Opendoor Technologies Inc

Good day and thank you for standing by. Welcome to Opendoor's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would like to turn the conference over to your speaker today, Kimberly Nehow, Head of Investor Relations. Please go ahead.

Thank you and good afternoon. Details of our results and additional management commentary are available in our earnings release and shareholder letter, which can be found on the investor relations section of our website at investor.opendoor.com. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are statements that could be deemed forward-looking, including but not limited to statements regarding open doors financial condition, anticipated financial performance, business strategy and plans, market opportunity and expansion, and management objectives for future operations. These statements are neither promises nor guarantees, and under-reliance should not be placed on them. Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in the risk factors section of Opendoor's most recent annual report on Form 10-K for the year ended December 31, 2023, as updated by our periodic reports filed after that 10-K. Any forward-looking statements made on this conference call, including responses to your questions, are based on management's reasonable current expectations and assumptions as of today. and Opendoor assumes no obligation to update or revise them, whether as a result of new information, future events, or otherwise, except as required by law. The following discussion contains references to certain non-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please visit our website at investor.opendoor.com. I will now turn the call over to Carrie Wheeler, Chief Executive Officer of Opendoor.

Good afternoon. Also on the call with me today are Christy Schwartz and Dodd Frazier. At Opendoor, our vision is to build the most trusted e-commerce platform for residential real estate, and we're focused on building a durable generational business that customers love so that one day every seller will start their home selling journey with Opendoor. We're proud of our performance in the second quarter. Revenue, contribution margin, and adjusted EBITDA all outperformed guidance, and acquisitions grew nearly 80% year over year. At the same time, our seller NPS reached the highest level we've seen in two years, proof of the strength of our customer value proposition. Home sellers desperately need an alternative to the traditional real estate process, and that's exactly what we're providing. During the quarter, we continue to make meaningful progress, growing our top of funnel to reach more sellers, and expanding our product offering to convert more customers. Today, our buy box sits just north of 650 billion. This is a massive addressable market that we're going after. One of the most important ways we can grow our top of funnel is by increasing awareness of our brand and our products. Year to date, we've seen that over one in four true sellers or customers within our buy box that ultimately went on to list or sell their home had previously entered their home address on our website. And while that's something to celebrate, we also recognize that we have a significant opportunity to expand our reach. We want all sellers to start the journey with Opendoor. To do this, we have shifted our marketing mix toward brand media spend versus direct response. And as a result of our efforts to increase brand salience, aided awareness and consideration have reached the highest levels in Opendoor history. Importantly, while higher awareness brings more customers to the platform, it also improves conversion rates. As an example, in our markets where aided awareness is 45%, which is primarily our most mature markets, we see 33% higher offer-to-contract conversion rates when compared to markets with an awareness of 26%. Further, over half of our markets were launched in 2021 and 2022, right before the housing reset and our significant pullback in marketing spend. and these markets have awareness of less than 20%. We believe that with incremental investments and time, these cohorts should provide significant tailwinds to future volume growth. We also have the ability to drive growth by spending our product offering with a suite of products that best suits the needs of all sellers that come to us. For a decade, our flagship all cash offer product has provided simplicity and certainty to sellers who are looking for an easier way to sell their home. However, We know that other sellers are interested in testing the market and listing their home on the MLS. In an effort to better serve these customers, we've expanded lists with Opendoor to nearly all of our markets in the second quarter. We now give customers a choice of how they'd like to sell their home, selling directly to Opendoor or listing on the market. If they choose our listing product, we list their home with the help of one of our partner agents. And if they don't find the price they want, they have up to 30 days to accept our cash offer and complete their sale. Since launching this product, we've seen a nearly 10% uplift in NPS. Further, this capital aid offering has the potential to be accretive to both total volumes and margins as it gains traction over the long term. While we are focused on making enduring improvements to our business, we also have to make tactical decisions in the short term to strike the right balance of growth, margin, and risk against what continues to be a challenging housing backdrop. In the back half of the second quarter, we began observing and responding to signals that indicated additional slowing in the housing market. The combination of higher delistings and slowing clearance rates led to a decline in month-over-month home price appreciation, or HPA. HPA entered negative territory in June, two months earlier than a typical year. In response to this weaker HPA, we began increasing spreads more than we had expected. This will weigh on acquisition volumes in the third quarter. In addition, we have taken larger home-level price drops to maintain clearance levels within our resale targets, which will impact our contribution margin. With an increasing probability of interest rate reductions by the Fed in the second half of 2024, there are reasons to believe that we may benefit from any potential tailwinds in housing market activity. That being said, we will continue to preserve flexibility in setting spreads to operate against a range of macroeconomic outcomes in 2024. While we expect the current macro to be temporary, the progress we've made growing our top of funnel and expanding our product offering combined with the operating and cost discipline we're driving across the business are enduring. Today, we announced that our business unit, Mainstay, is becoming an independent, privately held company in conjunction with an outside equity investment led by Coastal Ventures. Mainstay is a comprehensive market intelligence and transaction platform for the single-family rental industry. Mainstay was built as a separate business, leveraging Opendoor's data insights, transaction platform capabilities, and enterprise customer relationships. This transaction sets up both Opendoor and Mainstay to focus on building their respective businesses with dedicated teams and resources. Mainstay will be co-led by Dodd Frazier, who's led the business's development since inception, alongside a dedicated team. With today being his last earnings call, I want to extend my thanks to Dodd for all his contributions to Opendoor. As we look forward to the future, we remain as focused as ever on reinventing one of life's most important transactions. And to do that, we're positioned to rescale our business in a durable and sustainable way so we can provide simplicity and certainty to the millions of customers who will move in the years to come.