Opendoor's IPO: Believing the $50 Billion Playbook

As part of Opendoor's upcoming IPO, it has revealed a strategic playbook that takes it to $50 billion in annual revenue. Achieving this is both aspirational and uncertain. What needs to be true for Opendoor to achieve this goal?

A Plethora of Phoenixes

Phoenix. The birthplace of iBuyers. Opendoor's first market. In many respects, Phoenix is the perfect iBuyer market, and has consistently been the largest iBuyer market in the world (based on sales volume).

In the first three months of 2020, Opendoor's revenue run-rate in Phoenix was $1 billion. To achieve a $50 billion run-rate, Opendoor would need to develop 50 Phoenix-sized markets (or 100 markets of half the size).

Phoenix is a mega-market; it is significantly bigger than any other iBuyer market. It accounts for 25 percent of Opendoor's total revenue, and 20 percent of its total sales volume in 2019.

It has taken Opendoor over four years to build the Phoenix market up to four percent market share and $1 billion in sales volume.

While Opendoor has a number of other large markets, none comes close to the scale of Phoenix. The average sales volumes of Atlanta, Dallas, Las Vegas, Raleigh, and Orlando have remained relatively stagnant over the past 12 months.

Opendoor's IPO documents make the claim, which is true, that market share in new markets accelerates quickly in the first year. However, it is also true that growth slows after the first 12 months. And in the case of some markets (Orlando, Las Vegas, and Dallas) sales volume has declined. 

The growth of new markets is not a straight line up and to the right. In Opendoor's case, new markets experienced initial growth followed by a plateau. This is either a deliberate beachhead strategy, or reflective of a larger challenge reaching scale.

Phoenix: Outlier or Target?

Opendoor's $50 billion plan is ambitious. To achieve it, Opendoor needs to replicate the success seen in Phoenix across 50 other markets (or 100 smaller markets) -- no small feat.

Is Phoenix the outlier or the target? The evidence of the past four years suggests the former; other markets have struggled to achieve and sustain volumes anywhere close to the levels seen in Phoenix.

The path to $50 billion -- growing dozens of new markets to significant volumes -- is far from a straight line, and is quite uncertain. Opendoor's growth is not a simple copy-and-paste of the Phoenix playbook. Launching new markets and growing them to significant volumes -- against the headwinds of competition, consumer demand, and profitability -- remains a key challenge in Opendoor's future.