Business

Zillow investors keep an eye on Opendoor down the block


Historically, real estate has been a relatively safe haven for investment dollars — you buy, you live, you earn. Online real estate platforms have kept a close eye on this story amid stock market turmoil, first rocked by the global pandemic and now by what appears to be a macroeconomic downturn . So you believe them?

There were many warning signs. The biggest thing, of course, is Zillow’s House Explosion last November — something that made Cathie Wood, the growth optimist, even permanent to balance her positions in

Zillow

Z -4.35%

Group and

Opendoor technology.

OPEN -6.15%

Zillow is try to recreate itself as a real estate super app, facilitating more than owning a home transaction. But investors seem to have completely lost interest. Shares of Zillow are down 37% this year in the company’s first-quarter earnings report alone.

And on Thursday, Zillow did little to help its cause, giving guidance for total second-quarter revenue that was 47 percent lower than Wall Street forecasts because of a large chunk of iBuying revenue expected. will be carried over to the first quarter. Zillow shares fall another 4% on the Friday following its report.

With Zillow’s home auto flip business shutting down, the company’s Top Dealer business, which connects dealers with potential customers, becomes the focus of its story again. The guidance for this business in the second quarter was also below consensus estimates. In regards to that, the company is currently testing a new payment model in which agents only pay when they successfully close a transaction with a Zillow lead. If that helps dealers, it may do little to help a company’s bottom line a higher interest rate environment that could see the trading volume dwindle. Data from the National Association of Realtors shows existing single-family home sales fell nearly 11 percent on a seasonally adjusted annual basis from January through March as rates rose.

None of that stopped investors from buying shares on Thursday in market leader iBuying Opendoor, which is looking to sell off the 13,360 homes it had on its balance sheet by the end of the first quarter. first, as well as 8,066 other contract homes. purchased with a total market value of $7.9 billion.

Shares of Opendoor jumped 14% in the immediate hours after delivering a solid return — at least in a hot real estate market. In a blockbuster quarter where revenue grew 590%, Opendoor says it managed $99 million in adjusted net income. The guidance for second-quarter adjusted earnings before interest, taxes, depreciation and amortization was much higher than Wall Street forecasts.

The question is whether its business is peaking. In a letter to shareholders, Opendoor noted that increases in home prices and transactions may be moderate to “beyond the usual seasonal trends,” starting in the second half of the year, but property prices tend to trend slows down when the market falls. The company says it’s pricing amid market uncertainty in its home offers, though of course that’s exactly what Zillow said in 2019. In the end, Opendoor’s stock fell 6. % on Friday as investors continue to recognize broader macroeconomic risks.

To be fair, Opendoor has so far shown itself to be much better than Zillow at both managing its own housing supply and costs. And without Zillow as a competitor, Opendoor can save costs and profit from customers. Mike DelPrete, real estate technology strategist and scholar at the University of Colorado Boulder, estimates Zillow owns about 35% of the US iBuyer market by 2021, and its absence would give Opendoor an estimate of 79 % market share this year. .

The iBuying field is admittedly something every tech investor should at least be watching. Opendoor’s market share of 1.9% among MLS-listed homes in the markets where the company operates last year shows the impact of the technology in cities where it has a large presence. Zillow’s Q4 iBuyer report shows that more than 1 in 10 homes in Raleigh, NC, for example, were sold using iBuyer during this period, with several other cities closing.

But that hardly makes it a safe bet. Despite all that happens in the market, Opendoor is continuing to execute its growth plans. IBuyer is now available in 48 US markets, and on Thursday the company reiterated its belief that it could be a “national, all-market company.”

Those are bold ambitions for any company, but especially a real estate platform that buys and sells homes in a higher-interest rate environment that has seen 30-year fixed mortgage rates. year increase this week. the highest level in nearly 13 years. Since the first quarter, Zillow said it has seen fewer users accessing its apps and website compared to the same period last year, suggesting rising mortgage rates may have impacted demand. And

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data shows that website visits to platforms owned by Zillow have decreased year-over-year for nine months in a row.

If you’re up for the risk, there’s a potential value game at your fingertips: Opendoor’s stock has lost 67% of its market value since Zillow said it was shutting down. iBuying its own.

Then again, that’s clearly a bet even if Mrs Wood of ARK Investment Management doesn’t have the confidence to stick with the scale.

With the average 30-year mortgage rate rising to 5%, home ownership may now be out of reach for millions of Americans. WSJ’s Dion Rabouin explains the impact on potential buyers, sellers and the housing market. Illustrated by: Adele Morgan

Write letter for Laura Forman at [email protected]

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