Opendoor Technologies Inc.
Q1 2021 Earnings Call Transcript

Published: 11 May 2021

[Operator:]

Good day, and thank you for standing by. Welcome to the Opendoor First Quarter 2021 Earnings Conference Call. Please be advised that today’s conference may be recorded. I’d now like to hand the conference over to your host today, Whitney Kukulka, Investor Relations. Please go ahead.

[Whitney Kukulka:]

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.

[Eric Wu:]

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.

[Eric Wu:]

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.

[Carrie Wheeler:]

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.

[Operator:]

Our first question comes from Jason Helfstein with Oppenheimer.

[Jason Helfstein:]

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.

[Carrie Wheeler:]

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

[Eric Wu:]

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.

[Operator:]

Our next question comes from Nick Jones with Citi.

[Nick Jones:]

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?

[Carrie Wheeler:]

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

[Operator:]

Our next question comes from Ed Yruma with KeyBanc.

[Ed Yruma:]

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?

[Andrew Low Ah Kee:]

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?

[Carrie Wheeler:]

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

[Operator:]

Our next question comes from Ygal Arounian with Wedbush Securities.

[Ygal Arounian:]

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?

[Andrew Low Ah Kee:]

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.

[Carrie Wheeler:]

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.

[Ygal Arounian:]

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?

[Eric Wu:]

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.

[Andrew Low Ah Kee:]

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.

[Operator:]

Our next question comes from Yoni Yadgaran with Credit Suisse.

[Yoni Yadgaran:]

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?

[Andrew Low Ah Kee:]

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.

[Operator:]

We have a follow-up question from the line of Jason Helfstein with Oppenheimer.

[Jason Helfstein:]

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.

[Eric Wu:]

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.

[Operator:]

That concludes today’s question-and-answer session. I’d like to turn the call back to Eric for closing remarks.

[Eric Wu:]

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.

[Operator:]

This concludes today’s conference call. Thank you for participating. You may now disconnect.