1Q22 Opendoor earning call summary
Stock price rose after 1Q22 being reported, however, overall market sentiment is selling everything for cash. What we can do is keep watching fundamentals and do more research.
- Contribution Margin improves to 5.6% in 1Q22 from 3.3% in 4Q21, however, it won’t go back to 9.8% in 1Q21 when the overall economic situation turns worse and home price appreciation (HPA) slows down. What contributes to this improvement are operation constraints resolved (the main driver of CM lower in 4Q21), HPA, and cost improvement ($OPEN increase their spreads since last fall). So, basically, Opendoor can transfer higher borrowing costs (senior loans to acquire new home inventories) and housing price uncertainty in the future to add maintain their unit economics → Contribution Margin.
- 1Q22 Revenue is $5,151mn, significantly upbeat consensus and guidance ($4200mn, driven by transactions that are expected to be closed in 2Q22 are closed earlier and also strong home buying demand.
- GAAP Net income turns positive in 1Q22, the first time since Opendoor was founded.
- Home inventory on hands is 90–100 days lower than broader market >120days sourced from MLS.
- Opendoor launched a vendor management system to facilitate ancillary services, expecting to lower the overall holding period of their inventory, which can bring down holding costs.
- Opendoor partnered with Lower.com to facilitate mortgage loan applications online.
- Management found that they increase spread (Opendoor selling price — buying price) to handle housing price volatility, and conversion ratio (Homeowner used Opendoor platform to get price and then listed with $OPEN or sell to $OPEN) remain at above 35% and didn’t see a negative effect.
- Opendoor accelerates their aged inventory selling to keep their overall home inventory portfolio remain at 90–100 days.
“$OPEN : We have consistently demonstrated superior clearance on aged inventory (120+ days), selling those homes 3 times or faster than the equivalent rate for same aged homes on the MLS, which is an important driver of managing overall portfolio performance.” - Rate hike does affect their operation but Opendoor are able to transfer the cost to customers.
“1Q22 OPEN : Our cost of funds for our senior financing was around 3.0% in 1Q22. We expect that to increase to approximately 4.0% for the full year based on the current forward curve and our expected mix of senior revolving and term facilities. Based on hold times of approximately 100 days, this would imply that senior financing costs per home move from approximately 70bps in 1Q22 to 90bps for the full year, which is a manageable increase relative to our overall cost structure.” - Current housing market update and management’s view
“1Q22 OPEN : the current housing macro environment is very different from prior downturns, particularly the Global Financial Crisis (GFC), for a few key reasons:
Market inventory is at a forty-year low going back to the early 1980s. In addition, available inventory in March 2022 was approximately 72% lower than in March 2008. While demand may ease as rates rise, we believe supply demand dynamics will likely return to a more balanced state versus a sharp correction given today’s structurally lower supply
The consumer is in a much healthier position today. Household financial obligations as a percent of personal disposable income are at a 40-year low and remain significantly lower than what they were in 2008. The financial system is also in a much better position today than going into 2008. This diminishes the risk of a “forced selling” dynamic or a very rapid credit contraction like what occurred during the GFC.
While real mortgage rates continue to rise and may impact demand, real interest rates remain quite low on a historical basis, at around 2% compared to a pre-pandemic average of 2.5% and a pre-GFC average1 of 4.5%. Moreover, significant transaction volumes happen across all rate environments. For example, in 2002, 30-year mortgage rates averaged 6.4% with real rates at 4% and yet the transaction rate for single family existing homes was 5 million homes that year2. This compares with current rates at 5.2%, real rates at 1.9% and transaction rates of about 5.2 million homes a year”
- Business model explanation lol (many investors still don’t know Opendoor’s business model, they think straightforwardly and skin-deep like sell housing sector stock when economic uncertainty or faded housing market.
“1Q22 : what is core to our business model – and, frankly, what is most misunderstood – is that our systems and margin structure are designed to be durable across different housing markets. That’s not to say we’re immune to what is going on in housing. Housing dynamics are a key input to our business and we have designed our pricing and operational systems to give us a deep understanding of the underlying drivers and to be able to dynamically adjust to changing conditions.”
DCF PT is $141.6 … When the bear market is coming every valuation method make no sense. However, if you are a long-term investor and risk appetite is high. $OPEN will be a good buy in terms of risk-reward perspective.
Forecast for next 3 yrs.
Resources :
Press Release or Opendoor IR page
Transcript: check Tikr Terminal
Consensus data from Koyfin
Disclaimer :
The content of this article comes from sources approved by the author, but its completeness and accuracy are not guaranteed. The various business, financial, and other related archives and all opinions and estimates mentioned in the content of the article are based on the judgment made by the author on a specific date, so there is a time limit. If there is any change in the future, the author will not make any changes, advance notice, or update. The content of this article is for reference only and does not provide or persuade customers to buy or sell stocks on an investment basis. Investors should carefully consider their own investment risks and be responsible for their own investment results.
