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Opendoor: Leading The iBuying Revolution

Jan. 20, 2021 5:31 AM ETOpendoor Technologies Inc. (OPEN)RDFN, Z
Ishan Puri profile picture
Ishan Puri's Blog
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  • Opendoor operates in a large and growing market with lots of inefficiency.
  • Although there are other significant players that are pivoting into iBuying, Opendoor represents the best pure play option.
  • I believe the progress to date and management speak to more upside.


Opendoor (OPEN) is a new stock that has emerged after it merged with one of Chamath's SPACs. I believe Opendoor represents a real opportunity in home buying and is riding secular trends on new consumer habits in home buying. It makes money on the volume of transactions and from making it easy to sell your home.

I believe the size of the market, the progress to date, the management team, and the low interest rate, stimulus-fueled environment creates a perfect storm for Opendoor to accelerate into the future. I recommend a buy and hold investment here.

Management Team

For me, the thesis really starts with the team. I particularly like founder-led teams and this is one where that is the case. The reference checks I have done on the team and on Eric Wu point to a person that has a personal interest at heart, who has felt the pain of buying/selling homes, and is saavy enough to build a product in this space. The rest of the management team brings a diverse perspective and comes from other tech-heavy companies. I believe this is necessary to really build a tech product in this space.

Source: Investor Presentation

I see strength and breadth across functions and a young team that is looking to tackle hard problems. I particularly like the breadth of companies the management team comes from.

Market Dynamics

I do believe real estate is a fragmented market and Opendoor can build a big business alongside Zillow (Z) and Redfin (RDFN), which are attempting to pivot their legacy business models that are lead-based to something closer to the transaction. I think coming with a fresh start has its pros and cons, but mostly it allows investors to get pure play exposure to iBuying itself and the underlying trend.

Source: Investor Presentation

Many companies will tout large market sizes, but real estate is a clearly large market that I can get behind. Further, the fragmentation in the market is real. I take a discount to what Opendoor says they can consolidate, and it still results in a large opportunity.

Further, the actual pain that the buyers and sellers experience today is something tangible and obvious. It has many steps, and Opendoor aims to simplify the process by going further than simply applying valuation models (AVMs) to homes. It wants to act on those models.

Source: Investor Presentation

As an investor, I look for universal pain points that all types of consumers feel. I see the 12% transactional costs as a little high for the average purchase, but the need to reduce that number, and to make the process more seamless, as real value adds.

Source: Investor Presentation

I am a believer that aggregating workflows can save time and money. Docusign (DOCU) is showing that in the signing space, Tesla (TSLA) is showing that in the car space, and Apple (OTC:APPL) is showing it with its new M1 chips and in the personal computing space. I believe Opendoor can achieve real cost savings and a better experience by verticalizing the fragmented process of buying and selling. 

Although I take a discount on the savings they anticipate, both time and money, I believe any savings will be applauded by consumers. Below, they show a savings of ~$20k on a $300k home. Even if that was $10k (half of the estimate) I believe many sellers would choose Opendoor. 

Source: Investor Presentation

I also believe Zillow and Redfin ushered in a new age of the digital consumer shopping online and browsing for homes. This has led to the consumer being willing to transact online, whether for rent or to buy. Ultimately, Opendoor will be able to control its own funnel of high-intent customers and control its acquisition costs for new homes and supply. This may be the most important part of the business model scalability.

Source: Investor Presentation

And in consumer products, I always look for brand power. That often manifests itself in net promoter score and consumers raving about it. Management touts a 70 NPS in a field with much lower traditional NPS scores. Further, I did some investigative analysis to see what consumers actually said (independent of the company). I found mostly positive reviews which cited ease of use, especially during the pandemic, to sell their home. I saw an acceleration in these reviews in the recent months, which is also a sign of potential revenue acceleration.

Source: Reviews.io


Opendoor had a tough 2020 and is projecting flat revenue growth. I believe investing in Opendoor is all about velocity of transactions, and you must believe in a continued backdrop of stimulus and lower interest rates. I see the data to support this, combined with a rebound in comps which should see the stock move higher.

Further, Opendoor is not really covered yet by the Street. I see this as an opportunity to get into the name before the big investors do, which could create a move upwards.

Analyst's Disclosure: I am/we are long OPEN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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