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Wedbush says tech-based real-estate companies can simplify home sales, which are ordinarily a complex transaction,
Dreamstime
The arrival of the tech-driven real-estate company Opendoor Technologies in the open market is casting new light on the property tech sector, particularly the “iBuyer” market in which companies buy homes from consumers and aim to sell them at a profit.
Wedbush analyst Ygal Arounian picked up coverage of
Opendoor
(ticker: OPEN) with an Outperform rating and $31 price target on Wednesday. He lifted his rating on
Zillow Group
(Z) to Outperform from Neutral, with a new target of $167, up from $118. And he reiterated his Outperform rating on Redfin (RDFN), while boosting his target for the stock price to $86, from $59.
In late morning trading, OpenDoor shares had spiked 8.1{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} to $27.66, while Zillow was down 0.2{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} to $135.44. Redfin declined 1.7{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb}, to $67.81. The
S&P 500
was 1.1{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} higher.
Opendoor came public late last year via a merger with a special-purpose acquisition company called
Social Capital Hedosophia Holdings Corp. II,
which had been sponsored by Silicon Valley investor Chamath Palihapitiya.
“As the original iBuyer, Opendoor has turned into a leading tech disrupter within residential real estate,” Arounian writes. His view is that while the residential real-estate market has been resistant to a technology overhaul, that is about to change.
“We believe iBuyers are primed to be at the center of that tech adoption, and with still less than 1{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} of total market share are still at extremely early stages of this transition,” he writes. “And as the market leader, Opendoor is one of the best positioned to take advantage of these trends.”
Arounian contends the iBuyer model offers significant advantages to both home sellers and buyers by simplifying transaction that are ordinarily highly complex. And he thinks the opportunity for OpenDoor goes beyond simply arbitrage.
“Where Opendoor’s model will ultimately become successful, and drive incremental profitability will be around the opportunity to attach ancillary revenue streams,” he writes.
In addition, he says, the company is likely to rapidly increase the number of homes sold. He projects a total of 13,500 this year, 24,000 next year, and 38,000 in 2023.
Revenues are likely to rise as well. Arounian predicts $3.5 billion this year, $6.3 billion next year and $10 billion in 2023. He expects the company to turn profitable in terms of earnings before interest, taxes, depreciation and amortization, or Ebitda, in 2023.
As noted, Arounian has also turned bullish on Zillow, which has moved into the iBuyer marketplace as well. “We expect real estate technology adoption will accelerate with an opportunity to transform this industry,” he writes. “We’re moving from an era of technology adoption in residential real estate being informational in nature (looking at homes on Zillow) to transactional (buying your home and getting a mortgage on Zillow).” Zillow can benefit both as an iBuyer and via its web-portal business, he says.
As for Redfin, he notes that the stock has rallied 65{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} since Nov. 18, blowing past his previous target for the price. But he remains bullish, saying both Redfin’s brokerage business and its iBuyer operation, RedfinNow, will benefit as technology increasingly plays a bigger role in the real-estate business.
With “a tech-enabled brokerage attached to its iBuyer offering, as well as a strong online portal, and mortgage business, Redfin can more easily recognize synergies and attach the key ancillary revenue streams that are so critical in the ultimate long-term success of this model,” he writes.
Write to Eric J. Savitz at [email protected]
