've been relatively in balance, and what we've seen on the back of that is price stability, and that is a good setup for us. We've done a lot of work this year to reduce our spreads, i.e., the discounts embedded in our offers. Part of that has come through the hard work of just, you know, better price accuracy and reducing our overall cost structure. But part of it has been a more stable home price environment-
Yeah
T hat we can factor into spreads. If I have some reasonably decent degree of confidence in the home price trajectory, remember, our window is, like, four-six months
Yeah
I can put that into tighter spreads, i.e., lower spreads, and that means lower spreads means higher conversion. People say yes to the offer. That drives more acquisition volumes. We saw that in Q3. We were up 17% on quarter-on-quarter, as I said. So, that is all a good thing. There's a lot of talk about low volumes, which is clearly an industry-wide issue. But there are still 4 million people moving.
Yeah.
Much lower than peak, but for us, you think about our 1% market share, we just need to be a little bit bigger to have a much bigger business
Yeah
M uch more profitable business than where we are today. And to be able to capture some more share, which we've done consistently all year long. We're capturing share in a declining market. So volumes, yes, are an issue, but they're much less of an issue for us. We're really focused on whether or not prices are stable.
Okay, so we'll worry about the overall volumes of the sector when you have
You should worry about them.
5 0% share.
Yeah, but,
Yeah
W e're gonna be very focused on our spreads.
Yeah.
And again, home price stability is a good setup for us, and that's what we've been seeing for the course of 2023.
So that's what's informing your view in terms of we're gonna, you know, acquire a certain number of homes in preparation for the seasonal pickup into the first quarter. You're seeing greater stability, and that's-
Yeah, I mean, we know that when we can come to you with an offer, with a reasonable spread, chances are you're gonna convert.
Yeah.
We understand that relationship really, really well. People love the product, right? It's an 80 Net Promoter Score. So when we can do that, again, that's back to price stability.
Yeah.
We know we can drive volume. And so as we look into 2024, where we get the benefit of, you know, seasonal tailwinds into the spring selling season, be able to kind of put marketing dollars back in the system more efficiently because of where our spreads are today.
Yeah.
That's a good setup for us.
Okay. Gotcha. Anything that we should be thinking about or something that you might be worried about in terms of, you know, backdrop for 2024, additional pressure that you might see, or anything else that you're preparing for?
The housing market continues to be very dynamic.
Yeah.
And so we're going to continue to respond to any market signal we see.
Yeah.
We saw that in last quarter. We talked about there was a moment where mortgage rates spiked up to 8%, and we saw a slight decline in clearance rate, meaning the velocity of home resales. We responded to that by, you know, dropping some of our list prices, making sure that we were still clearing our inventory in line with our objectives.
Yeah.
So those are the kinds of signals we're very attuned to. We're gonna continue to be very attuned to them and make sure that we're responding to them. We worry about everything in the housing market, Stephen.
Yeah.
I'd say, going to 2024, I think we're well-positioned, given all the work this year on spreads and just, you know, seasonality will be a friend kind of in the first half of next year.
Understood. I think you said you're in 53 markets right now. Should we expect that you will be expanding into more markets next year?
Yeah, you know, if you think about how do we expand our footprint over time, there's two levers. One is, you know, how many cities are we in?
Yeah.
53, you just quoted. And then within those cities, what is the universe of homes that we can underwrite on-
Yeah.
-based on our pricing algorithm? And that's our Buy Box, right? It's defined by price, or age, or home type, what have you. And that has been as, if not more important than the city expansion.
Yeah.
If you think about the fact that we have taken our addressable market from $190 billion four years ago, 4x it to $600 billion today, some of that has been doubling our market
Yeah.
But a lot of it has been doubling our Buy Box expansion. So, in 2022, we took a pause on new market expansion, just given all the things that were going on in housing generally.
Yeah.
But we have not stopped continuing to push the envelope in terms of Buy Box coverage.
Yeah.
We've taken it from, I think, 48% to 57% this year alone. So there's a lot of ways to expand market footprint. I think the most important point is, like, given that $600 billion mark, we have, there's no shortage of white space to go after.
Yeah.
Like, there's if we just did nothing else but gain share in our current footprint, that would be enough. Our aspirations are to be nationwide over time.
Yeah.
So there, we will turn on a new market engine at some point. Won't commit to when, but it's not a constraint right now in terms of overall growth.
Okay, so how is usually the point of attack when you go after a new market? Do you enter and then expand the Buy Box over time? Or is the-
We do.
Okay.
Yeah.
So, yeah.
We get into a market, we make sure we have the data. We make sure we do a lot of work to backtest our model to make sure we understand it well.
Yeah.
We make sure we have enough trade labor in that market, so we can service the operational side of our business. And then when we go into market, we're pretty slow actually, to ramp because there's-
Sure.
a lag in our business. We want to acquire some homes, we want to understand them, we want to sell through them, and then we look to turn them back on.
Okay.
-and really ramp them up, as we expand.
Okay. And has that, I guess, ramping process, as you've got better and better at launching in new markets, has that speeded up over time since foundation?
I'm not sure we want to speed it up.
Okay.
I mean, I think there's a lot of learning that comes with, being deliberate in how we allocate capital to newer markets-
Yeah.
and make sure they perform in line with expectations.
Okay.
But what we have seen is that the maturity profile of older markets is, you know, is attractive. And so if you think about our 53 markets, about half of them were opened in the last couple of years, and they're really quite immature. So there's a lot of tailwind built into us being able to mature those markets over time.
Gotcha. Now, I think, you've laid out some longer term targets for $10 billion in revenue and adjusted net income break even. How have your thoughts evolved on those targets this year?
We are highly focused on being back to Adjusted Net Income break-even and positive.
Mm-hmm.
For us, that's our proxy for operating cash flow.
Yeah.
So nothing about that has changed. We've done a lot of work this year to reduce our cost structure, take down spreads, and make sure that we are positioned to rescale the business profitably and get back to that, ANI break-even level. I'd say the only thing is that the market, we just talked about-
Mm.
continues to be very dynamic.
Yeah.
So, we won't commit to an exact month at this point because we're going to respond to market forces. But the overall commitment to be back to ANI break-even.
Yeah
H as not changed. For us, that means we take volumes from where they are today, around 1,000 homes per month, and to get to that $10 billion kind of steady state run rate number, means we kind of have to double acquisition volumes from today to get to 2,200 acquisitions and resales. You know, we were doing 4,000, 5,000 acquisitions and resales per month.
Yeah.
And we were doing it on half the markets, a lot lower brand awareness, but nowhere near the scale partnership with channels we have. So the combination of just bigger distribution, bigger brand, more markets to go after, and the reduced spreads, we feel very comfortable being able to double our, our volumes from here.
Yeah. It sounds like you want to take the handbrakes off a little bit next year.
Within our risk framework.
Yeah.
Within our risk framework, yeah.
Yeah.
We're very focused on getting back to ANI break even.
Okay, gotcha. Now, you were talking just now about, you know, the inverse relationship between the spreads and the conversion rate, and higher, I guess, if consumers taking—a higher number of consumers taking you up on your offer. Going into 2024, I presume it's sort of stay the course in terms of where you kept the spreads. And I guess, are there any surprising things that you're seeing in terms of the consumer behavior and any differences that you're noticing versus what you might have seen in the past?
Yeah, I mean, we, we understand that relationship between conversion and spread really well, and in fact, it's held up consistently. It's actually been better than we would've suggested. So as things become more uncertain and more volatile, what we've seen is on a spread adjusted basis, actually, conversion's been better.
Yeah.
In other words, like, times are, times are weird.
Yeah.
You know, I might actually like that bird in the hand a little bit more than I did, say, in 2021.
Yeah.
We've actually been pleased with how that relationship has been steady to improving.
Yeah.
No surprises, really. I think right now where we're at is, given all the work this year, the reduction in spreads, those spreads will be a tailwind for us next year. And we took marketing dollars down significantly this year, because when spreads are high, they're just inefficient.
Yeah.
Conversion is too low for those dollars to make sense. But being able to kind of reinvest those marketing dollars back in the system next year will drive more volumes. Increasing brand awareness will drive more volumes and also drive more conversion with it. So, yeah, a lot of focus on spread, understandably so, but I think we've got a good setup.
Okay, got it. Now, part of the fuel that allows you to acquire all that volume and at an accelerated pace, hopefully heading into next year, is the debt capacity that you have with your banks. So how have those relationships been? I think, you know, to get to $10 billion in revenue, you know, if you're turning volume at, like, 90 days, you know, t hat's like $2.5 billion of capacity, which you already have.
Right.
How are the relationships with your banks right now?
They've been good. I mean, I give a lot of credit to Don and the team who run our capital markets group. I mean, a lot of these relationships we've had over the last decade.
Yep.
We've obviously expanded over time to 30 lenders today. But we've been deliberate about maintaining some facilities, given that they are attractively priced, like those fixed facilities you talked about. And we have been also, you know, reducing capacity deliberately where it made sense on the warehouse side, which is exactly what we did in COVID. What we started in COVID is when we took our volumes down, we took down some of our capacity that was going to be unused, the banks were able to kind of ramp back up with us, and I'd expect we'll see the same thing in the future. The relationship's been good, and I don't see, you know, the financing piece of this being a constraint for our ability to kind of rescale the business.
To your point, we have ample capacity right now to get back to that $10 billion mark, which you're talking about.
Yeah. Gotcha. Now, going back to some of the unit economics. You know, what are some of the factors that can improve unit economics for you over the next year or so, or even over the next three years?
Yeah
that we should be thinking about?
Well, first of all, we've done a ton of work this year to improve them. We've had a step function change in unit economics. Part of that has been, cost savings. A good chunk of it has just been putting the old book of inventory behind us.
Yep.
You saw kind of year to date, the new book is at a 9% contribution margin, well ahead of our target margins. That will season over time as we sell through those cohorts, but we feel really good about the new book of business we're building. That's number one.
Yeah.
As we think about continuing to improve our cost structure and our unit economics over time, there's a couple of areas. We are always gonna focus on how we improve our pricing algorithm. It's core to what we do and how we get better at price accuracy. I'd say one of the things we was a win this year for us, was around the work done to understand at a really granular level, absolute and relative home condition, you know, down to the unit level. And that was part of what we fed back into spreads and allowed those reductions. We'll do more of that in 2024 and beyond. There's a lot of application for additional artificial intelligence in our business.
Yep.
If you think about how we underwrite a home when we go into it and do a physical assessment before a final offer, really understanding that home condition and using imagery to capture data, not just for that home, but also how we feed that back into the system over time is really powerful. Same thing on the assessment side, where we are scoping out repairs.
Yeah.
So we're, we're pretty focused on delivering more of that in 2024 and beyond. Cost structure improvements, kind of below the, the unit margin line, would include things like, continuing to reduce our variable SG&A. Part of that is creating more flexible labor. Part of it has just been a lot of work around giving our operators better tooling to be more efficient, just be able to do more, increase throughput. That was a win last year. We'll get to monetize more of that in 2024 and beyond. Fixed costs, we run a scale business. We have a decent amount of fixed costs.
Yeah.
We took a lot of them out this year. We're gonna stay super tight on fixed costs. There's an enormous amount of operating leverage in our business as we rescale-
Yeah
A lot. We will make sure that we capture that.
Okay.
Marketing's been another win, if you think about, partnerships becoming a bigger part of the mix and given their profile we talked about earlier, and also just increasing brand awareness. Like, our awareness continues to go up. Interestingly, even though we took down our marketing dollars a lot this year, our brand awareness has sustained.
Yeah.
I give power to our team doing a lot of the creative and a lot of the brand work. That has been a win. There's a whole host of things which we're continuing to focus on.
Gotcha. All right. So can you talk about some of the cohort trends you may be seeing in some of the oldest markets?
Happy to. So when you think about when we go into a market, as they mature and get older, we get more brand awareness. People just know we're there, right?
Yep.
More signs in the streets, more marketing, more mailers, and we get to build up that base of retained customers over time. So a lot of people come to us, not because they're a seller today, but they
Yeah
Aspire to be a seller in the future. And we do not sell off those leads. We retain them deliberately and engage them pretty regularly. A lot of people are coming to us constantly for a refresh on their offer, which we're happy to do.
Yep.
They will convert over time. You think about an older market, their base of retained customers is very different from a new customer. You know, as much as 70% of our contracts last quarter were from people who had repeat offers.
Yep.
And so that generative power of, like, the retained customer base in our older markets is pretty attractive from an overall CAC standpoint. So you've got awareness, you've got lower CAC, you've got a repeat group of customers who are coming to you. If you think about our older markets, I think it's about 30% of all the addresses in those older markets, all the finances, like 2018 and older. About 30% of all the addresses in those markets have been entered into our platform. Someone came to us and wanted to know the value of their home, and they entered their address.
Yeah.
Just our ability to kind of capture more and more home sellers in those markets, we will be able to kind of compound returns over time.
Yep.
and you see that show up in share. So, again, for those older markets, call it 2018 and older cohorts, they were doing around 4% share in 2022. In contrast, a lot of those newer markets that we opened in 2021, and kind of held back on in 2022, given the macro in 2023
Yeah
W e're only doing 70 basis points of market share.
Okay.
So there is so much tailwind in our younger markets, which is about half of our footprint today, to continue just to mature kind of what we already have in the ground
Yeah
W e're pretty excited about.
Okay. So newer markets, half of your markets today, 70 basis points of market share. You know, that could theoretically quadruple if they start matching the older cohorts.
Yeah.
And We'll continue to build that retained customer base over time.
Yeah. Gotcha. Now, sort of a final, sort of a bigger picture question, I guess. Now let's fast forward 12 months from now, and we're once again, you know, sitting here at the UBS Tech Conference, and, you know, it's November of 2024. So, you know, what do you think we'll be talking about in terms of what you've been able to accomplish over the trailing 12 months? And what do you think we'll be excited about for 2025?
That sounds like an invitation to come back next year.
Absolutely.
Okay, good.
Yeah.
What were we talking about? I mean, first of all, I'd say, 2023 has been a year, but it's been a year of a ton of hard work and progress all around. We're taking this moment in time, yes, tough macro, lower volumes, but really, making sure that we have, you know, done all the work to be as efficient and resilient as we can be.
Yeah.
And so, kudos to our team. I feel like we're, we're walking in 2024 really well set up to take advantage of that. So that's number one. I think on the consumer side, I mean, our aspiration, against that $600 billion addressable market we're talking about, is like, we want every home seller to start with Opendoor. Why wouldn't you come to us first and get an offer for the value of your home?
Yeah.
Now, obviously, we need to be in more markets to do that for everybody. I hope that's what we're talking more about in 2024 than talking about CM and cost.
Yeah.
Like, just how are we kind of changing the zeitgeist so that Opendoor continues to be top of mind? Like, come to Opendoor if you want to know what the value of your home is. Start there. You can sell direct to us. You can list it and retain your cash offer. There's lots of ways to do it. We want to make sure that we are serving more and more sellers. That's on the consumer side.
Yeah.
On the financial side, I'd say, I hope we're talking about the fact that we met, you know, cash flow objectives and targets.
Yeah.
We're very, very focused on that. As I said, we are focused on continuing to gain share in what I imagine will still be a tough and bumpy market.
Yeah.
But we've shown throughout the course of this year is that we can gain share in a declining market. So we'll continue to do so. We're going to stay really tight on costs and cost structure. But I'd like to see us as we, as we ramp, that we are realizing the fruits of all that work.
Yeah
A nd seeing operating leverage come to the business. Ultimately, we have a massive market opportunity we're going after.
Yeah.
That's really what we want to focus on, is how do we kind of, you know, put ourselves in front of customers and serve more sellers.
Gotcha. Well, looking forward to watching Opendoor turn into a verb.
Thank you.
So, yeah.