Business Breakdowns
· Kaz Nejatian
[00:00:00] S1: What are the things that naturally attach to real estate, and what are the embedded margins, or at least the embedded gross-cost opportunities? There's a transaction cost of 6 to 7%, everyone understands it. The title and escrow cost of 1 to 2%. There is mortgage, where the average margin is 300, 350, 400 basis points there. There's insurance, where the average margin is 100 to 200 basis points there. There is home care, satellite dishes, solar — all these things add up. Some of these are friction, some are premium products. Some of these you have to have. Mortgage isn't an option for most people, you have to have a mortgage provider. If I can take a series of services in a highly fragmented market, all of whom have very low NPS scores, and jam them all together and say great, all of the profit made by all of these players in the stack, and all of the inefficiencies by these players in the stack — because they all have to pay for CAC and I don't, they all have to pay for gathering information and I don't. That's the opportunity. It is the single largest market in the world. It is significantly bigger than the stock market. You can believe whatever you want about the underlying business of Opendoor. You can have a variety of opinions about Opendoor and me. What I think is very hard to say is that the largest real estate company on the public market in the United States should not be very large. There isn't a $100 billion market cap real estate company in the public markets in the US. That does feel like a flaw in the matrix.
· Matt Reustle, Kaz Nejatian
[00:00:00] S0: On the attachment opportunities, you are often mentioning that you don't like to announce or tease products before they are formally launched. But if you think about prioritization, which is a big thing for you in rollouts — do you have an order of operations or an order of focus when it comes to mortgage, title and escrow, attachment rate, anything along those lines? [00:00:00] S1: What you want to create in order to simplify a system is a thin waist. You want to actually have a thin waist so you can simplify the rest of it. For e-commerce, that's checkout. The checkout is what actually runs the business logic on either side of that transaction. That doesn't exist in real estate. So for us, the priority is creating checkout for real estate in the United States. That by necessity means we care a lot about title and escrow. On title and escrow, once we solve that, the system just becomes simpler. It's public that we have a mortgage product live in Colorado, and we'll have a bunch of other states soon. That's obviously second. Home warranty is very high on the priority stack, then insurance, then a bunch of other services. For what it's worth, I think it's not that hard to imagine why Opendoor is almost an ideal provider of solar services. [00:00:00] S0: Give me that vision.
· Matt Reustle, Kaz Nejatian
[00:00:00] S0: Give me that vision. [00:00:00] S1: We buy homes. Lots of the homes we buy lease their solar panels from someone else. It's very easy to imagine how we can buy those solar panels and then lease them to the next owner. That's the easiest version of this. There are a couple of versions that get slightly more complicated. But more importantly, just go down the stack of financing — you're an ex-banker, you're good at this. Imagine what it takes to underwrite the risk of any given asset class. How correlated is the risk of leasing someone a solar panel to the underlying home? How correlated is that risk to a mortgage? How correlated are all these risks to insurance? You used to actually buy — cars have a very interesting history — you used to buy your engine separately from the carriage. There were people who would make the body of the car, people who would make the engine, and you'd just go buy them. We decided that was exceptionally dumb. But we still buy homes the same way. The way we buy cars is we usually get financing from the person who sells us the car. The car usually comes the way we want it. The way we buy a home is we deal with a couple of dozen different parties in the system, and they all hate each other. It's a very weird hack on the system that has been maintained.
· Matt Reustle
[00:00:00] S0: When you think about introducing those various things you could attach to the purchase or sale of a home, each one does potentially involve friction. If the mortgage doesn't go through, or the insurance, any one of these things — how do you solve for that? Yes, naturally it would be a great thing, but could they add friction, slow things down in terms of velocity? Tell me where that thesis is wrong, or how you solve for it.
· Kaz Nejatian
[00:00:00] S1: Matt, I think you're just straight up wrong. I think there's a lot of FUD that comes from people who provide point solutions, who say their point solution is so complex that you could possibly never mix it with another one. Let me give you an example. We had two products at Shopify: Shopify Payments and Shopify Tax. Both had extremely high penetration rates and were used by basically everyone. If you happened to own a restaurant in New York and went to your payment provider and said, hey, I'm considering getting this tax — can you do tax for me? They'd say, oh no, you should stay with us, because it's so complicated. Are there complexities in the system? Of course there are. But for 80% of people, 100% of these services are relatively vanilla. 80% of the people are the margin opportunity that pays for 20% of complexity. It just seems terrible for those 80%. Do I think someone who wants to buy a $14 million mansion, who has no US residency, who has trusts all over the world and multiple cars should be able to use Opendoor home loans and Opendoor insurance and all the other services? No, I don't think they should use us. I don't think the average American living in South Dakota should pay for that subsidy. Our job is to make life easier for the average person — the school teacher, the plumber, the electrician. They should not have to pay more because complexity exists in the system. I say this as a guy who has complexity in his life: there's no reason why the average person should subsidize my life. That sounds insane. But that's the world we live in. My job is this at Opendoor. I want a teacher in Kansas City to have a one-click mortgage, title, escrow, homebuying experience and home-selling experience. That's what we're goingWe're going to solve this for a teacher in Kansas City. The dudes living where you live with their Maseratis can go to someone else.
· Matt Reustle
[00:00:00] S0: No Maseratis in the garage. In terms of the go-forward, you've brought up multiple times — you have this path to profitability, but also you're not afraid to invest in the business. I want to think about that philosophically, how you approach that. Sometimes you want to heavily invest when there's an opportunity to go after something. You've made it clear that there's a path to profitability at certain points in time, in terms of EBITDA-positive and adjusted-net-income-positive by year end. How are you balancing that with whatever need there is to reinvest back in the business?