Ephesians Chapter 4 verse 32 states, "Be kind and compassionate to one another, forgiving each other, just as in Christ God forgave you."
Forgiving people I know doesn't always come easy to me. It's much easier to think, "they don't deserve it!". But this is contrary to what God's word teaches me. I am extremely undeserving of God's forgiveness, but He is able to forgive me because He loves me. That fact alone, is what challenges me to rethink how I view others, as it should.
So what does forgiving others have to do with markets? It's not so much about the literal aspect of relationships, but more about the disposition of this verse that I find helpful for investing. Kindness and compassion are the opposite of anger, frustration, and impatience. The latter are words that I can easily associate with emotional drivers that can have detrimental impacts on investment decisions. Being a forgiving person can be very helpful in also being a patient and practical investor when it comes to market volatility and tough times for decisions.
eXp World Holdings, Inc. (EXPI) is a leading growth new-comer to the digital real estate market. One of our Site Members actually brought the company to my attention as I've been writing on Opendoor Technologies, Inc. (OPEN). I felt it was a great opportunity to consider EXPI as well as the competitive landscape that OPEN is attempting to unseat, and how investors should be thinking about the future potential. Other companies will include Offerpad Solutions, Inc. (OPAD), Redfin Corporation (RDFN) and Zillow Group, Inc. (ZG).
For me the important thing for investors to recognize are the nuances across the business models of the competition:
EXPI - focused on providing solutions for brokers/agents for commercial/residential real estate via cloud-based technology platform
OPAD - focused on a vertically integrated iBuying model
OPEN - focused on a vertically integrated iBuying model
REDFN - focused on a hybrid model including real estate agents and iBuying
ZG - focused formerly on a hybrid model including real estate agents and iBuying, exited the iBuying market
This is important as companies including EXPI, RDFN, and ZG are focused on brokers/agents as a large part of the business model, for the cases of EXPI and ZG, 100%. Conversely, OPAD and OPEN are focused explicitly on buying real estate properties and using their proprietary technology platforms to sell their inventory. RDFN is attempting to do what ZG could not, transition from the agent model to iBuying.
The number one takeaway from all of this is where do brokers/agents fit in the long-term? Companies like OPAD and OPEN are not looking to rely upon traditional broker/agents over time, but rather a technology-based customer service platform that can eventually do everything today's services provide, whether through physical or digital approaches.
I've got some tables here to help investors get a sense of how to monitor this competitive dynamic. First, EXPI is the clear leader with its Transactions, or Homes Sold as compared to other peers with nearly 485,000 as of the LTM from Q1 2022. OPEN is in second place with nearly 32,000, which is a long way away. ZG is winding down its iBuying business and will no longer be providing any comparable information.
Another way to think about this is that EXPI generated $173 billion in Volume for Q1 2022 LTM (average home price multiplied by the number of transactions), while OPEN through its iBuying model generated $12.4 billion that is an equivalent against EXPI's Volume. OPAD generated $3.2 billion, RDFN generated $1.2 billion and $1.1 billion respectively for its Properties (homes sold) and Other Revenue categories, and ZG generated $9 billion and $2.2 billion respectively for its Zillow Offers (homes sold) and Other Revenue categories.
Another way to monitor these competitors is using the same information above and taking the proportional results against EXPI which is the clear Volume leader. It should be noted that EXPI has around a 2.5% take rate from the Volume they generate so as of Q1 2022, their Net Revenue results stood at $4.2 billion for the LTM. This results is not apples-to-apples for any of the other peers. Despite this, EXPI's GM is lower than that of both OPAD and OPEN, but when it comes to Cash Flow, EXPI's results are stronger today.
The final table here for me is going to be the most important moving forward. Clearly, OPAD, OPEN and RDFN have witnessed correlating strength during Q1 2022, while EXPI has lagged, and ZG, has witnessed a peak surge in homes sold from its Revenue results, but no longer is disclosing the nominal amount as it is winding it down.
In fact, OPAD, OPEN and RDFN have substantially outperformed EXPI (albeit from smaller bases) every year with the only exception being the 2020 pandemic year, where iBuying peers were forced to de-risk their inventory, meaning no purchases of homes, while selling what was in inventory due to the government shut-downs and policies. This benefited EXPI the most as its cloud-based model for brokers/agents afforded transactional activities still.
Why it Matters
Based on the key takeaway, it's very clear why this matters. OPAD, OPEN and REFN are attempting to completely digitize the entire home sales/purchase process. If successful, this will potentially eliminate or at a minimum, substantially reduce the need for brokers/agents. There is the possibility that brokers/agents still may remain relevant, but I suspect that a more holistic customer service role will be the a more realistic outcome.
OPEN is pushing for automated digital services though to create greater efficiencies for clients, so if they can, they will eliminate former tasks performed by specialists across the board whether to purchase/sell a home, mortgage-related related elements, etc. Even home upgrades and contracting is at risk of elimination, where OPEN takes on the management of this.
Investors need to keep paying attention to these trends as ZG's failure for iBuying needs to be considered as RDFN attempts to remain competitive. And OPAD's continued scaling needs to be monitored as OPEN attempts to lead and the iBuying side. There are other competitors emerging for iBuying as well, even Jeff Bezos is involved in a newer entrant. EXPI and ZG need to be scrutinized as to whether the broker/agent model has long-term viability, if not, they may lose big time.