Eoin Treacy's view -
When the Vision Fund last invested in 2019, it valued Opendoor at just $3.8 billion. This year, Social Capital Hedosophia Holdings Corp II, a SPAC created by former Facebook Inc. executive Chamath Palihapitiya, decided it was worth $4.8 billion (excluding its cash). Since announcing the merger with Opendoor in September, the price of shares in Palihapitiya’s SPAC has more than doubled. This means Opendoor’s enterprise value has risen to about $13.5 billion, even before the transaction is complete.
A serial SPAC launcher, Palihapitiya thinks Opendoor’s valuation could rise tenfold. “This to me feels like Bitcoin in 2012, Amazon in 2015, Tesla in 2016, Virgin [Galactic] last year,” he said last month. Palihapitiya’s first SPAC took Richard Branson’s space-travel company public in 2019.
Palihapitiya and his investment partner Ian Osborne have put more of their own money — about $169 million — into Opendoor than is customary in a SPAC deal. At the current share price, they’re set to achieve a spectacular four-times return on that invested capital.
It’s hard to see how the company’s fundamentals justify such returns. Opendoor said the SPAC transaction valued it at a 1x multiple of its revenue (the value of the houses it sells, plus any ancillary services). But once you deduct the cost of acquiring and renovating the houses, the company generated just $300 million in gross profit last year — a paltry 6% gross margin.
Startups have waited a decade to list on the stock market. They didn’t have to. The conventional reason to list is because it is the only large source of funding available for small companies to fuel growth. Equity is an expensive source of capital for companies and private funds were a lot easier to come by since the financial crisis.
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