Housing: The shift to online real estate ‘will ultimately fuel our business,’ Opendoor CFO says

Opendoor CFO Carrie Wheeler joins Yahoo Finance Live's Zack Guzman and Brian Sozzi to explain how her company was able to grow revenue as Zillow is exiting the home-buying market.

Video transcript

ZACK GUZMAN: Welcome back. Bucking the trend from the bottom falling out of Zillow's home buying operation last week, iBuying competitor Opendoor is gaining today. Shares up more than 16% after reporting a stronger than expected quarter. In fact, revenue is up 91% from the second quarter to hit $2.27 billion. And as part of our series looking at the state of home buying brought to you by Veterans United Home Loans, happy to welcome in the CFO at Opendoor, Carrie Wheeler joins us here alongside Yahoo Finance's Brian Sozzi.

And Carrie, it's interesting because a lot of people might have had questions or doubts about iBuying after what we saw from Zillow and some missteps there. You guys have proven that it's still able to be done and can be done well. Talk to me about what you saw in the quarter.

CARRIE WHEELER: Thanks for having me. We had a great quarter. As you said, we beat expectations top line and bottom line. Really proof positive that consumers are increasingly demanding the solution we're providing. We had conversion at 35%, record demand for our product, record revenue, and marked our 29th consecutive quarter a positive contribution margin. Just really good results all the way around.

BRIAN SOZZI: Carrie, Brian here. How are you at Opendoor able to get it done and Zillow is not able to get it done?

CARRIE WHEELER: For us, Brian, this is not a side business for us. This is our business. We've had seven years of investment in building robust pricing systems, acquiring the data, the modeling, the team to do that with a great level of accuracy. And we've been building the low cost platform over time that allows us to be able to let people buy and sell their home with ease and that a better cost and a more efficient way.

BRIAN SOZZI: Your competitor, or I would say, your former competitor now, is selling a good number of homes as they exit this business. Are you seeing any pricing pressure because of what they're doing?

CARRIE WHEELER: No, I think that will ultimately be a blip. And we'll be able to work through it. You put that in context, it's maybe 10,000 homes in aggregate. Maybe they've already sold some of those. But relative to the overall size of the market, it's something that the market's going to be able to absorb. And those are homes that would have been sold anyway.

ZACK GUZMAN: I guess the thing that separates it here is the ability to know what price you can sell the house at. And I guess that's always a question mark. You guys have the data there to back up the calculations. It was interesting, though. We were asking "Shark Tank" host Barbara Corcoran about some of the issues in iBuying and potentially also some of the costs that add up in what we have known has been a crazy year. I just want to play a piece of what she had to say about your guys' operation and the industry as a whole and get your reaction on the other side. Take a listen.

BARBARA CORCORAN: Opendoor buys houses, flips houses. And so far, they've been in it twice as long as Zillow, seven years I think. Close to seven years. But even their confidence in iBuying is going to ripple through to them a little bit too I think. So you could say Opendoor is a disruptor buying homes everywhere and flipping them. But you can't forget about the market. This is not a good flipping market. This is a seller's market where every home is dear. And how do you really make money on that spread? It's tough. Not to even count for, how do you get the workers to do the renovation?

ZACK GUZMAN: All right. So you're the CFO. Going to pose the same question to you. We did see a net loss of $56.8 million, $0.09 a share. When you factor in costs for some of what she was talking about there, how true is that in terms of some pricing pressures making those a bit higher than maybe what they used to be?

CARRIE WHEELER: So there's a bunch of things in Barbara's comments. I'd love to take her out for a drink. First of all, we're not a home flipper. We are creating a one stop shop to let people buy, sell, and move with the tap of a button. We're building this platform to let people do it with ease, and certainty, and simplicity, very different from the traditional listing process they have today. With respect to the market, it has been a seller's market. We know that. But the market remains very strong.

We're in an environment of constrained supply, still lots of demand for single family housing. And home price appreciation has come down a little bit but remains very healthy for this time of year. Our business model is designed to work across different market cycles, up markets, flat markets, neutral markets. And we'll continue to be a share gainer across cycles because of the fact that the macro that really matters for us, the one that is driving our numbers is this massive secular shift we're seeing from offline to online real estate and that is what is driving our business.

BRIAN SOZZI: How many homes do you see Opendoor buying over the next year? And what markets are you focused in?

CARRIE WHEELER: Ultimately, we want to be nationwide. We're in 44 markets today. We'd love to bring our solution to every single person in this country. And it works across a whole host of different markets. We acquired 15,000 homes in the third quarter, as you said earlier, 91% quarter to quarter. And we'll continue to look to acquire homes over time as we drive our revenue growth.

ZACK GUZMAN: I guess as you point out there, maybe some of our viewers are interested to know a bit more about how you could be successful, even in an environment where you start to see home prices flip. And I know we haven't necessarily seen anything near to what we saw in 2007, 2008 where people always talk about a potential bubble each time we see prices really start to heat up, which of course, happened last year. I mean, how does that mechanic work on the back end there at Opendoor to kind of make sure that you can be successful regardless of where we see prices go?

CARRIE WHEELER: It's important to think about us as a market maker. And let's define that. That means that we're providing liquidity, we're fusing liquidity into the housing market. We're giving people certainty about the value of their home and when they can move. And we are taking a fee for that. We're pricing that certainty. We're taking a spread. And so when I say we're going to be a performer across different market cycles and a share gainer, it's because that spread is by design dynamic. That's what market makers do. They price volatility and they create certainty.

So in an environment that is less certain, say HPA were to decline or be negative, we would see our spreads expand to account for that.

BRIAN SOZZI: Do you see another double digit year on tap for housing prices next year?

CARRIE WHEELER: We think housing will continue to be strong. We know that interest rates and inflation is obviously very topical right now. But as I said earlier, for us, the real driver of our business is this macro shift from offline to online. And that'll really, ultimately fuel our business even if a demand for housing were to dampen a bit. What we see is that home sales happen in all interest rate environments.

ZACK GUZMAN: Sozzi's getting into a question that's very interesting for friends of mine too right now when we talk about price appreciation in the housing market. First time homebuyers maybe potentially getting priced out when you think about what they can afford in this market. I wonder how those dynamics might impact an Opendoor if you start to see a shift there. Obviously, first-time homebuyers are going to have a home to sell. So I'm sure that that really is an important distinction. But when you look at the different pieces of the market, what are you seeing, I guess, in terms of some strength now mounting relative to others?

CARRIE WHEELER: We've really seen unabated demand for housing. We have new homeowners, we have people who are multiple homeowners who bought and sold over time and are delighted not to go through the traditional process to be able to buy and sell. It's really a mix of people, old and young, digitally native, not so digitally native, all these different kinds of customers are coming to us to take advantage of having just a different solution that is much easier, and convenient, and certain than the traditional way of buying and selling your home offline with all the costs and the friction that comes with that.

ZACK GUZMAN: I'm sure a lot of people are reminded of all the friction that comes with home buying and selling in this pandemic. Because we saw a lot of people move, a lot more potentially turning to Opendoor. Appreciate you coming on here. The CFO of Opendoor, Carrie Wheeler, alongside Yahoo Finance's Brian Sozzi. Thanks again for the time. Be well.