Can Opendoor win the $1.6T housing market?


September 24, 2020

PLUS: This startup is standardizing the diamond market.
September 24, 2020
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The Big Idea

Can Opendoor’s iBuying bring the trillion-dollar housing market online?

Here is Opendoor’s pitch from its website: “Sell your home from the comfort of your couch.”

Like, from your iPhone.

Billionaire investor Chamath Palihapitiya likes the pitch so much that he recently announced he’ll be taking Opendoor public via a SPAC ($IPOB).

The deal values the real estate startup at $4.8B and Palihapitiya believes it will be a “10x in 10 years” play.

Consumer real estate is a $1.6T opportunity

As explained in a one-page investment thesis Palihapitiya posted on Twitter.

The document further explains the pain of the current buying process: it’s offline, slow, inconvenient, unpopular (low NPS) and — with less than 1% of its sales done digitally — ripe for disruption. 

Opendoor was launched 6 years ago to tackle this problem with an iBuying solution and — to date — has done $10B in home sales and worked with 80k homeowners, per the company’s investor presentation.

How it works

Opendoor allows you to digitally buy or sell a home through these steps:

  • Pricing: A real-time pricing model that tells you how much a home is worth… click buy.
  • Home ops: If there’s a sale, the company handles inspection, data collection, repairs, and renovations.
  • Fulfillment: The closing process is automated.

Its pricing model has been trained on 145 unique features (e.g., countertops, roofs), and the company has conducted 175k on-site inspections.

Currently, its margin on a home sale is 4%, but Opendoor believes it could reach 7% with better pricing and upsells (e.g., titles and escrow services).

Opendoor currently operates in 21 US markets

With annual revenues of ~$5B.

The company says its playbook can be successfully implemented across the US, ringing up $50B per year.

At a macro level, Palihapitiya notes the following tailwinds:

  • Americans relocating because of housing affordability issues
  • 75m millennials will soon enter the homebuying market
  • Working from home is here to stay, meaning you can be location agnostic

If imitation is the sincerest form of flattery, then $22B real estate marketplace Zillow has flattered the sh*t out of Opendoor (and validated its business model) by making iBuying a mission-critical part of its business.

(For a deeper dive, check out smart takes from 2 Trends members: Anuj Abrol and Packy McCormick)

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Snippets
  • Investors are giving Tesla’s Battery Day bonanza middling reviews.
  • Want to know what Zuck was saying behind closed doors all summer? This massive audio leak has you covered.
  • Google Maps is adding a COVID-19 overlay so travelers can see how virus cases are trending in certain areas.
  • The California wildfires have created a booming market for “deluxe” air filtration (for those who can afford it).
  • Think OnlyFans, but for subtweets: The tech company Stir is launching a paywalled Twitter service called OnlyTweets.
  • Bonus: Echelon Fitness — a Peloton competitor — released a “Prime” bike “in collaboration with Amazon.” The 2nd part is untrue and the listing has been removed from Amazon.
Testing 1-2-3

A cancer blood testing startup is being acquired for ~$7B… by the company that launched it

In 2016, Illumina — the $40B genetic sequencing firm — launched Grail, along with a group of high-profile investors including Jeff Bezos and Bill Gates.

The plan was to develop a blood test that could detect cancer at the early stages, when it could best be treated.

Things have worked out well enough that Illumina plans to acquire Grail for ~$7B (after netting out its 14.5% stake).

Biotech innovations have advanced rapidly in recent years

With improvements in machine learning, genetic sequencing, and device manufacturing paving the way for new treatments.

According to the Wall Street Journal, the impetus behind Grail was to find an alternative to biopsy cancer screening. Biopsies are often painful and the results can be inconclusive.

The hope has long been that a blood test could provide the “holy grail” and detect cancers “in the form of circulating tumor cells or in fragments of DNA that are shed from tumor cells.”

Diversifying the business

Known for its genetic sequencing machines, Illumina is looking to move into genetic applications, a faster growing segment.

The prize could be massive: by 2035, early-detection testing could make up 61% of the $75B cancer genetic sequencing market per WSJ.

Grail currently has no revenue and won’t release its first liquid biopsy until next year.

Either way, we’re just happy that there’s a blood-testing startup that doesn’t start with the letters “th” and rhyme with “perranos.”

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Shine Bright

Forget gold: Meet the Diamond Standard

In 1896, the gold standard skeptic William Jennings Bryan declared that politicians “shall not crucify mankind on a cross of gold.”

But a new startup is hoping that he would have felt differently about a cross of diamonds.

The Diamond Standard Co. is trying to create a diamond equivalent of the gold standard — and to get people to invest in the gem, it’s launching its own, diamond-only fund on the New York Stock Exchange.

Right now, diamonds are like Russian Roulette 

Their prices see huge swings, largely because the value of a given diamond is usually a guess.

While gem-heads have tried to create a uniform metric of value through the “4Cs” — cut, color, clarity and carat weight — there are a ton of other factors that go into the price, like the fluorescence of a diamond.

Because of this subjectivity, the average spread between the buying price and sale price of a diamond is 10% to 40%.

A possible solution: Diamond Standard coins

The company is using an algorithm to assign standard values to all sorts of tiny diamonds. Then it groups them together into individual coins.

That way, each coin is worth the same — and you can know exactly what you’re buying if you invest in the fund.

Want a piece of the action? The Diamond Standard is selling its first round of coins — 5k at $5k a piece — on September 28.

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The Hustle Says

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Customized M&M’s are one of the few things we wish we spent more money on. But on the bright side, it’s never too late to get started.

Forget $QQQ. If you’re into investing, you’re gonna want to get in on Miso Robotics while there’s still time. They doubled their revenue from 2018 to 2019 by revolutionizing dining through automation, and they’re showing no signs of slowing down.*

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Editing by: Zachary “One-click” Crockett, Aretha Holley (Holiday Decoration Specialist).

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