Offerpad: Another iBuyer Doomed to Failure?

Offerpad sustained a loss of over 148 million dollars in 2022.

Key Takeaways

Offerpad, a prominent iBuyer, is facing continuous financial trouble. The company endured significant capital losses, recording a massive loss of $148 million in 2022 alone.   

Home-buying companies like Zillow and Redfin have already exited the cash buyers’ market. Offerpad’s main competitor, Opendoor recently reported a staggering loss of $1.4 billion in FY’22

Offerpad is already finding it hard to survive in the market. Its unfavorable interest coverage ratio, low contribution margins, and high debt burden are responsible for its losses. 

Houzeo also analyzed Offerpad’s previous year’s financial data. We concluded that the iBuyer firm would need to sell 21,820 homes annually to recover all its losses and break even. However, considering the firm has only managed to sell around 10,000 homes in the year 2022 at its peak thus far, they are in an uncertain condition.

Offerpad 2022 Performance: A Downward Spiral

The interest cost of Offerpad amounted to double at $48.4 million year over year. Despite selling a significant number of homes, it recorded a massive loss. The earning report of its fiscal 2022 saw a total expense of $301 million.  

The gross profit of the firm dropped to $187 million in 2022 from $207 million a year ago.

Offerpad sold 6,373 homes in 2021 and was able to sell 10,635 homes in 2022. The company had a gross profit of approximately $32,600 per house in FY’22.

Offerpad’s CEO, Brian Bair attributed the fall to the current market trend, saying “Home sellers are holding on to the idea that their home is still worth what it was six months ago. Buyers aren’t willing to engage at those prices. This in-between phase is the most challenging period for the entire real estate market, including iBuyers.”

The iBuyer company went public through a special-purpose acquisition company (SPAC) in March 2021. It has gone through a tumultuous journey ever since. 

Offerpad share prices soared after the surge in the home selling demand during the pandemic. Its post-pandemic stock performance experienced a decline of more than 90%.  

Offerpad’s stock prices reached a peak of $20 per share. But, its stocks plummeted to less than a dollar per share in October 2022. Since then, its stocks have remained below the one-dollar mark.

New York Stock Exchange (NYSE) sent a non-compliance notice to Offerpad due to its low share price. The company will face a serious financial crisis if it gets delisted. This could also lead the company to bankruptcy.

Fiscal 2023: A New Ray Of Hope

The company started the first quarter of fiscal 2023 with a decline in its revenue. It saw a decline of 56% and came down to $610 million compared to $1.4 billion in Q1 of 2021. 

Offerpad also struggled to adapt to a shifting market. It acquired only 364 homes and sold 1,609 homes, marking a decline of 87% from the same period last year.

Despite the challenging circumstances, Offerpad’s Q1’23 results show progress in its revival efforts. It has improved its financial performance and implemented strategic cost-saving measures. It has also shown signs of improvement in various parameters. 

In Q4 of 2022, Offerpad reported an overall loss of $121.1 million, whereas it managed to bring down its net loss by 51% to $59.4 million in Q1’23. Over the previous quarter, gross profit per home sold saw a surge to $4,500. The adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved by 57% over the previous quarter.

“We are pleased to see the expected sequential improvement in our quarterly results materialize,” said Brian Bair expressing his satisfaction with the performance. “Acquisition volume has also steadily increased each month in 2023, with homes acquired after the market shift showing positive performance, he added.”

In February 2023, Offerpad announced plans to raise $90 million from existing investors. The decision had been taken to help the company tackle the upcoming challenges. As per CFO Mike Burnett, the company implemented many cost-saving measures, including laying off around 50% of its overall workforce in the past two quarters. The firm had also shifted its focus on its asset-light offerings like ‘Offerpad Flex’

Offerpad remains cautious in acquiring new homes to assess the market’s response to its products. The company has also sold 99% of its ‘legacy’ inventory. 

“During the last three quarters, we have acted decisively to responsibly sell through our legacy inventory. We are now focused entirely on our go-forward plans to simplify residential real estate and build an extensive suite of solutions,” said Bair. 

Looking forward to the second quarter,  Mike Burnett said “We also expect Q2 to reflect quarter-over-quarter increases in acquisitions, inventory, and contribution margin and also improvement in our time from acquisition to sale.”

Final Remark

Given the slow pace of the current market, selling 22,000 or more homes will take a lot of work for Offerpad. However, the company has caught on to the changing market dynamics. It has taken several steps as well to navigate the obstacles ahead.

Offerpad has slowed down its home acquisitions. By Implementing cost-cutting measures, it has adopted various conservative approaches to underwriting. It has decided to rely less on home flipping and is slowly trying to expand into ‘asset-light’ services. Its management hopes that these factors will help them overcome the trials ahead.  

The iBuyer has been primarily focused on streamlining its transactions, which will help Offerpad in facilitating sales directly to buyers. 

iBuying is meant to be a convenient and frictionless way for people to sell and buy homes. Once buyers are off the fence, Brian Bair sees growth opportunities. “When sellers can’t go from listing to pending in days, and instead it takes weeks or months, iBuying becomes even more attractive,” Bair said in Opendoor’s previous year’s earning call that took place back in November 2022.