Chamath Palihapitiya is betting that he just found his next 10x idea. And even better, he is bringing it to the market. On Tuesday, investors are cheering news that he will take Opendoor public. Will the Opendoor SPAC merger really be the next big thing?
Who, what, where? Chamath Palihapitiya has made a name for himself in the world of special purpose acquisition companies, or SPACs. These blank-check companies provide an alternate IPO path. Through his first SPAC, Social Capital Hedosophia, Palihapitiya brought Virgin Galactic (NYSE:SPCE) to the New York Stock Exchange.
So, after the broad success of Virgin, Palihapitiya wants to try again. Through Social Capital Hedosophia II (NYSE:IPOB), he plans on bringing Opendoor to the public markets. But what is his new “10x” idea? Opendoor is a real estate startup. It promises that you can sell your home from the comfort of your couch. The company also offers users a mortgage program, home warranties and home repair services.
Diving into the numbers, things also look good for Opendoor. Operating within the $1.6 trillion housing market, Opendoor sold 18,000 homes last year. It plans on increasing that presence with the help — and funding — from its SPAC merger. The startup will see $414 million from the Opendoor SPAC merger, and will also receive $600 million through a private investment in public equity (PIPE).
One estimate puts the post-merger value of Opendoor at $4.8 billion.
Why the Opendoor SPAC Merger Looks Hot Now
There are two big reasons investors should be excited about the Opendoor SPAC merger, beyond the expertise of Palihapitiya in the space. The first is that all things online have been successful thanks to the onset of the novel coronavirus. Consumers are buying food, clothing, cars and insurance plans through e-commerce companies. Why not try selling products the same way?
Opendoor has a unique business model in that homeowners get a quote — typically through an algorithm — and then sell their houses to Opendoor. The real estate startup lists them, sometimes fixing houses up along the way. The spread between the buying and selling price is how Opendoor makes its money. Investors should know that it brought in $4.7 billion of revenue doing just that in 2019.
The other big reason investors should be excited is that the housing market is hot now. Consumers are looking to get outdoors, spread out and escape the realities of the pandemic. Dozens of reports about the Great American Migration — the flight of consumers out of cities and into suburbs — have been swirling. It seems like amid the pandemic, everyone wants a backyard and a pool.
Although any new offering like Opendoor is not a guarantee, coronavirus catalysts are working in the startup’s favor. IPOB shares are up more than 15% in intraday trading.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer for InvestorPlace.com.