MEMO: Chamath SPAC for OpenDoor

Tl;dr: Social Capital Hedosophia II, the blank-check company associated with investor Chamath Palihapitiya, announced that it will merge with Opendoor, taking the private real estate startup public in the process. Chamath tweeted his one-page investment memo:

Big News: $IPOB is merging with @Opendoor and will take them public. More than $1B is being invested to help Opendoor build a legacy company. This is my next big 10x idea (memo attached). Tune into @SquawkCNBC today at 8am ET to hear more.

Investment memo for OpenDoor SPAC

Investment Thesis for Opendoor – Revolutionizing Online Buying and Selling of Consumer Real Estate

Summary

• All forms of buying/selling are moving online, accelerated by the need for convenience, speed, trust and The Coronavirus pandemic has further highlighted this.
• Real estate is the largest, undisrupted form of buying/selling in the US worth more than $1.6T annually
  • Current experience is offline, slow, inconvenient, low NPS and 28% of brokers do it as a part-time job
  • Buying online is still underpenetrated relative to other markets (<1% of total market) but growing quickly
• There are five tailwinds in consumer real estate that we believe will cause Americans to move more often:
  • In many cities, housing affordability is poor because of a big supply/demand imbalance and It’s driving Americans to relocate.
  • Federal elimination of SALT (state and local tax deductions) and decaying state budgets are creating higher taxes which motivate people to move.
  • Seventy-five million, digitally-native millennials are beginning to start families and enter the housing market which will drive demand for buying homes.
  • Working from home is here to As a result, people can make quality of life decisions and live where they want, even if it’s simply moving from urban to suburban locations.
  • The Federal Reserve’s view on interest rates will keep rates at or near zero for the foreseeable This will increase the buying power of the US homeowner to move/upgrade.
• These tailwinds not only create demand but also create a margin of safety for the emergence of online buying/selling homes, and we believe will allow the category to grow consistently year-over-year.

Qualitative

• Opendoor is a market leader in the ability to buy and sell your home online.
• Through the combination of a better product, machine learning and streamlined operations, a consumer can go to opendoor.com, or use the Opendoor mobile app, and close on a sale of their home in as little as three
• Opendoor makes any necessary repairs to the home and sells it to a new consumer, keeping the difference between the buy/sell price, plus charging a service
• As Opendoor buys more homes in a market, they gain share and refine their pl This allows them to expand into new markets with a proven playbook. They are in 21 markets now with plans for continued expansion across the US.
• As they buy and sell more homes, they have the opportunity to attach other value-added They have already launched title and escrow and financing services and have plans for many others in the future (including home upgrades, maintenance and warranty services) which we expect will increase contribution margin and profits over time. Current value-added title and escrow services attach at ~80% by number of transactions.
• More homes bought and sold and more value-added services offered improves the product and allows them to save money for consumers which, in turn, drives more demand to Opendoor where the cycle
• This playbook, at 4% share, would create a company with more than $SOB in revenue in as many as 100 markets.

Quantitative

• 2019A Revenue: $4.7B
• 2023E Revenue: $9.SB
• Enterprise Value of $4.SB
  • 0x 2019A Revenues
  • 5x 2023E Revenues

You can read the rest of the memo collection here.