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This Small-Cap Disruptor Has a $1.9 Trillion Market Opportunity

By Matthew Frankel, CFP® – Sep 5, 2021 at 6:37AM

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Here's a massive market that's just begging to be disrupted.

There are several major players in the iBuying space, including real estate heavyweights Zillow Group (Z 0.06%) (ZS -1.37%), Redfin (RDFN -0.99%), Opendoor Technologies (OPEN -3.85%), and last but certainly not least, Offerpad, which is set to go public via a merger with special purpose acquistion company Supernova Partners Acquisition (SPNV). In this Fool Live video clip, recorded on Aug. 23, Offerpad CEO Brian Bair discusses how much of the $1.9 trillion real estate market could eventually go to the iBuying industry, and why his company could be well positioned to capitalize. 

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Matt Frankel: Your projections in your second-quarter earnings say that you're going to sell as many as 6,000 homes this year. I believe that was the high end of the range. We've seen the statistics, real estate's a $1.9 trillion market, a few million houses are bought and sold each year. How much of that realistically could become Offerpad's addressable universe, and how many markets do you see yourself in? Because obviously there's some small rural markets that don't make sense for the iBuying business.

Brian Bair: Yeah. We have about $1.9 trillion. The TAM is just so massive. What people don't talk enough about the TAM, is just how fragmented the TAM is right now. It's just so fragmented and the way the industry is happening right now with the fragment, it puts a lot of the burden on the consumer. But as we identify different markets as we continue to grow, like I mentioned before, the model can work in most, if not all markets, so there will be some rural markets that might make sense probably down the road a little bit, or even a satellite market that we expand into. But I will tell you, and this is where I'm extremely bullish. Right now, if you take as much noise as you take the big three iBuyers, us and our two competitors, about how much noise we've created out there and really revolutionize the way to look at real estate. We all have, together combined, have less than 1% market share. Ninety-nine percent of the people are still going the old way. The TAM in just that market, there's just so much opportunity, so much runway there. But as you look at the segment, so you're going to see us rapidly expanding into all markets. The TAM of those markets, especially having different solutions, there's a lot of different ways to get market share. Not just your iBuying model, but the other products that we're offering and will continue to offer the consumer, that more market share will, I believe, stronger will come this direction.

Frankel: Kind of to follow up on that, do you see yourselves making the most of your money from iBuying or from all these adjacent services?

Bair: It depends. In a perfect world, as we continue to grow, it will be 50/50. How that evolves over time and what are the education. The first couple of years, the education of Offerpad was, "Hey, we're different than what you've seen before, we're real estate as-a-service, we're a direct home buyer." People kept trying to put us into a certain box, that they've seen before, "You are some flip company, are you?" We're like, we're different than what you've seen before, we want to do real estate as a service. That was the first, and I think we've done a lot of things that we can improve on. One of these we did really well, is really creating that new space that now people call iBuy. The next phase of education is really educating the consumer about our solution center and other products. So don't think of it just as an iBuyer, but think about other ways that we're going to make your life easy and put you more under control. So that's really the next evolution of this. Like I mentioned before, you have a homeowner that trades once every seven years. Seven years ago an iBuyer didn't exist. It's new education to more and more customers or consumers as they continue to sell their house of all the other services. That's the challenge we have ahead of us, I think there's a massive opportunity there with how big the market is, but also just how broken and lack of control the consumer has in the old way of doing real estate.

Matthew Frankel, CFP owns shares of Zillow Group (C shares). The Motley Fool owns shares of and recommends Opendoor Technologies Inc., Redfin, Zillow Group (A shares), Zillow Group (C shares), and Zscaler. The Motley Fool recommends the following options: short August 2021 $65 puts on Redfin. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Supernova Partners Acquisition Company, Inc. Stock Quote
Supernova Partners Acquisition Company, Inc.
SPNV
Zillow Group (C shares) Stock Quote
Zillow Group (C shares)
Z
$35.31 (0.06%) $0.02
Redfin Stock Quote
Redfin
RDFN
$5.00 (-0.99%) $0.05
Zscaler Stock Quote
Zscaler
ZS
$134.85 (-1.37%) $-1.87
Opendoor Technologies Inc. Stock Quote
Opendoor Technologies Inc.
OPEN
$1.75 (-3.85%) $0.07

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