Collapse of the Real-Estate “Tech” IPO & SPAC Stocks: House Flippers Opendoor & Redfin Come Unglued, after Zillow
“Tech” real-estate dealer Compass and “tech” renters-insurance-seller Lemonade collapsed too. All eyes on “tech” mortgage-broker Higher.com’s delayed SPAC deal. I can’t wait.
By Wolf Richter for WOLF STREET.
Even on Superb Friday, the second day of an enormous rally after 5 days of sharp declines, the shares of a real-estate “tech” inventory, house-flipper Opendoor, collapsed 23%, after having already collapsed within the months earlier than.
Opendoor Applied sciences [OPEN], on Thursday night, had reported a lack of $191 million for This fall, which introduced its internet loss for the 12 months 2021 to $662 million, which introduced its whole losses for the 4 years which have been publicly disclosed to $1.5 billion. How can a home flipper lose $1.5 billion in 4 years? I don’t know both. However it isn’t over but. And the corporate ended the 12 months with a listing of 17,009 unsold homes.
Opendoor went public in December 2020, on the IPO value of $31.47 amid huge hoopla. By February 2021, shares had reached $39. If “February 2021” sounds acquainted, it’s as a result of that’s the month the inventory market began coming unglued beneath the floor as highfliers began collapsing one by one, every by itself schedule. The injury was such that I began reporting on it in Might 2021. And that is simply one other chapter because it simply retains getting worse. On Friday, she shares closed at $8.44, down 78% from the February 2021 peak and 73% under its IPO value (knowledge through YCharts):
Opendoor reported that it bought 36,908 homes in 2021 however offered solely 21,725 homes (for $8 billion) in the course of the 12 months, leaving it with 17,009 unsold properties ($6.1 billion) in stock.
Opendoor financed this stock with $6.1 billion in “non-recourse” debt backed by its homes. Non-recourse means if Opendoor defaults, its lenders get the home and can’t go after Opendoor’s different property. If Opendoor can not promote these properties and repay the debt with the proceeds, it may hand the properties to the lenders and allow them to fear about promoting the properties.
As well as, Opendoor was beneath contract to buy 5,411 extra properties for $1.9 billion.
About two-thirds of those 17,009 properties are completed and prepared for resale. About one-third (about 5,500 properties) are “work-in-process” and will not be on the market. Any of those 17,000 properties that haven’t been listed on the market, together with the entire 5,500 properties which are work-in-process, are within the unknown pile of vacant properties that don’t present up within the official “provide” of properties and that don’t present up as vacant properties both.
Zillow did the identical factor with an enormous portion of its 7,000 properties that have been caught within the pipeline earlier than it give up the enterprise final November and offered these properties largely to institutional traders, who’re now making an attempt to determine what to do with them. These properties which are caught within the house-flipper pipeline and which are shuffled round are vacant, however don’t present up as vacant, and they aren’t on the market, and don’t present up as “provide.”
Home-flipping is simple – the primary half, shopping for the home, when cash is not any goal, and your algo can spend as a lot because it desires. The remainder is tough, and being profitable at it’s even tougher, particularly in case you overpaid within the first place. The exercise will not be fitted to individuals who write algos, it seems.
Redfin, initially an internet actual property dealer, additionally rode up the algo-based house-flipper craze beginning in 2020. And its shares [RDFN] rocketed larger amid countless hoopla by the crazed crowd of inventory jockeys and hit a excessive of $98.44 in February 2021 – yup, that February once more.
Then shares started their lengthy collapse. On Friday, they closed at $21.83, having collapsed by 78% in a single 12 months. They’re now under the place they’d been after the primary day of buying and selling following its IPO in July 2017:
Zillow [ZG] had a quick respite in its collapse when it introduced on February 10 that it misplaced $881 million in 2021 on its home-flipping escapade, which got here unglued in November 2021, when it disclosed that it might lay off 25% of its workers and get out of the house-flipping enterprise, and dump the 7,000 properties it had purchased.
Later it disclosed that it had offered most of those homes to institutional traders – relatively than to individuals who may need needed to reside in them. Till these vacant homes are listed on the market they don’t present up within the official “provide,” and plenty of of them could ultimately present up on the rental market. And whereas all this is happening as they’re being shuffled round, they don’t present up as vacant both.
The $881 million loss was lower than feared, and shares bounced magically over the next three buying and selling days, however have since then given up a portion of it. On Friday, shares closed at $57.95, down 73% from their excessive a 12 months in the past, and about stage with the place they’d been in February 2020 earlier than the crash:
Compass, a real-estate dealer that calls itself “a tech firm reinventing the house,” is a kind of examples – one in every of very many – whenever you notice one thing is severely fallacious with Wall Road. However OK, folks have enjoyable with their buying and selling apps, and in the event that they get cleaned out, so be it.
Compass grew through the use of Softbank’s cash, and the cash of different traders, to purchase up actual property brokerages across the nation. Over the 5 years of publicly disclosed monetary statements, Compass has misplaced $1.44 billion. How can an actual property dealer within the red-hottest no-questions-asked housing market lose $1.44 billion? That was a rhetorical query.
Compass shares [COMP] peaked on their first day of buying and selling, following the IPO in April final 12 months, at $22.11 and have declined ever since. On Friday, they closed at $7.65, having plunged 65% in 10 months for the reason that excessive on the primary day of buying and selling, and at the moment are 58% under the IPO value of $18 a share:
Lemonade [LMND], which is hyped as an “insurance coverage tech firm” and sells insurance coverage for renters, owners, pet homeowners, and so forth., went public in July 2020 at $29 a share and within the first day of buying and selling, amid immense hoopla, spiked 139%. It then continued spiking till it reached $182 in January 2021. After which got here mentioned February 2021, when this complete present began unraveling.
On Friday, shares closed at $23.48, down 83% from the excessive, and 19% under the IPO value at which the shares by no means even traded as a result of the primary commerce was at $50 a share, inflicting the tech inventory pundits to lament how the corporate “mispriced” the IPO and the way a lot cash it “left on the desk.” Yup, that’s how loopy this present was on the time.
Ready for a share-price collapse is Higher.com, a “tech” mortgage lender, backed by Softbank. It’s not but a publicly traded inventory as a result of its merger with a SPAC was postponed in December 2021 after the CEO fired 900 staff, most of them in India, through a Zoom assembly that went viral, that fool.
With the SPAC merger, and subsequently the influx of money, having been delayed, the corporate raised $750 million from Softbank and its SPAC backers as a result of, you already know, these sorts of corporations consistently burn giant quantities of money and consistently want new money to burn.
So I’m wanting ahead to the second the inventory lastly begins buying and selling so I can add it to this listing of collapsing real-estate “tech” shares. This needs to be a goodie. So let’s hope that the merger with the SPAC goes by way of.
Take pleasure in studying WOLF STREET and wish to assist it? Utilizing advert blockers – I completely get why – however wish to assist the positioning? You may donate. I recognize it immensely. Click on on the beer and iced-tea mug to learn how:
Would you wish to be notified through e-mail when WOLF STREET publishes a brand new article? Join right here.