UPDATED: Sept. 15, 5:10 p.m.: iBuying startup Opendoor made its IPO plans official Tuesday, confirming a $4.8 billion deal with a blank-check company.
The company’s merger with Chamath Palihapitiya’s Social Capital Hedosophia Holdings II will give Opendoor $1 billion in cash, the companies said. The deal values the San Francisco startup at $4.7 billion, matching its 2019 revenue.
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Appearing Tuesday on CNBC’s “Squawk Box,” Palihapitiya projected Opendoor’s revenue could hit $9.8 billion by 2023 and keep growing. “If you take the playbook that they have, and you just apply it to the markets in which they can expand in the U.S., at 4 percent share, this is a business that will do $50 billion in revenue,” he said.
Opendoor, which makes cash offers for homes, has raised $1.5 billion since 2014 from investors including SoftBank, General Atlantic, Fifth Wall and Lennar. It was last valued at $3.8 billion after closing a $300 million round led by SoftBank in March 2019.
“This is an enormous bet for me and I think Opendoor will build a huge, huge business,” said Palihapitiya, who ticked off some prior successful bets. “This, to me, feels like Bitcoin in 2012, Amazon in 2015, Tesla in 2016 and Virgin last year.”
In a statement, Opendoor said it will have $1.5 billion in cash on its balance sheet when the transaction is complete.
Founded by CEO Eric Wu, CTO Ian Wong and investor Keith Rabois, Opendoor pioneered the nascent but growing iBuyer category, in which it competes with Zillow, Offerpad and Redfin. Last year, the top iBuyers accounted for $8 billion worth of home sales in 2019, according to industry analyst Mike Del Prete.
Opendoor’s sales volume was four times that of Zillow, its next biggest rival. The company operates in 21 markets including Phoenix, Dallas and Atlanta. Last year Opendoor sold 18,000 homes.
It is not yet profitable. Company financials show Opendoor lost $218 million last year after losing $131 million before interest, taxes, depreciation and amortization in 2018. Opendoor projected a loss of $141 million this year on revenue of $2.5 billion — a revenue drop it attributes to Covid.
During an investor presentation Tuesday, the company said it expects to turn a profit in 2023, with projected EBITDA of $9 million.
Palihapitiya said he set up the SPAC to “democratize” investors’ access to Silicon Valley tech startups. As he looked across several sectors, real estate became an obvious target. “In the last 20 years, and in the last six months, everything that could be bought and sold online has moved online except that,” he said.
Proceeds of the Opendoor deal will include $414 million in cash and $600 million in stock. Of the $600 million, funds managed by BlackRock and Healthcare of Ontario Pension Plan will acquire $400 million worth of shares.
Palihapitiya is investing $100 million, Hedosophia is acquiring shares for $58 million and shareholders Access Industries and Lennar will also buy shares.
When the pandemic hit in March, Opendoor and other iBuyers suspended home-buying. Though Opendoor resumed in May, it laid off 35 percent of its staff.