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iBuying is facing an existential moment

Monday, November 14, 2022   /   by Dave Magua

iBuying is facing an existential moment

Probably the single most significant number that came out of this earnings season was $928 million. That number — just shy of $1 billion — is the amount that Opendoor lost in the third quarter alone. The company was quick to point out that the losses weren’t purely in cash, but rather were due to adjusting the valuation of the homes the company had in its inventory.

Still, it was a startlingly large loss and it sent Opendoor shares plummeting to a new all-time low of $1.46.
Rival Offerpad reported earnings a day earlier, and revealed that it lost $80 million — a much smaller number but also one that reversed several months of profitability for the second-largest dedicated iBuyer. That news also sent Offerpad’s shares tumbling.

These numbers highlight two issues for the iBuyers. The longer-term issue is whether or not the iBuying model works in a market where home prices are static or falling. The iBuyers think it does, and are also pivoting in various ways to shore up their positions.
But significantly, Redfin — the third of the remaining big three iBuyers — announced this earnings season that it is shutting down its iBuying operations. In a blog post, CEO Glenn Kelman described iBuying as requiring “a staggering amount of money and risk for a now-uncertain benefit.” Similarly, Zillow’s Rich Barton said in his company’s earnings report that he’s glad to have abandoned iBuying last year.
The second issue is more immediate: If the iBuyer’s can’t turn around their stock performance, they face the risk of getting kicked out of the market. That’s because if a company spends more than a month with shares trading below $1, it can be delisted — something that would make it far harder to trade and which would be a devastating symbolic blow.

Offerpad shares last rose above $1 earlier this month. Opendoor’s shares haven’t fallen below the $1 mark, but they’ve been heading in that direction and came dangerously close after this latest earnings report. Both companies’ share prices were up somewhat Friday, but if the iBuyer’s can’t entice Wall Street traders in a major way they could be facing bigger problems sooner rather than later.

Read more: 
Opendoor lost nearly $1B in Q3 in ‘once-in-40-years market transition’
Offerpad posts net loss of $80M, ending profitability streak
Redfin shuts down iBuyer Redfin Now while slashing 13% of workforce
Zillow sees Q3 revenue dip, but manages to significantly trim losses
This downturn may last a while
While the downturn was a ubiquitous topic in this season’s earnings report, a number of executives also went on the record with predictions of how long the hard times might last. Anywhere CEO Ryan Schneider, for one, described “a challenging macro housing outlook for the rest of 2022 and 2023.
Compass CEO Robert Reffkin made a similar prediction, saying the housing market will “remain challenged during 2023 before returning to stability and growth in the future.”
Zillow CEO Rich Barton also described both near and “medium” term headwinds.

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