LIVE BLOG: Opendoor Technologies Q3 earnings call

We’re here live-blogging Opendoor Technologies Q3 earnings call, or as the company calls it, its “Financial Open House.” Management will be taking Q&A to shareholders, who have submitted questions via Robinhood’s “Say Technologies” platform ahead of this event.

(Robinhood Markets Inc. is the parent company of Sherwood Media, an independently operated media company subject to certain legal and regulatory restrictions.)

The online real estate company tumbled after releasing its Q3 results, in which revenues came in well above expectations but its adjusted EBITDA of -$33 million was far worse than its guidance and the -$23.7 million consensus estimate.

The red ink is poised to swell in the fourth quarter, with management guiding for an adjusted loss “in the high $40 millions to mid $50 millions,” which is lower than Wall Street’s view for adjusted EBITDA of -$47.6 million.

Refresh this page for updates.

After lengthy disclaimers, we’re into it.

• CEO Kaz Nejatian says he considers himself primarily a “product manager.” Says on his first day at Opendoor, he told the team he’d be making a lot of changes because the old Opendoor had kind of lost its way.

• An example of something that’s changed: how many homes the company is in talks to buy has surged in the seven weeks since he started at the company.

• The old Opendoor “lost faith in the power of software” to improve the home buying and selling process, and “didn’t believe in the power of AI” to do much of anything, he adds.

• One of Opendoor’s biggest expenses was to consulting firms “making decisions that should have been made by executives,” says Nejatian.

• “We believe slowing down, buying homes just to buy them at a significant spread, is a bad strategy.” -Nejatian

• Opendoor plans to be more like a market maker than a prop desk. (That is, the company plans to try to make money through high volumes of home flipping.) Note: this is arguably what got the company into lots of trouble in the past, but could be offset by compressing how long the company holds its inventories.

• “In the future, buying a home will be as seamless as buying a car from Tesla,” he says, with everything bundled under one roof, in one experience.

• AI > humans to assess real estate values will be a key feature of Opendoor 2.0, he says, with a “default to AI approach.”

• Nejatian announces new partnership with Roam for assumable mortgages that was revealed earlier on its website.

• A goal of Nejatian’s is to never raise equity again.

• Opendoor now doing 750 home assessments per week using AI.

• “We are once again accepting customers who want to sell us their homes directly,” and these customers recently made up 20% of homes assessed, per Nejatian.

• Nejatian discusses previous decisions about Opendoor’s capital structure. Parts of it “were designed and driven by fear rather than setting us up to win,” talking about its convertible debt. “My first priority was to remove this pressure,” he says. “I despise dilution.” Nejatian says he has reached an agreement today to retire the majority of these notes.

• One happy side effect of Opendoor’s dividend of tradable warrants is that they might make life more difficult for short sellers, Nejatian says.

• Now interim CFO Christy Schwartz gets into the Q3 numbers. If you don’t know these numbers, I highly doubt you’re here reading this.

• On the 2030 convertible notes, Schwartz says the equity raise in September for about $200 million allowed those notes to be refinanced with equity (the agreement Nejatian alluded to earlier).

• “Turns not spread,” a key theme being hit here by both Nejatian and Schwartz.

• On the outlook, “the guidance will look different,” she says. “Our results in the upcoming quarter are about decisions made in the past,” she adds.

• “We believe margins bottomed in October,” Schwartz says.

• Q&A starting now. First question from... Vlad Tenev, CEO of Robinhood. Robinhood is parentco (see above). It’s a question on tokenization.

• Nejatian: “I have a habit of not announcing products before they’re launched, and I think it’s important that we ship things before we talk about them. I genuinely can’t imagine a future where real estate isn’t tokenized, or one that Opendoor isn’t leading in this innovation.”

• Questions from EMJ Capital’s Eric Jackson. What’s the headcount now, believe it was 1,400 over the summer. And do you expect to add mortgage and title and other services? That didn’t really work for Zillow.

• Nejatian: 1,100 people as of this morning. Most important thing isn’t the number, but how aggressive and efficient those people are.

• On second question: very bullish on services. Cites previous sales tilt at Shopify, where he was the “services guy.” The reason why embedded fintech hasn’t worked in some cases is because they’re not product-centric, he says.

• Question: when will we see a dramatic change in profitability?

• Nejatian: next year. There was an analyst who said Shopify would lose money for years... It became profitable two quarters after I became COO. Companies don’t become profitable in spreadsheets. I call it a “drive to profitability” because it’s not passive; we know the actions we need to do.

• Question on short seller attacks, and how to fight them.

• Nejatian: I care a great deal about our average shareholder, but I don’t spend a lot of time thinking about short sellers. Says he “pities them.” What matters to us is execution week in, week out. The best way to deal with short sellers is to prove them wrong with numbers, and then the score takes care of itself.

• How do you define OPEN’s identity?

• Nejatian: It’s a software company, not a hedge fund waiting for macro to turn around. Our leverage comes from building excellent products, and you do that by writing excellent code. Code, data, and models. The best software companies are built in hard times, because hard times force you to be disciplined. I am very bullish on the company. We’ve shown we can grow acquisitions relatively quickly; I think we grew 60% in the past week.

• Does management intend to emphasize the cash offer, or do you envision moving more capital light? Primarily through agents or not?

• Nejatian: That’s not how I think about the business. Companies fail when they think of themselves first, users second. People come to us to buy or sell a home, and we have to meet them where they are. Cash Plus is a great product. We’re going to have different products along risk and ownership axes. I like our DTC model; it’s been converting 6x better in tests. We’re going to pick channels that allow us to have maximum impact. If there are users that want to use experts, we want to serve them, too.

• How are you expecting to manage guardrails on acquisitions? How do you control the long tail of purchases?

• Nejatian: On the tail question, you want a lot of dispersion in your model. Traditionally, Opendoor hasn’t had that. We do now. We want days in possession to be low, and be more careful on longer ones.

• Nejatian: At Shopify, we had high growth and high free cash flow. Think they go together. When you buy lots of homes, you have the ability to sell lots of homes. When you sell lots of homes, have the opportunity offer more services.

• Nejatian: We have great levers at our disposal, and are improving buying the homes we want to buy. I love our top of funnel.

• How is AI an accelerant to growth?

• Nejatian: All the ways. I don’t spend much of my time worrying about problems in this area, but rather the problems of today. One example: we would have up to 11 people touch a home before sales. Now that’s down to one in some cases. This reduces opex per home that we acquire. Fewer humans, more machines. Secondly, on top of funnel, you’ve seen us cut marketing when I came in and increase acquisition. We’ve optimized our funnels, and AI has helped us explain to our users the valuation of homes. We’re also seeing impact on closing, where machines do most of work.

• One more question: how can you make home ownership easier for younger generations?

• Nejatian: Home prices have increased by ~50% since 2020; mortgage rates are higher, inventory is much too low, sales take 60-plus days, one in seven falls through. This is terrible, harming our communities and families. People who want to own are facing barriers. That’s why we announced partnership with Roam. The enemy is the process. So many people are involved, the costs are just out of hand. The fact that we can underwrite a home gives us an excellent way to underwrite mortgages, and do things to let you buy a home earlier. That’s a key part of the company’s future. That’s the mission: tilt the world toward homeowners and people trying to be homeowners.

• Closing remarks from Nejatian: I spend most of my time coding. I’m opinionated about what the product should look like. You’ve seen us launch many products, dozens of products, in the past few weeks, and should expect more of the same. We’re very mindful of your dollars as shareholders. We’re going to make mistakes, but be transparent as we build. “I am more bullish today than I was when I took this job,” he says.