As the new-home buying trend continues, the real estate services industry is expected to benefit given the unabated low-interest-rate environment. So, established real estate services companies Opendoor (OPEN) and Offerpad Solutions (OPAD) should witness rising demand. But which of these two stocks is a better buy now?
Housing prices in most major cities in North America have experienced an uptick in the last decade. A low interest rate environment has increased the borrowing capacities of individuals and has been a powerful driver of housing demand.
This trend has also provided opportunities for online real estate companies to gain traction among younger home purchasers. So, digital platforms such as OPEN and Offerpad Solutions stand to benefit if interest rates remain lower in the future.
Furthermore, the COVID-19 pandemic has acted as a tailwind for these platforms because demand for online solutions has increased over the last 18 months. Given these factors, let’s see whether Opendoor Technologies or Offerpad Solutions is the better stock to buy right now.
Founded in 2014, Opendoor Technologies aims to build the entire consumer real estate lifecycle on its platform. It is headquartered in San Francisco and operates in several cities in the U.S. The company simplifies the process of home purchasing, which can be complex and intimidating.
Opendoor has leveraged technology to centralize operations and enter new markets, while providing potential home buyers with a wide suite of online products and solutions. Its asset-light business model has allowed Opendoor to complete 100,000 transactions and now has a presence in 41 markets in the U.S.
In Q2 of 2021, the company acquired 8,494 homes, generating $1.2 billion in sales while reporting adjusted EBITDA of $25.6 million. Its gross profit rose by 64% to $159 million, while its net income was $2.5 million, versus a $21 million loss in Q1 of this year.
Opendoor’s inventory balance at the end of Q2 was 7,971 homes, valued at $2.7 billion. This balance has more than tripled on a sequential basis on the back of robust real seller conversion rates.
Opendoor stock is valued at a market cap of $14.5 billion and is forecast to report sales of $6.8 billion in 2021, which indicates a 163% year-over-year increase. Its sales have the potential to rise by another 83.4% to $12.46 billion in 2022, valuing the stock at a forward price to sales multiple of just 1.16x.
A much smaller player compared to Opendoor, Offerpad is a Chandler, Ariz.-based real estate company is valued at a market cap of $2 billion. Offerpad Solutions provides a real estate solutions platform called iBuying that aims to enhance the home selling experience.
Offerpad reported $856 million in sales in 2018, a figure that is expected to hit $1.78 billion in 2021, indicating a 28% compound annual growth rate. In 2020, Offerpad sold 4,300 homes and expects this figure to rise to 6,000 in 2021. It has managed to increase revenue generated per home from $1,400 in Q2 of 2020 to $31,500 in Q2 of 2021.
The final takeaway
The residential real estate market in the U.S. is estimated at $2 trillion, which provides Offerpad and Opendoor opportunities to grow their revenue and improve earnings going forward. The companies have similar business models and profit margins. But we think Offerpad’s lower valuation multiples versus to Opendoor make it t a better bet at current prices.
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OPEN shares rose $0.35 (+1.47%) in after-hours trading Thursday. Year-to-date, OPEN has gained 4.44%, versus a 19.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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