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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and thank you for standing by. Welcome to the Opendoor First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference may be recorded. [Operator Instructions]
I’d now like to hand the conference over to your host today, Whitney Kukulka, Investor Relations. Please go ahead.
Good afternoon, ladies and gentlemen. Thank you for joining us for Opendoor’s First Quarter 2021 Financial Results Conference Call.
Joining me on the call today for prepared remarks are Eric Wu, Co-Founder and Chief Executive Officer; and Carrie Wheeler, Chief Financial Officer. President, Andrew Low Ah Kee, will be joining Carry and Eric for the Q&A portion of today’s call.
Full details of our results and additional management commentary are available in our earnings release and shareholder letter, which can be found on the Investor Relations section of our website at investor.opendoor.com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company’s corporate website.
Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding Opendoor’s future financial results and management’s expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Opendoor’s annual report on Form 10-K for the year ended December 31, 2020, and Opendoor’s other periodic SEC filings, including the quarterly report on Form 10-Q for the period ended March 31, 2021, to be filed with the SEC. Any forward-looking statements made in this conference call, including responses to your questions, are based on current expectations as of today and Opendoor assumes no obligation to update or revise them whether as a result of new developments or otherwise, except as required by law.
The following discussion may contain non-GAAP financial measures. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our website at investor.opendoor.com.
Now I will turn the call over to Eric. Eric?
Thank you, Whitney. And welcome to our 2021 Q1 earnings call. I’m excited to share our results as we significant exceeded our guidance for Q1 and have strong momentum looking forward to Q2 and the remainder of the year.
Everything we do at Opendoor starts and ends with the customer. So let’s start by hearing from one of our recent customers, the Bennett family, about their experience with Opendoor.
[Audio/Video Presentation]
A special thank you to the Bennetts for choosing Opendoor. These are the stories that inspire us in our pursuit to make it possible to buy, sell and move at the tap of the button. Today, our digital products deliver far greater simplicity, certainty and speed than the traditional process. We always believe that the future of buying and selling a home can and will be as simple as hailing a ride or booking a flight. It seems that, that future is a lot less distant now. We are seeing increasing consumer demand for digital products in a manner that is permanent. This seismic shift is showing up in our numbers as in Q1, we set a number of records. We set a record number of offers, we saw record real seller conversion and we launched a record number of new markets. Lastly, we did so with a Net Promoter Score north of 80 from our sellers, telling us that customers love what we’re building.
Taking a step back, I often get the question whether Opendoor still resonates in today’s market. We are experiencing the fastest home price appreciation in decades, with stories of homes getting more than 50 offers in the first weekend. It’s certainly a seller’s market. Yet, our results and metrics are saying, yes, Opendoor resonates because for our customers, we don’t just stand for a cash offer and we aren’t an iBuyer to them. Opendoor gives our customers the ability to win their next home, select their preferred closing date and transact without open houses, dozens of steps and upfront repairs, saving them months of time. What we’ve built is a digital end-to-end experience that delivers confidence and peace of mind at every step.
In terms of results, in Q1, we generated $747 million of revenue, up 200% versus Q4 of 2020; $97 million of adjusted gross profit, up 154% versus Q4 of 2020; and an adjusted EBITDA loss of $2 million, down from a loss of $27 million in Q4 of 2020. This performance was driven by the same 3 areas of focus we discussed last quarter.
First, we are driving existing market growth. In Q1, as I mentioned, we saw a record number of offer requests driven by increasing awareness and continued increases in our buy-box. Even with this surge in consumer demand, we are seeing real seller conversion at record levels. These improvements have enabled us to acquire 3,594 homes in Q1, up 78% versus the fourth quarter of 2020. Additionally, in Q1, we sold 2,462 homes. Between our buyers and sellers, this growth in transaction volume continues to drive our flywheel with greater awareness, customer adoption, marketing and operational efficiencies and, ultimately, market share.
Second, we are increasing our geographic footprint and scaling rapidly to new markets. In Q1, we launched 6 additional markets, which brought our total markets to 27 at the end of the quarter. Already in Q2, we’ve launched an additional 6 markets, bringing our total to 33 to date. We are getting better and more efficient at this. And in Q2, we launched 4 new markets on the same-day for the first time. This acceleration and market expansion lays the foundation for years of growth as we march towards our goal to serve every single homeowner nationwide.
Third, we are building the digital one-stop shop for real estate. Today, consumers come to Opendoor because they want a better way to move, whether they are buying, selling or both. We started by reimagining the home-selling experience, bringing simplicity, certainty and speed to an otherwise off-line, complex and time-consuming process. We then integrated title and escrow as a critical component of the transaction, substantially improving the customer experience while also opening up an incremental margin opportunity for us. Next, we expanded our suite of products to include Buy with Opendoor and Opendoor Home Loans, knowing that 2/3 of sellers are also buying. Similar to Opendoor, we are investing to make Buying with Opendoor and Financing with Opendoor just as simple, certain and fast.
This past quarter, we launched Opendoor-backed Offers, allowing homebuyers to leverage Opendoor to submit cash bids, doubling their chances of their offer being accepted. Additionally, we’ve integrated our trade-in product into our seller experience, helping customers sell their existing home, buy and finance their next home, close with title and escrow and move seamlessly, all within the Opendoor suite of digital products. We will continue to leverage our pricing, technology, capital markets and operational infrastructure to build best-in-class products for movers nationwide.
This financial performance is the outcome of the hard work and focus by our teammates that occurs behind the scenes. These teammates obsess every day about how to improve the customer experience, the business and our culture. We are in the very early innings of this shift to a more digital experience in housing. We are energized by all the opportunities ahead, and we will continue to march against our vision to make it possible to buy and sell and move at the tap of a button.
I’ll now turn it to Carrie.
Thanks, Eric. We provided commentary on our first quarter results in our shareholder letter. So let me quickly cover off on some of the highlights of the quarter before we move on to questions.
As Eric said, we had an exceptional first quarter. Q1 performance demonstrated growing consumer demand for the Opendoor solution. We purchased 3,594 homes in Q1, up 78% versus Q4 and up 24% versus Q1 2020. Acquisition volume was driven by both record levels of offer growth and conversion as well as buy-box expansions and new market launches. As we continue to rapidly scale the business, we expect to surpass all-time highs for acquisition volumes in Q2.
On the retail side, we sold 2,452 homes in Q1, generating revenue of $747 million, an increase of 200% over Q4, significantly outperforming our guidance. This sequential growth was largely driven by higher inventory entering the quarter and high transaction velocity. Consistent with what we’re seeing in the overall market, we are selling up through our inventory in 21 days from list depend relative to 65 days in Q1 2020.
Average home price is also a tailwind for revenue performance with revenue per homes sold up 4% sequentially and up 19% versus the first quarter of 2020. As Eric has noted, we also launched 6 markets in Q1 and plan to have 9 more by the end of Q2. We’re well on our way to being in 42 markets by year-end. We expect these new markets to contribute to meaningful revenue growth in 2022 and beyond.
Our unit economics were strong in Q1, largely driven by a combination of a very fresh book of inventory, strong home price appreciation and our own inventory management strategies. Contribution profit was $76 million in Q1, up 142% from Q4 and up 97% versus the first quarter of 2020. This represented a margin of 10.2%, down 245 basis points quarter-on-quarter and up 712 basis points versus Q1 2020.
Finally, adjusted EBITDA was close to breakeven with a loss of $2 million in Q1 compared to a loss of $27 million in Q4 2020 and $28 million loss in the year ago period. Adjusted EBITDA margin was negative 0.3% in Q1 versus negative 10.9% in Q4 2020 and negative 2.3% in Q1 2020. The EBITDA was well ahead of our guidance due to revenue upside, unit margin performance and the benefits of higher average home prices, all of which provide incremental leverage against our operating expense base. Adjusted operating expenses, as measured by the difference between contribution profit and adjusted EBITDA, were $78 million, up from $59 million in Q4 2020. Adjusted net income was negative $21 million in Q1 or negative 2.8% of revenue.
With regard to our balance sheet, we raised approximately $860 million in a primary equity offering in February, ending the quarter with $2.1 billion in cash and marketable securities. We are well capitalized to fund our growth and product initiatives.
I’d also like to touch base on stock-based compensation expense this quarter, which was $239 million. As I noted in our prior earnings call, this expense is much larger than we’d expect in a typical quarter and is primarily related to historical equity awards to employees realized as a result of going public in December 2020. For your modeling purposes, you should expect stock-based compensation expense to be down to $175 million in Q2 and then settle in at approximately $70 million in each of Q3 and Q4.
Overall, we feel very good about the year ahead. For the second quarter, we expect revenue to range from $1.025 billion to $1.075 billion, and adjusted EBITDA of negative $5 million to positive $5 million. On the revenue side, the high end of guidance implies approximately 44% sequential growth from Q1 levels.
Looking ahead to the second half, we expect Q2 to mark a record number of home acquisitions. As another leading indicator of our momentum, we had a record 4,027 homes under contract to be purchased at the end of Q1 or $1.3 billion in value, which compares to 1,742 homes under contract at the end of Q4. I’d also note that we’ve previously talked about 2021 revenue being weighted to the back half of the year, with roughly 1/3 of revenue coming in the first half. Notwithstanding the strong performance we anticipate for the first half, we do still expect those same revenue proportions to roughly play out in 2021.
With respect to adjusted EBITDA, we expect Q2 unit margins to benefit from similar trends in Q1 and the contribution margins will moderate in the back half of the year as inventory mix normalizes. Furthermore, we expect adjusted operating expenses to increase sequentially throughout the year. The dollar step-up in OpEx in Q1 is a good framework for thinking through sequential trends across the remaining quarters as we make continued investments in marketing, technology and people.
We believe our Q1 results and outlook are reflective of Opendoor’s market leadership and the strong secular shift to consumers increasingly looking to digital-first, integrated solutions to buy and sell a home. We have the team, technology and operating platform to execute on our mission and deliver long-term value for our customers, our partners and shareholders.
That concludes our formal remarks. I’d like to turn the call back to the operator, and we’ll open up the line to questions. Thank you.
[Operator Instructions] Our first question comes from Jason Helfstein with Oppenheimer.
I’m going to ask two. So how much of the increase in the average revenue per home was a function of home price appreciation versus greater success in selling attachment services? And then how should we be thinking about kind of the average revenue per home for the remainder of the year? So it’s kind of one, to the extent you can talk about that. And then number two, you kind of noted the ability to move into more expensive homes. I think you cited like a $1.6 million home, I think it was Florida or L.A. or something. I think, historically, many of us have thought about iBuying as limited to like homes below like $0.5 million. So just talk about how the ability to kind of work in that price area opens up a bigger market.
Jason, it’s Carrie. Thanks for the question. So with respect to what we saw in Q1, 200% increase in quarter-on-quarter revenue, first of all, the vast, vast majority of that was driven by volume growth. I think of the 200%, more than 190 points of that comes from volume growth. We were the beneficiary of an increase in higher average resale prices. There’s 2 factors to that: one is HPA, as you know; the other factors are continued success in advancing our buy-box. Buy-box incorporates more things than just price. But certainly, price is a key component. I think that market you referenced was actually Los Angeles. We’re up to $1.4 million, $1.6 million right now in that market. And we’ll continue to edge up across all our markets over time. That’s one.
With respect to kind of the outlook for the balance of the year as it relates to resale prices, I think when you step back, the market right now for housing is very strong. You know that. We’re in a trifecta of very low rates, record low inventory and an incredibly strong pent-up demand for housing. That’s resulted in very high and very fast rate of HPA. Given those inputs, we don’t see those dissipating for the balance of the year and housing will continue to be strong. With respect to resale price trend, what I could say is we’re not providing guidance for the back half of the year specifically. I would expect those to continue to be positive quarter-on-quarter for the balance of the year. And that’s, again, a combination of buy-box expansion, our city mix will continue to evolve as we’re in more and more markets and then the last part of that is HPA tailwind.
Yes, the only thing I’ll add, Jason, is that our aspirations are to service all homeowners nationwide. And our teams are working hard and focused on expanding the buy-box and launching, obviously, new markets. And so we’re expanding the types of homes we operate in, the types of -- the different price points. And really, the goal is to service every home in all the markets we operate in.
Our next question comes from Nick Jones with Citi.
Great. I guess, first, Carrie, could you remind us kind of what the impact of increasing interest rates might be in the business and Opendoor’s ability to kind of mitigate increasing interest rates and the impact, I guess, on the bottom line? And then the second question really is just record low kind of inventory levels or multi-decade low inventory levels. Maybe taking a step back, as things normalize, have you contemplated the pendulum swinging the other way? Did it kind of shift to a buyer’s market? When the frenzy is over, is it going to be a more challenged environment for maybe a different reason?
Great. Good to hear your voice, Nick, thanks for the question. So with respect to interest rates and in terms of our cost structure and what we might have to pass on to customers in terms of fees if there is an increase in rate, we’d expect that the impact actually would be quite modest. An example, 100 basis point increase in rates would translate to a 25 basis point move in our cost structure given our inventory turns, so quite manageable in our view.
The second part of your question just was around record low inventory levels but also just what if the market were to go from being very HPA positive right now to something more neutral or even negative. And what I would say is our model is really designed to work across all kinds of markets: up markets, flat markets, down markets. You should think of us as a market maker and also a provider. So in a market environment where HPA would have turned negative, we can choose to increase spreads to account for that decline. So declines in HPA will be offset by increased spreads. And certainly, in a down market, which is more uncertain for consumers, we believe that the certainty our product provides will be an even greater value to customers in that scenario.
Last point I would say is when you think about macro, for us, obviously, housing macro is always top of mind. But so is what’s going on right now is a massive secular tailwind that’s driving digital adoption. I believe that we are going to continue to be market share gainers across all cycles as a result of that. Certainly, we are right now. And we expect that the value proposition, as I said, only increases in times of uncertainty for sellers.
Our next question comes from Ed Yruma with KeyBanc.
I guess, first, just on the expansion of the buy-box. Is this a process that you can apply systematically to other cities? How quickly can you kind of increase maybe the aperture in terms of the expense of the homes you’re buying? I guess on the flip side, is there an opportunity to target more value-priced homes? I guess, is my first question. And then second, obviously, velocity remains incredibly high. Should we expect that, that begins to normalize as we head into the back half of the year?
Ed, it’s Andrew here. I’ll take the first part of that, and then I’ll turn the second piece over to Carrie. With respect to buy-box, yes, we believe that’s a repeatable process. The team has done a great job building that into a systematic capability that we’re constantly looking for places where we can provide our offering to more consumers. As Eric mentioned, our aspiration is that every seller in the United States can take advantage of what Opendoor offers. And so the team is hard at work identifying features, tuning our pricing models so that we can acquire those homes. Importantly, it’s more than just price. It’s also dimensions like the age of a home, the condition of a home that enable us to drive continuous improvement against that buy-box.
Carrie, do you want to take the second point?
Yes. Thanks for the question, Ed. So on velocity, as I said earlier, the market right now for housing is very strong given the inputs I talked about: rates, constrained inventory, pent-up demand for housing. We expect those to persist through the balance of the year. Velocity would follow from that. There’s a chance I feel that it could slow. I don’t see that as a material impact to our model and our results.
Our next question comes from Ygal Arounian with Wedbush Securities.
First question, just on the improvements and the real seller conversion reaching a record there. Can you talk about some of the things you’ve done to improve the conversion and how you think about pricing or offer that you make in the current environment? As you’ve noted, you expect HPA to continue to move up over the course of the year. Just how do you think about that? And what’s driving that real seller conversion? And then the second question, I guess, on your philosophy around inventory. I think still one of the biggest pushbacks you get from investors is holding on or having meaningful levels of inventory in case of a market downturn or things cool off. And you’re stepping off and buying a lot more homes in 2Q, getting to record rates. Do you expect over time for purchases and sales to kind of equal out but your inventory stays stable and you’re buying as much as you’re selling? How do you think of that over time?
Sure thing. So in terms of conversion strength and what’s underneath that, we’re absolutely seeing that record real seller conversion. And there’s really 2 factors underneath that. The first is consumers value a best-in-class experience that’s simple, certain, fast and trusted. We’ve made 7 years of investment in that experience, and we continue to improve that experience day by day. And we continue to grow the awareness and trust around it. And the second thing is that consumers care about net proceeds. And we’re able to deliver more to consumers because we’ve driven improvements in our cost structure, our pricing engine and our inventory management, in addition to the strength of HPA and the velocity of the housing market. Those pieces, we’re constantly looking at the pricing and the competitiveness of our offers, and we feel good about it.
It’s Carrie. On the second part of your question around inventory. Just to step back. So in today’s market, which we all know is inventory constrained, we have not been constrained in our ability to acquire homes. As Andrew said, 3,500 homes acquired this quarter, up to 2,000 last quarter. And perhaps, more importantly, if you think about the future, over 4,000 homes sitting in contract right now. So despite the constraints of this environment, we’ve not been constrained in our ability to acquire homes. And then in a market that was more normal or certainly less constrained, I suspect our job is even easier.
Can I ask one more follow-up, just on Opendoor-backed Offers? It seems like an incredibly compelling product to bring buyers or sellers into the funnel. And you noted that’s had some impact on -- or at least it ties together with the mortgage product. Can you talk about that for a second? Any lift you’ve seen in mortgage conversion and improvements in how that part of the flywheel works?
Yes, thank you for the question. This is Eric. We’re excited by the progress and early signal around Opendoor-backed Offers. Obviously, in today’s climate, it’s competitive. And if you’re a home shopper, you want your offers to be as competitive as possible. So the thing I love about this, we’re able to leverage the capabilities we’ve built over the past 7 years and provide a new feature to our customers who are also buying homes. And so there’s early signal, and we’re very excited by the progress to date. I’ll have Andrew kind of address the second part, which is how does that apply to home loans and the progress there.
Yes. If you actually go through the product experience, which I’d encourage you to do on Opendoor-backed Offers, you’ll see it’s totally seamless in terms of its integration with our mortgage offering. And that seamless customer experience, removing friction while creating value for them, we see turn into higher levels of attach. And we absolutely see our Home Loans product attach higher rates with Opendoor-backed Offers than we do in other places. So we view the uptake and the consumer acceptance of that product as a tailwind to the Home Loans side of things, absolutely.
Our next question comes from Yoni Yadgaran with Credit Suisse.
Two, if I may. So the first one is around kind of ramping new markets. You guys have been fairly aggressive in the last quarter or 2, more than halfway towards your full year goal. As you go into new markets, specifically, as you’re seeing strong HPA trends, you are seeing expanded buy-box, strong conversion rates, are you seeing a faster ramp in those markets as a result than you otherwise weren’t expecting? Can you maybe talk about how the piece of rent in those new markets have looked like so far? And I guess it’s early relative to historical or pre-COVID levels. And second question is around just suppliers of lumber as well as service providers have been absolutely constrained in this environment in addition to a tightened inventory market for housing itself. Is that at all impacting days where you guys hold it or your ability to kind of quickly resell a home once you repurchase it?
So on the first question around market launch, we’re well on the way towards hitting that doubling up our market footprint that we’ve been talking about. We made significant progress this year. And we’re seeing, in the first quarter, our capability is now actually such that we can do multiple launches a single day. So it’s a testament to the work the team has done over time here to really hone that machine. Our focus on new markets is really about ensuring we have accurate pricing and repeatable, scalable processes and operations. As we see that come together in a market, we begin to ramp up acquisitions, which is why the impact of new markets is relatively small in the current year. But creates a foundation for growth for years to come. So no real change from our perspective with regard to the new market launch or ramp.
And then the second part of your question was really around how some of the considerations around building supplies may be impacting our rental days or repair days or time to list. We’re certainly like everyone in the industry seeing some of those supply chain pain points. We’re not heavily dependent on lumber per se. But across the entire spectrum of what goes into a home, there are shortages. And we’re seeing that. It’s not materially impacting our goal period right now.
We have a follow-up question from the line of Jason Helfstein with Oppenheimer.
Andrew, good to connect with you again. I just want to ask about OVO. I mean so just how does that flywheel work? Is it if you get OVO-ed, do you have to sell your home through you? Just how does that work? Because it’s kind of newer product to us.
Jason, it’s Eric. Yes. No, it’s really just -- it’s an option for the customer. And again, we’re excited because the customers are electing and choosing to work with Buy with Opendoor because of this feature. But it’s not required. Again, we have 2 really big customer pools. One is that there’s hundreds of thousands of sellers coming to the site and requesting offers on a quarterly basis. And secondly, we also have hundreds of thousands, if not millions, of home visitors who also are coming to our homes and looking for a place to buy. And so the 2 customer pools allow us to promote Buy with Opendoor, Opendoor-backed offers. And again, it’s not a requirement to use our service, but it’s certainly something we want to provide as a value, and customers are choosing it.
That concludes today’s question-and-answer session. I’d like to turn the call back to Eric for closing remarks.
Great. I just want to thank everyone for joining our Q1 earnings call. Before I sign off, I’d like to thank our customers who choose Opendoor to help them with their life transition and to my teammates for their dedication to our customers every single day. Thank you.
This concludes today’s conference call. Thank you for participating. You may now disconnect.