$OPEN to $0. Yolo 40K in PUTS
Zillow shat the bed we know. But Chamath bootlickers still think iBuying works. Never mind that Zillow has way more data than Opendoor, but somehow $OPEN will still work 🤡. Even if you don't understand a lick of what I'm say next this alone should ring alarm bells.
Proof of position: https://quipp.ai/media/mediaType/img/mediaFile/32a07c5df7d280ab41b092e769565a7f.png
Now for some real ANALysis.
1) $OPEN's business is a structurally flawed highly leveraged hedge fund.
Open door takes capital, buys assets, and attempts to resell at a profit. Ignoring whether their skill at selling at a profit or not, they do NOT have enough capital on hand to actually buy these houses for cash, so they take on mortgages. What's worse, they take on SHORT TERM mortgages. As of Q3 $4B out of $5.3B of mortgage debt (backing $6.3B of real estate inventory) is due within one year. Why? To lower holding costs. But this exposes them to a huge asset/liability mix match. You can't just "sit out" a temporary market dip. Remember Bill Hwang? If housing dips in the short term $OPEN have NO CHOICE but to liquidate at a huge loss. Which brings me to the next point.
2) $OPEN loves to talk about "contribution profit", but the reality is that they only book profits when it is convenient.
Real estate inventory is NOT marked to market, so as long as they don't sell the shit houses, they don't report contribution losses. This is the reason why Zillow took a huge writedown when they wound down iBuying. This is literally it's not loss until you sell meme, but in real life, practiced by a $13B company. Now pretend you are the CEO of $OPEN, would you sell houses at a loss? Fuck no, in fact you would buy as many fucking houses as possible so you can cherry pick the wins and hold the rest. Inventory is up $6 BILLION from the end of 2020.
3) they have no money to fund growth, so they have to take on more and more debt
$OPEN is bleeding, but it still needs to put down cash for the equity portion of the mortgage, so what do they do? You can't keep issuing equity because that will tank the stock, so why not try SENIOR DEBT and high interest debt? Mezz mortgage debt was fetching 10% interest last quarter, and they issued senior debt to get $1B in cash to put into houses.
4) Path to $0. This is a highly capital intensive business, which was a big reason why Zillow said fuck it we'd rather bee SaaS. Because $OPEN is bleeding money, This insatiable appetite for capital will slow down growth considerably, because no one is going to keep giving $OPEN billions of dollars to blow, leaving $OPEN with no choice but to start selling their shit houses and taking losses as opposed to buying more houses and holding the losers, this will cause a domino effect because the capital market will stop giving them capital to plop into more houses, which sits under a pile of senior mortgage debt, leading to less leads, less revenue, and even less capital and MOAR losses. Remember when that happens $OPEN will STILL owe money to senior debtors. When no one is giving them money to buy houses and and labor expense is bleeding the company dry, plus billions in debt, there is only one way out. https://c.tenor.com/PW5xIUYKjB0AAAAC/declare-bankrupt.gif