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Why Offerpad Solutions Stock Sank Nearly 15% in December

By Matthew DiLallo – Jan 7, 2022 at 4:35AM

Key Points

  • Zillow's exit has continued to cast a shadow on the iBuying market.
  • Offerpad wasn't as aggressive as its rival, which suggests it can be successful.
  • The iBuyer also improved its financial flexibility, increasing its capacity to buy homes.

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The real estate iBuyer fell despite some positive coverage.

What happened

Shares of Offerpad Solutions (OPAD -10.65%) slumped 14.7% in December, according to data provided by S&P Global Market Intelligence. That decline in the iBuyer's stock price came despite some positive press from several analysts last month. The main issue seems to be the continued uncertainty in the space following Zillow Group's (Z 0.10%) (ZG 0.05%) decision to exit iBuying in November. 

So what

In November, Zillow upended the emerging iBuying real estate market by exiting after racking up heavy losses. That opened the door to questions about whether this was a Zillow-specific issue or if the iBuying business model didn't work. 

A person holding a mobile phone near a for sale sign.

Image source: Getty Images.

Offerpad's third-quarter results, which it reported in November after Zillow's announcement, seemed to suggest the problem wasn't with the iBuying business model. It posted strong results, with revenue rising 190% year over year, while gross profit surged 169%. It sold a record number of homes, noting that it owned over 99% of its inventory for fewer than 180 days. 

These numbers and those posted by rival Opendoor Technologies (OPEN -9.94%) had the market growing more confident in the future of iBuying despite Zillow's departure. Barron's featured an article in December calling both Offerpad and Opendoor a buy. The author noted that both did a much better job than Zillow managing inventory, which should enable them to avoid its missteps.

Meanwhile, Cantor Fitzgerald analyst Benjamin Sherlund initiated coverage on Offerpad last month, with an overweight weighting and a $10 price target. That implies more than 70% upside to the current share price. The analyst believes that the sell-off following Zillow's abandonment of iBuying has created an attractive valuation gap between Offerpad and its peers. 

In other news last month, Offerpad undertook several transactions to refinance and restructure related-party credit facilities. The iBuyer also obtained $500 million in additional senior secured revolving credit capacity, bringing its total to $1.7 billion. These moves increased its financial flexibility to continue expanding its iBuying business.

Now what

The iBuying market is in a state of flux following Zillow's exit, and that continued weighing on Offerpad last month. This uncertainty will take some time to clear. The company will need to prove that iBuying can be a consistently profitable business.

There's reason to believe that Offerpad can be successful. It wasn't as aggressive in expanding as Zillow. Because of that, it has been able to quickly flip the homes it buys, which is essential in a volume business like iBuying. If it can continue to scale, Offerpad could have significant upside in the coming years.  

Matthew DiLallo owns Offerpad Solutions Inc, Opendoor Technologies Inc., Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool owns and recommends Offerpad Solutions Inc, Opendoor Technologies Inc., Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.

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