The world is flooded with special purpose acquisition companies (SPACs) these days. But — while a lot of these SPACs do present compelling early-stage investment opportunities — arguably none are as attractive as Social Capital Hedosophia Holdings Corp. II (NYSE:IPOB) stock.
Why is that?
Because IPOB stock — which is the second SPAC from well-known venture capitalist Chamath Palihapitiya (the first SPAC brought Virgin Galactic (NYSE:SPCE) public in late 2019) — is on the cusp of bringing Opendoor public, and Opendoor will feature one of the world’s best growth narratives throughout the 2020s.
In short, Opendoor is an e-commerce platform where consumers can buy, sell and view homes online. For all intents and purposes, Opendoor is the future Amazon (NASDAQ:AMZN) of the real estate market — and this $1.6 trillion market is ripe for significant and widespread digital disruption over the next 10 to 15 years. Amid this disruption, Opendoor will grow by leaps and bounds, and IPOB stock will soar like AMZN stock has soared over the past 10 to 15 years.
To that end, I think that IPOB stock represents one of the market’s most compelling investment opportunities for the 2020s.
Here’s a deeper look at why.
The Broken Home Selling Process
Have you ever sold a home before?
If yes, then you know that selling a home is probably the worst process in the world.
It takes forever, usually about three months to close a sale. It costs an arm and a leg, with agent fees, staging costs, closing costs and selling concession fees often taking out more than 10% of the sales price of the home. It’s highly complex, with an average of six counterparties per one home sale. And it’s terribly volatile, as ~20% of potential transactions fall through due to inflexible timelines, buyers backing out and financing delays.
From start to finish, the process is a costly and timely headache. Indeed, I’d venture to say that selling a home is the single most inefficient retail process in the world today.
Of course, this begs the question: Why is it so inefficient?
Because the real estate market is stuck in the stone age.
Digital Equals More Efficiency
If you remember, buying electronics also used to be inefficient.
You had to get in your car. Drive down to Circuit City. Fight through crowds of people. Talk to a sales rep. Sit in a checkout line. Pay for the item. Drive back home.
Then… along came Amazon… a company that centralized, streamlined and simplified the shopping process with a single e-commerce platform, so that buying an electronics item became as easy as opening up an app, searching for an item, and tapping “Buy”.
Amazon leapfrogged shopping into the digital era, and in so doing, dramatically improved the shopping experience.
Wayfair (NYSE:W) has done the same in the home goods sector. Carvana (NYSE:CVNA) has done the same in the automobile world. Chewy (NASDAQ:CHWY) is doing the same thing in the pets’ category.
Across all verticals, retail shopping processes are being modernized, digitized and optimized for consumer convenience.
Except in the home shopping world, where less than 0.1% of homes sold last quarter were sold online.
The real estate market remains stubbornly stuck in the stone age.
But it won’t be forever.
Opendoor is on the cusp of pioneering a breakthrough, e-commerce solution across the entire U.S. real estate market, and in so doing, will finally leapfrog this $1.6 trillion industry into the digital era, making selling a home as easy and as cost-effective as shopping on Amazon.
Needless to say, as Opendoor disrupts this enormous market, IPOB stock will turn into an enormous winner.
Modernizing Home Shopping
Opendoor is a streamlined and centralized e-commerce platform where consumers can buy, sell and view homes online.
In essence, Opendoor acts as virtual “flipper” that buys homes directly from sellers, and turns around and sell those homes directly to buyers. The company makes money on the delta between its buy and sell prices, and through a service fee charged to sellers.
The value prop here is that by streamlining and digitizing the home selling process, Opendoor significantly improves the whole process.
- Accelerates the home selling timeline from three months to less than week. By leveraging big data and algorithms, Opendoor can accurately price a home in minutes after the seller completes a quick survey. The company then cements an offer price after a quick video tour. Ultimately, through Opendoor, sellers can close a home sale in as few as 3 days.
- Cuts home selling costs from 10%-plus to 6%. By eliminating profit-takers in the supply chain — namely, real estate agents, who normally take a 6% fee — Opendoor reduces all-in home selling costs from over 10% (6% agent fee + 2% concessions + 1% staging + 1% closing), to just 6%, comprised of a 5% service charge (which covers staging and concession fees) and 1% closing costs.
- Reduces hassle so that selling a home becomes a easy process. By simplifying and streamlining the real estate supply chain, Opendoor turns the legacy home selling process (conducted over multiple steps, with multiple counterparties) into a super-easy, one-step process that involves just two parties (Opendoor and the seller).
- Improves visibility and reliance. By taking on all staging and buying duties, Opendoor removes risks for the seller – once you sell your home to Opendoor, you get the money, and that’s that.
The value prop is unmistakable. Selling your home through Opendoor is faster, cheaper, more convenient and offers more peace-of-mind. Opendoor’s digital platform for buying and selling homes simply offers a significantly superior shopping experience to the status quo.
And, to that end, Opendoor will follow in Amazon’s footsteps and digitally disrupt the entire real estate market over the next 10 to 15 years — a stretch in which IPOB stock will soar.
Turning First Mover’s Advantage into Network Effects
Opendoor is the first mover in this “e-housing” market, and as a result, has established enormous early market dominance.
The company operates in 21 markets, and has served over 50,000 homeowners, sold $10 billion worth of homes, and grew the number of homes sold through its platform by over 500% from 2017 to 2019. Opendoor has sold 4.4X the number of homes as its next biggest online housing competitor, and has already achieved nearly 5% total homes sold market share in Phoenix just four years after launch in that market (to put that in perspective, it took Amazon ~30 years to hit 5% retail sales market share nationally).
That’s big, because Opendoor is an online marketplace, meaning the company w
ill be able to leverage first mover’s advantage to generate powerful network effects, which should create a virtuous growth cycle wherein Opendoor forever remains the market leader.
Specifically, because Opendoor already has more sellers than everyone else in this space by a significant margin, the platform will naturally attract more home buyers for its greater supply. The more home buyers Opendoor attracts, the more home sellers will flock to the platform to reach those home buyers. In this sense, more home sellers leads to more home buyers, which leads to more home sellers. Lather. Rinse. Repeat.
This virtuous growth cycle means that Opendoor has clear visibility to turn into the Amazon of real estate one day.
And that means you should buy IPOB stock today.
Huge Upside Potential for Opendoor Stock
The potential upside in Opendoor stock is enormous.
Nearly 6 million homes are sold in the U.S. every year. Thanks to the digitization megatrend, about a quarter of those homes should be sold online by 2035, or 1.5 million online homes. Amazon controls about 40% of the U.S. e-commerce market. A similar market share for Opendoor implies 600,000 homes sold in 2035.
The average sales price of a home in the U.S. is close to $350,000. Taking that average, Opendoor’s revenues could be $210 billion by 2035. Management’s targeting long-term EBITDA margins of 5%. Assuming the company can hit that target, then my modeling suggests that $6 billion in net profits is doable by 2035.
Put a 20X multiple on that, and that’s the math behind Opendoor turning into a $120 billion online home shopping powerhouse one day.
The market cap today sits around $10 billion.
Bottom Line on IPOB Stock
The big picture on IPOB stock is clear.
Opendoor is a $100+ billion “Amazon of houses” in the making, and an early stage investment in IPOB stock today could generate life-changing wealth over the next decade.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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