Disruptive technologies continue to pile into the market offering almost too much choice as we head into 2021.
Though, not all will make it; some like Opendoor Technologies Inc. (NASDAQ: OPEN) could have staying power.
Opendoor started trading today after merging with SPAC Social Capital Hedosophia Holdings.
Instantly, one of the most disruptive technology companies coming to market in 2020 was able to lock in more than $1 billion in fresh capital.
You can think of Opendoor as one-part Zillow Group Inc. (NASDAQ: Z) and one-part Uber Technologies Inc. (NYSE: UBER). I mean that in all the good and bad connotations.
Opendoor offers online home sales in 21 markets around the U.S. It does about half of its business in Phoenix, Dallas, Atlanta and Raleigh.
Its disruptive technology is basically a way for sellers to get their money faster. The company offers these customers two options: sell to Opendoor or list through Opendoor.
The company then finds buyers and closes faster than traditional agents and banks. Its automated system facilitates closing in as little as three days compared to upwards of 87 days through traditional means.
Obviously, this is game-changing for an already hot housing market. But there’s a lot more to this story you need to know before you put down a dime on it.
Opendoor is branding itself as more of a pureplay into home sales. Rather than Zillow and Redfin’s approach involving real estate agents and market shopping, Opendoor cuts to the deal right away.
If you have a house you want to sell fast, Opendoor can make that happen… if it happens to be in one of its 21 cities.
The problem here is that this disruptive technology – automated selling and financing – is not moat protected. Meaning, any number of competitors could sweep in and steal market share.
Zillow and Redfin already offer many of the same things as Opendoor. In fact, those sites are more established, in more places and offer more services to sellers and buyers alike.
Despite this, Opendoor was able to squeak onto the market at just the right time.
With the IPO and SPAC-deal boom we’re seeing as 2020 comes to a close, Opendoor was basically able to triple its initial listing price.
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Right out of the gate, shares are trading at $30 as of this morning. That’s three times what the SPAC was worth a few months back.
In fact, this price point gives it nearly the same market valuation as Zillow itself.
That’s a red flag. The other being its actual operational market.
Of the 21 cities in which it operates, four make up a huge amount of business. Now, to be fair, these are growing cities, where home sales have been solid all year.
But for a market like housing, it can be risky to put all your eggs in one basket like this.
Of course, there are reasons to remain as hopeful for Opendoor as these early investors seem to be.
There might be no economic moat around Opendoor right now. But it does have a large market to compete in.
The U.S. housing market is worth about $1.6 trillion each year. It wouldn’t take much of that pie to become exceedingly rich.
Even if this wave of automated, e-sales in houses ends up a highly-fractured market, Opendoor stands to benefit from whatever slice it takes.
Now, the main reason why now is an exciting pivot point for the company is its newly-flush balance sheet. Already, it was swimming in cash (about $250 million). Adding the billion-plus it just received, Opendoor is in a position to greatly expand its presence in the overall housing market.
All of this adds up to one thing: a slightly overpriced company with a bright future.
As investors settle down post-merger, expect shares to dip below the likes of Zillow. At $30, this play is too rich. But at $20, you’d be smart to begin building a position.
Long term, this could be a huge opportunity. In the short term, however, you can get an even bigger discount with a little patience.
To your prosperity and health,
Joshua M. Belanger
Executive Publisher & Founder