Q3 was off to a volatile start. I have taken the opportunity to further optimize the portfolio.
Opendoor
I have increased my position in Opendoor from 20% to 25%. The company now trades at about 0.12x 2022 sales. The market capitalization is $1.77b, and the company has $2.5b in cash.
Since the end of Q2, Opendoor has sold about 8,200 homes according to Datadoor estimates. This represents 48% of the homes it had on its balance sheet at the end of Q2. Q3 should see EBITDA of circa -$150m to -$180m. Any further downside in Q4 is limited to the remaining 52% of the portfolio that has not been sold in Q3. Current listings by Opendoor for homes it had bought in April, May, and June have an embedded margin (including the 5% service fee) of only 0.7%, which is why I expect Q4 will be another difficult quarter. However, homes bought in July and August have an embedded margin of 5.6% and 9.2%. And for homes bought in September, the embedded margin is apparently above 11% at this point, which signals Opendoor might well be able to make money also in a downmarket. Nevertheless, I currently expect Q4 to be about as bad as Q3 in terms of cash burn. Including interest payments, Opendoor may burn about $500m in the second half of 2022, which would bring cash reserves by year end down to $2.0b.
By the end of 2022, the company should be almost done selling off the inventory it had at the end of Q2 when the market turned. For 2023, it will be important for Opendoor to demonstrate that they can achieve EBITDA break-even also in a down market.
Upstart