Real Estate ‘Tech’ IPO and SPAC Stock Collapse: House Flippers Opendoor & Redfin Come Unglued, After Zillow
The “tech” real estate broker Compass and the “tech” rental-insurer-seller Lemonade also collapsed. All eyes are on “tech” mortgage broker Better.com’s deferred SPAC deal. I can not wait.
By Wolf Richter for WOLF STREET.
Even on Glorious Friday, the second day of a big rally after five days of steep declines, shares of “tech” real estate stock, house-pinball Opendoor, tumbled 23%, after already crashing months previous ones.
Open door technologies [OPEN], Thursday evening, had reported a loss of $191 million for the fourth quarter, which increased its net loss for the year 2021 to $662 million, which increased its total losses for the four years which were made public at $1.5 billion. How can a real estate flipper lose $1.5 billion in four years? I do not know either. But it’s not over yet. And the company ended the year with an inventory of 17,009 unsold homes.
Opendoor went public in December 2020, at an IPO price of $31.47 amid huge hype. In February 2021, the shares had reached $39. If “February 2021” sounds familiar to you, it’s because it was the month the stock market began to peel away below the surface as the high-flyers began to crumble one by one, each in their own way. calendar. The damage was such that I started reporting on it in May 2021. And that’s just another chapter because it’s only getting worse. On Friday, it closed at $8.44, down 78% from the February 2021 high and 73% below its IPO price (data via YCharts):
Opendoor reported buying 36,908 homes in 2021 but selling only 21,725 homes (for $8 billion) during the year, leaving it with 17,009 unsold homes ($6.1 billion) in inventory.
Opendoor financed this inventory with $6.1 billion in “non-recourse” debt backed by its homes. Without recourse means that if Opendoor defaults, its lenders get the house and cannot sue Opendoor’s other assets. If Opendoor can’t sell those homes and pay off the debt with the proceeds, it can turn the properties over to lenders and let them worry about selling the homes.
Additionally, Opendoor was under contract to purchase an additional 5,411 homes for $1.9 billion.
About two-thirds of these 17,009 homes are complete and ready to resell. About a third (around 5,500 homes) are “work in progress” and not for sale. Each of these 17,000 homes that have not been put up for sale, including the 5,500 homes under construction, are in the unknown pile of vacant homes that do not appear in the official “offer” of homes. . nor do they appear as vacant units.
Zillow did the same with much of its 7,000 homes that were stuck in the pipeline before it left the company last November and sold those homes mostly to institutional investors, who are now trying to figure out what to do with them. Those houses that are stuck in the house-flipper pipeline and are shuffled are vacant, but do not appear as vacant, and they are not for sale, and do not appear as “offer”.
House flipping is easy – the first part, buying the house, when money is no object and your algo can spend as much as they want. The rest is hard, and making money is even harder, especially if you’ve paid too much in the first place. It turns out that the activity is not suitable for people who write algos.
red finoriginally an online real estate broker, also increased the craze for algorithm-based house turners from 2020. And its actions [RDFN] soared amid the endless hype of the crazed crowd of stock jockeys and hit a high of $98.44 in February 2021 – yes, February again.
Then stocks began their long slump. On Friday, they closed at $21.83, having crashed 78% in one year. They are now below what they were after the first day of trading following its IPO in July 2017:
Zillow [ZG] got a brief respite from his meltdown when he announced on February 10 that he had lost $881 million in 2021 on his home run, which came unstuck in November 2021 when he revealed that he would lay off 25% of his staff and get out of the house flipping business and get rid of the 7,000 houses he bought.
He later revealed that he had sold most of those homes to institutional investors – rather than people who might have wanted to live there. Until these vacant homes are put up for sale, they do not appear in the official “offer” and many of them may eventually appear on the rental market. And while all of this happens while they’re shuffled, they don’t appear vacant either.
The $881 million loss was less than feared and shares magically rebounded over the next three trading days but have since given up some of it. Shares closed at $57.95 on Friday, down 73% from their peak a year ago, and about the same level as in February 2020 before the crash:
Compass, a real estate broker who markets itself as “a tech company reinventing the space,” is one such example — one of many — when you realize something is seriously wrong on Wall Street. But OK, people are having fun with their trading apps, and if they get cleaned up, so be it.
Compass grew by using Softbank money and money from other investors to buy up real estate brokerages across the country. Over the five years of publicly available financials, Compass lost $1.44 billion. How can a real estate broker lose $1.44 billion in the housing market without asking the hottest questions? It was a rhetorical question.
Compass Shares [COMP] peaked on the first day of trading, after the IPO in April last year, at $22.11 and has been declining ever since. They closed at $7.65 on Friday, after plunging 65% in the 10 months since the first day of trading high, and are now 58% below the IPO price of $18 a share:
Lemonade [LMND], which bills itself as an “insurance technology company” and sells insurance for renters, landlords, pet owners, and more, went public in July 2020 at $29 per share and the first day of trading, amid immense hype, soared 139%. It then continued to climb until it hit $182 in January 2021. And then came said February 2021 when all that show started to unravel.
Shares closed at $23.48 on Friday, down 83% from the high and 19% below the IPO price at which the shares never even traded because the first trade was at 50 $ per share, leading tech stock pundits to lament how the company “mispriced” the IPO and how much money it “left on the table.” Yeah, that’s how crazy this show was back then.
Waiting for a stock price crash is Better.com, a “tech” mortgage lender, backed by Softbank. It’s not yet a publicly traded stock as its merger with a SPAC was postponed to December 2021 after the CEO laid off 900 employees, most of them in India, via a Zoom meeting that went viral, that idiot.
With the SPAC merger, and therefore the influx of cash, having been delayed, the company raised $750 million from Softbank and its SPAC backers because, you know, these types of companies are constantly burning big amounts of cash and constantly need new cash to burn.
So I’m looking forward to when the stock finally starts trading so I can add it to this list of collapsing real estate ‘tech’ stocks. It should be a gift. So let’s hope the merger with SPAC comes to fruition.
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