[Transcript + Audio] Opendoor CEO Carrie Wheeler at UBS Global Technology Conference, Nov 29th 2023

Transcript 

Stephen Ju

Yes. All right. We're good to go. All right. So good afternoon, everybody. So I'm Stephen Ju with the UBS Internet Equity Research team. Sitting next to me is the CEO of Opendoor, Carrie Wheeler. So thanks for coming. I think this is your inaugural appearance here. So welcome.

Yes. So yes, kind of getting straight to it. There's a lot of like headlines and articles about buyer commissions, et cetera. So what changes to your business would be needed if buyer commissions went away? And if they did go away, how would this impact your customer base and I guess some certain aspects of your business?

Carrie Wheeler

Yes. The very topical, I'm sure most of you been following this. Here's a lawsuit involving NAR, which is about the practice, the long practice of sellers agents and therefore, home sellers regulating or establishing what the buyer commission should be and paying that out.

A couple of things. First of all, our business model is not based on buyer commission revenue. In fact, for us, it's a cost, and it's a significant cost to our overall structure. If you think about our unit margins that we target 5% to 7% annually, we pay about 2.5% out to the buyer's agent in the form of commissions when we go to resell our home.

So to the extent that the BBC becomes unbundled over time, which is sort of the base case, how long that takes time will tell. And those commissions come down over time. Mean worst case is neutral for us. It's pass-through. But I suspect depending on how it plays out, there's probably a little bit of upside for that and us over time.

I think the most important thing is that we have built the only platform that allows sellers and buyers to transact directly. And our entire transaction platform is built on giving the customer total transparency into the cost of transaction. Total assurance it's going to happen and to give them choice. And so no matter how the ecosystem evolves, clearly to involve some more based on these lawsuits, I think we're well positioned to take advantage of those changes and continue to serve buyers and sellers in a better way.

Stephen Ju

Go ahead. I mean, I remember always that the value proposition to the consumer has always been, hey, you want to move, that's got you move to your next house right away as opposed to staging your home, et cetera, and going through his time consuming process. So in as much as this helps to take down friction, I would have to think that, well, hopefully, it should be a friction decreasing event some of the costs in there, but hopefully, this helps to accelerate the volume.

Carrie Wheeler

I would hope so. I mean, I think one of the challenges for the real estate market has been that this lot of buyers think that the agent comes to them for free. And there's no free lunch, right? There's a tax in the system that's being borne by somebody somewhere. And so as buyers think about becoming potentially more discerning about what they want to pay for in terms of advice, I think we can be helpful in that equation to help serve them.

Stephen Ju

Got you. I think over the recent past, I mean, you rolled out a bunch of partnership channels. So can you walk us through what this is, what this is designed to do versus what you were doing before? And what you're seeing so far? .

Carrie Wheeler

Yes. We've really focused on expanding those channels over the course of this year. And for us, these are a way for us to reach more sellers and to do it in a way that is highly efficient from a cost standpoint, from a CAC standpoint for us. And there's really 3 vectors we talk about. There's homebuilders. We've been doing business homebuilders for a long time. There's agents, and then there's the online real estate platform.

On the homebuilder front, there's about 90 homebuilders we're in partnership with. And you think about it, it's a real win-win for us and for the homebuilder. For the customer who walks in to say like Lennar showroom on the weekend, and they want to buy that home if they have an existing home, they have to figure how they sell.

We can near instantaneously tell them how much equity they have in that current home. They're totally assured that they can close on it and they can line up the closing date between the new built home and the sale of their home. So that's a win.

And for the homebuilder, they took that contingent buyer and turned them into a for certain buyer. And they're guarantee that, that person is going to show up and actually be able to pay for their new homes. So that is a great partnership. That's a trading customer, working incredibly well for the home builder, for us, and for the consumer.

On the agent side, we do business with thousands of agents, hundreds of brokerages across the countries. So I think it surprises some people. The agents actually are increasingly thinking about it as a tool in the toolkit. I mean there are some customers who want to hire an agent. They want to go through the listing process, and they want to maximize value. That's great. There are some customers who choose not to do that for a variety of reasons and prefer not to endure all that, and it makes sense for the agent to show up with the appointment with a cash offer in hand from Opendoor and show them, you've got 2 options here.

We actually announced a deal in November with eXp, the large independent real estate company in the world. All those agents now can go to their eXp portal and their dashboard and they can pull down an Opendoor cash offer to show up with their listing appointment with. So again, the win of it is for the consumer, it may be better suited to their needs.

For the agent, we pay them a lower commission rate than they might otherwise earn for the full listing, but the return on their time could be substantial, right? So it's 1% versus, say, maybe 2.5%. But again, ROI relative to time, they're running their own business. pretty attractive in certain circumstances. So that continues to grow significantly for us in terms of repeat business and just more and more agents coming to the system.

And then the last point is the online real estate players. Zillow, Realtor, and Redfin. We're about our most of the way through our expansion in terms of being in all our markets with Zillow, we're at 45 markets as of the last quarter. And again, it's a way for us to get our brand and our service in front of more and more customers, and that continues to work really well.

We've seen since Q1 about a 76% increase in the contracts coming up our partnership channels. And so we'll continue to kind of, I think, expand those over time because again, those are fixed cost for us. And relative to our overall cap, they're quite attractive.

Stephen Ju

Yes. So I think -- I mean, obviously, you can't discuss the terms in terms of what the exchange of economics are with your partners, but can you elaborate a little bit in terms of how this works with the partners in terms of how I guess, from a piping standpoint, how this actually works.

Carrie Wheeler

From a piping standpoint?

Stephen Ju

From like who delivers the traffic and where is the exchange of value, et cetera?

Carrie Wheeler

The homebuilders are market-to-market relationship, we've gone in and sold the XYZ Atlanta person in their development, and they basically know how to work with us. Agents, again, that's a sales motion we're going and talking to brokerages and agents and striking those deals. And then Zillow is a top-to-top relationship where we now are embedded in their platform and the customer going online thinking about selling their home to talk with the agents. They can also click on and get a cash offer from Opendoor and that customer then comes over to us and then we can talk to them and serve them. So it's quite elegant in terms of our work. It's pretty similar.

Stephen Ju

Such a good idea? Was there like an aha moment or was it something that you've been working on for some time? .

Carrie Wheeler

I think the one other thing has been around since the early days, started with Lennar is a significant shareholder and investor and supporter of Opendoor. And again, that's a seamless perfect trade in customer relationship. And then from there, I think the evolution of thinking about how do we make agents more productive was like the next step. And then thinking about online real estate. Obviously, some people have left the Opendoor, I mean the iBuying space, and so that created opportunity for partnership discussions that made sense. And I think we'll continue to look to expand them. .

Stephen Ju

Okay. Okay. And I guess, stepping back a little bit at more of a macro view. I guess, can you talk about how the rising mortgage rates have impacted your business generally?

Carrie Wheeler

Yes. I mean we've been navigating what has been a pretty tough housing market for now, 18 months and counting, and just a really uncertain overall kind of macro economies everyone here knows. I think what gets lost sometimes in the macro story is what matters most to Opendoor. So you have high mortgage rates tough buyer affordability, lots of constraints on being able to buy in a way that works for people. You also have a lot of people locked into very low rates and seller inertia like how do I ever give up that 3% mortgage. And I think what gets lost is what matters for us most is home stability -- I mean price stability. And while volumes have been quite depressed over the last year and change that is much less important than whether or not prices are stable. And what we've seen so far this year is constrained supply, historically low listings coming under the market.

But against that, depressed supply has been pretty resilient buyer demand, and they've been relatively in balance. And what we've seen on the back of that is price stability, and that is a good setup for us. We've done a lot of work this year to reduce our spreads, i.e., the discounts embedded in our offers. Part of that has come through the hard work of just better price accuracy and reducing our overall cost structure. But part of it has been a more stable own price environment that we can factor in the spreads.

If I have some reasonably decent degree of confidence in the home price trajectory, remember, our window is like 4 to 6 months. I can put that into tighter spreads, i.e., lower spreads, and that means lower spreads means higher conversion. People say yes to the offer, that drives more acquisition volumes. We saw that in Q3. We were up 17% on quarter-on-quarter, as I said.

So that is all a good thing. There's a lot of talk about low volumes, which is clearly an industry-wide issue. But there's still 4 million people moving, much lower than peak. But for us, if you think about our 1% market share, which is going to be a little bit bigger -- I think much bigger business, much more profitable business than where we are today and to be able to capture some more share, which we've done consistently all year long. We're capturing share in a declining market.

So volumes, yes, are an issue, but they're much less issue for us. We're really focused on whether or not prices are stable.

Stephen Ju

Okay. So we'll worry about the overall volumes of the sector when you have 50% share.

Carrie Wheeler

You should worry about that. Yes. But we're going to be very focused on our spreads. And again, home price stability is a good setup for us. And that's what we've be seeing for the course of 2023.

Stephen Ju

So that's what's informing your view in terms of we're going to acquire a certain number of homes in preparation for the seasonal pickup into the first quarter, you're seeing greater stability that it has to offer.

Carrie Wheeler

We know that when we can come to you with an offer with a reasonable spread, chances are you're going to convert. We understand that relationship really, really well. People love the product, right? The 80 Net Promoter Score. So when we can do that, again, that's back to price stability, we know we can drive volume. And so as we look into 2024, where we get the benefit of seasonal tailwinds into the spring selling season, be able to kind of marketing dollars back in the system more efficiently because where our spreads are today. That's a good setup for us.

Stephen Ju

Okay. Got you. Anything that we should be thinking about or something that you might be worried about in terms of backdrop for 2024, additional pressure that you might see or anything else that you're preparing?

Carrie Wheeler

Housing market is going to be very dynamic. And so we're going to continue to respond to any market signal we see. We saw that in -- last quarter, we talked about there was a moment where mortgage rates spiked up to 8%. We saw a slight decline in clearance rate in the velocity of home resales. And we responded to that by dropping some of our list prices making sure that we were still clearing our inventory in line with our objectives.

So those are the kinds of signals we're very attuned to. We're going to continue to be very attuned to make sure that we're responding to them. We worry about everything in the housing market, Stephen. But I'd say, going to 2024, I think we're well positioned, given all the work this year on spreads and just seasonality will be a friend kind of in the first half of next year.

Stephen Ju

Understood. I think you said you're in 53 markets right now. Should we expect that you will be expanding into more markets in '24?

Carrie Wheeler

Yes. If you think about how do we expand our footprint over time. There's 2 levers. One is, how many cities are we in, 53, just quoted. And then within those cities, what is the universe of homes that we can underwrite on based on our pricing algorithm and that's our buy box, right? It's defined by price or age or home type, what have you. .

And that has been as if not more important than the city expansion. If you think about the fact that we have taken our addressable market from $190 billion 4 years ago to $600 billion today. Some of that has been doubling our market, but a lot of it is doubling our buy-box expansion. So in 2022, we took a pause on new market expansion just given all the things that were going on in housing generally, but we have not stopped continuing to push the envelope in terms of buy box coverage.

We've taken it from, I think, 48% to 57% this year alone. So there's a lot of ways to expand market footprint. I think the most important point is like given the $600 billion mark, we have -- there's no shortage of white space to go after. If we just did nothing else we gain share in our current footprint, that would be enough. Our aspirations are to be nationwide over time. So we will turn on a new market engine at some point, I won't commit to when, but it's not a constraint right now in terms of overall growth.

Stephen Ju

So how would you say the point of attack when you go after a new market? Do you enter and then expand the buyback over time? Or is that....

Carrie Wheeler

We do. You get into a market, we make sure we have the data and make sure we do a lot of work to back test our model to make sure we understand it well. We make sure we have enough trade labor in that market, so we can service operational side of our business. And then when we go to market, we're pretty slow actually to ramp because of the lag in our business. We want to acquire some homes, we want to understand them. We want to sell through them. And then we look to turn them back on. We really ramp them up as we expand .

Stephen Ju

Okay. And has that, I guess, ramping process as you've got better and better at launching new markets, has that speeded up over time since foundation?

Carrie Wheeler

I'm not sure we want to speed it up. I mean I think there's a lot of learning that comes with being deliberate in how we allocate capital to newer markets and make sure they perform in line with expectations. But what we have seen is that the maturity profile of older markets is attractive.

And so if you think about our 53 markets, about half of them were opened in the last couple of years, and they're really quite immature. So there's a lot of tailwind built into us being able to mature those markets over time.

Stephen Ju

Got you. Now I think you've laid out some longer-term targets for $10 billion in revenue and adjusted net income breakeven. How have your thoughts evolved on those targets this year?

Carrie Wheeler

We are highly focused on being back to adjusted net income breakeven in positive. For us, that's our proxy for operating cash flow. So nothing about that has changed. We've done a lot of work this year to reduce our cost structure takedown spreads and make sure that we are positioned to rescale the business profitably and get back to that ANI breakeven level. So the only thing is that the market of distributors just talked about continues to be very dynamic. And so we won't commit to an exact month at this point because we're going to respond to market forces. But the overall commitment to be back to ANI breakeven has not changed.

For us, that means we take volumes from where they are today, around 1,000 homes per month. And to get to that $10 billion kind of steady-state run rate number means we kind of have to double acquisition volumes from today to 2,200 acquisitions and resales. We were doing 4,000, 5,000 acquisitions and resales per month. And we were doing it on half the markets, a lot lower brand awareness by nowhere near the scale partnership with channels we have. So the combination of just bigger distribution, bigger brand, more markets to go after, and we'll reduce spreads, we feel very comfortable being able to double our volumes from here.

Stephen Ju

Yes. So it sounds like you want to take the hand breaks off a little bit.

Carrie Wheeler

Within our risk framework. Within our risk framework, yes. We're very focused on getting back to ANI breakeven.

Stephen Ju

Okay. Got you. Now you were talking just now about the inverse relationship between the spreads and the conversion rate and higher, I guess, consumers taking a higher number of consumers taking you up on your offer. Going into 2024, I presume it's sort of stay the course in terms of where you kept the spreads. And I guess, are there any surprising things that you're seeing in terms of the consumer behavior? And any differences that you're noticing versus what you might have seen in the past?

Carrie Wheeler

Yes. I mean we understand that relationship between conversion and spread really well. And in fact, it's held up consistently. It's actually been better than we would have suggested. So as things become more uncertain and more volatile, what we've seen is on a spread adjusted base that's actually conversion has been better.

In other words, like times are weird. I might actually like that bird in the hand a little bit more than I did, say, in 2021. So we've actually been pleased with how the relationship has been steady to improving. So no surprises really. I think right now we're at is given all the work this year, the reduction in spreads, those spreads will be a tailwind for us next year.

And we took marketing dollars down significantly this year because when spreads are high, they're just inefficient. Conversions too low for those dollars to make sense. But being able to kind of invest those marketing dollars back in the system next year will drive more volumes, increasing brand awareness will drive more volumes, and also drive more conversion with it. So yes, a lot of focus on spread, understandably so, but I think we've got a good set up.

Stephen Ju

Okay. Got it. Now part of the fuel that allows you to acquire all that volume and at an accelerated pace, hopefully heading into next year is that, that capacity that you have with your banks. So how have those relationships been? And I think to get to $10 billion in revenue, if you're turning volume at like 90 days, that's like $2.5 billion of capacity which you already have. So how are the relationships with your banks right now?

Carrie Wheeler

They've been good. I give a lot of credit to Dod and the team who run our Capital Markets group and had a lot of these relationships we've had over the last decade and we've obviously expanded over 30 lenders today. But we've been deliberate about maintaining some facilities given that they are attractively priced like those extra facilities we've talked about. And we have been also reducing capacity deliberately where it made sense on the warehouse side, which is exactly we did in COVID.

And what we saw there in COVID is when we took our volumes down, we took down some of our capacity. It was going to be unused. The banks were able to kind of ramp back up with us, and I'd expect we'll see the same thing in the future. So the relationship has been good and I don't see the financing piece of this being a constraint for our ability to kind of rescale the business. To your point, we have ample capacity right now to get back to that $10 billion mark, which you're talking about.

Stephen Ju

Yes. Got you. Now going back to some of the unit economics. What are some of the factors that can improve unit economics for you over the next year or so, or even over the next 3 years that we should be thinking about?

Carrie Wheeler

Before I go, we've done a ton of work this year to improve them. We've had a step function change in unit economics. Part of that has been cost savings, a good chunk of it has just been putting the old book of inventory behind us. And you saw kind of year-to-date, the new book is at a 9% contribution margin, well ahead of our target margins that will season over time as we sell through those cohorts, but we feel really good about the new book of business we're building, that's number one.

As we think about continuing to improve our cost structure and our unit economics over time, there's a couple of areas. We are always going to focus on how we improve our pricing algorithm. It's core to what we do and how we get better at price accuracy. I'd say one of the things we want to win this year for us was around the work done to understand at a really granular level, absolute and relative home condition down to the unit level. And that was part of what we said back into spreads and allowed those reductions. We'll do more of that in 2024 and beyond.

There's a lot of applications for additional artificial intelligence in our business. If you think about how we underwrite a home when we go into it and do a physical assessment before a final offer, really understanding that home condition and using imagery to capture data, not just for the home, but also how we feed that back into the system over time is really powerful. Same thing on the assessment side where we are scoping out repairs.

So we're pretty focused on delivering more of that in 2024 and beyond. Cost structure improvement is kind of below the unit margin line would include things like continue to reduce our variable SG&A. Part of that is creating more flexible labor. Part of it has just been a lot of work around on giving our operators better tooling to be more efficient, to be able to do more, increased through-put. That was a win last year. We'll get to monetize more of that in 2024 and beyond.

Fixed cost, we run a scale business. We have a decent amount of fixed cost. We took a lot of them out this year. We're going to say super tight on fixed cost. There's an enormous amount of operating leverage in our business as we rescale, a lot. And we will make sure that we capture that.

Marketing has been another win. If you think about partnerships becoming a bigger part of the mix and given their profile we talked about earlier. And also just increasing brand awareness. Like our awareness continues to go up. Interestingly, even though we took down our marketing dollars a lot this year, our brand awareness is sustained. And power to our team doing a lot of the creative, a lot of the brand work. So that has been a win. So there's a whole lot of things which we continue to focus on.

Stephen Ju

Got you. All right. So can you talk about some of the cohort trends you may be seeing in some of the oldest markets?

Carrie Wheeler

Happy to. So when you think about when we go into a market, as they mature and get older, we get more brand awareness, people just know we're there, right? More signs in the streets, more marketing, more mailers, and we get to build up that base of retained customers over time. So a lot of people come to us not because they're a seller today, but they aspire to be a seller in the future. And we do not sell off those leads, we retain them deliberately and engage them pretty regularly, a lot of people are coming to us constantly for a refresh on their offer, which we're happy to do. And they will convert over time.

So if you think about older market, their base of retained customers is very different from a new customer. And as much as 70% of our contract last quarter were from people who had repeat offers. And so that generative power of like the retained customer base in our older markets, is pretty attractive from an overall CAC standpoint. So you've got awareness, you've got lower CAC, you've got to repeat group of customers who are coming to you.

If you think about our older markets, I think it's about 30% of all the addresses in those older markets, I'll define this is like 2018 and older, about 30% of all the addresses in those markets have been entered into our platform. Someone came to us and wanted to know the value of their home and they entered their address. So just our ability to kind of capture more and more home sellers in those markets, we will be able to kind of compound returns over time.

And you see that show up in share. So for, again, those older markets, call it 2018 and older cohorts, they were doing around 4% share in 2022. In contrast, a lot of those new markets that we opened in 2021 kind of held back on 2022 given the macro in 2023. We're only doing 70 basis points of market share. So there is so much tailwind in our younger markets, which is about half of our footprint today to continue just to mature kind of what we already have in the ground, we're pretty excited about.

Stephen Ju

Okay. So newer markets, half of your markets today, 70 bps of market share that could theoretically quadruple as they start matching the older cohorts.

Carrie Wheeler

Yes. And we'll continue to build that retained customer base over time. .

Stephen Ju

Yes. Got you. Now sort of a final sort of a bigger picture question. I guess, that's fast forward 12 months from now. And we're once again sitting here at the UBS Tech Conference. And it's November of '24. So what do you think we'll be talking about in terms of what you've been able to accomplish over the trailing 12 months? And what do you think will be excited about for '25?

Carrie Wheeler

It sounds like an invitation to come back next year.

Stephen Ju

Absolutely.

Carrie Wheeler

Okay. Good. What are we talking about? I mean, first of all, I'd say 2023 has been a year, but it's been a year of a ton of hard work and progress all around. You're taking this moment in time, yes, tough macro, lower volumes, but really making sure that we have done all the work to be as efficient as resilient as we can be.

And so kudos to our team, I feel like we're walking in 2024, really well set up to take advantage of that. So that's number one. I think on the consumer side, our aspiration, against that $600 billion addressable market we're talking about is like we want every home seller to start with Opendoor. Why wouldn't you come to us first and get an offer for the value obviously, we need to be more market to do that for everybody.

I hope that's what we're talking more about in 2024 than talking about CM and costs. Like just how are we kind of changing the zeitgeist. So that Opendoor continues to be top of mind, like come to Opendoor if you want to know the value of your home is. Start there, you can sell direct to us, you can list it and retain your cash offer. There's lots of ways to do it. We want to make sure that we are serving more and more sellers. That's on the consumer side.

And on the financial side, I'd say I hope we're talking about the fact that we met cash flow objectives and targets. We're very, very focused on that, as I said. We are focused on continuing to gain share. And what I imagine will still be a test and bumpy market. But we've shown throughout the course of the year is that we can gain share in a declining market. So we'll continue to do so. We're going to save really tight on cost structure. But I'd like to see us as we ramp that we are realizing the fruits of all that work and seeing operating leverage come to the business.

We also think we have a massive market opportunity we're going after. And that's really what we want to focus on is how do we kind of put ourselves in front of customers and serve more sellers.

Stephen Ju

Got you. Well, looking forward to watching the Opendoor, turn it to a verb.

Carrie Wheeler

Thank you.

Stephen Ju

We'll wrap it there. Thank you so much, Carrie.