Home Sales Losses Cause Opendoor To Post Heavy Losses

As the online house-flipper continues to lose money on homes that it bought last year, Opendoor OPEN -11.57%Technologies Inc. posted its second consecutive quarter of losses on Wednesday.

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It was reported that the company had $3.0 billion in revenue in the fourth quarter from the sale of 7,512 homes, which is down 25% from the same quarter a year ago, according to the company.

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In addition to those sales, Opendoor generated a net loss of $399 million for the fourth quarter, measured in accordance with generally accepted accounting principles (GAAP), or 63 cents per share based on those sales. The company reported a net loss of $191 million for the same quarter in 2021 or 31 cents per share. It is estimated that Opendoor's loss for the full year of 2022 will be approximately $1.35 billion.

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According to FactSet, analysts had expected a net loss of $533 million for the fourth quarter of 2022, based on the company's financial statements. Opendoor's shares fell 1.6% to $1.82 a share ahead of the results on Thursday, and they were basically flat in early after-hours trade following the announcement. Over the past 12 months, their prices have plummeted by more than 80%.

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The company Opendoor is an iBuyer or a company that uses artificial intelligence and other technology to help it price and buy thousands of homes, then aims to resell them within a few months in order to profit from the sale.

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The company's executives have said that many of their losses last year have been attributed to the fact that the company honored purchase contracts it signed before higher interest rates began squeezing the housing market in the middle of last year.

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It is reported in the company's fourth-quarter shareholder letter that the company has since sold about two-thirds of those homes, which were purchased last spring. As of right now, the company expects to have sold more than 85% of its homes by the end of the current quarter, losing about 4% on average per home sold.

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Despite continuing to shed its inventory of single-family homes, the company said it has taken steps to limit its sales losses. As a result, new homes are cheaper, fewer are purchased and less marketing is spent on them. In addition, it has cut listing prices to get rid of older homes.

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“It appears we didn't act quickly or aggressively enough,” the company said.

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More than half of the homes that Opendoor sold between November and January were sold for less than what the company paid for them, according to research firm YipitData's analysis of markets where data is available. As YipitData notes, those losses include the service charge Opendoor collects from sellers, but may not include the full balance of other fees collected by Opendoor.

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Earlier this month, the company wrote in a letter that it expects more positive results for the houses that it has purchased in recent months. As for those homes, the company said that it was on track to hit contribution margins, which are a measure of the profit margins for the homes, of 4% to 6% per home. There were 12,788 unsold homes in the Opendoor inventory at the end of 2022.

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Carrie Wheeler, Opendoor's chief executive, told Trade Algo that the company is pricing its offers to buy homes with the expectation that sales prices will fall modestly this year.

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With its home-flipping business sagging, Opendoor launched a marketplace last year to connect home buyers and sellers.

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“It will take a multi-year journey to actually build that managed marketplace,” according to Ms. Wheeler.