Offerpad Options (NYSE:OPAD)

The early fowl will get the worm, however the second mouse will get the cheese.”― Willie Nelson

At present, we’re circling again on Offerpad Options Inc. (NYSE: UP) for the primary time since our preliminary article on this intriguing small cap concern in June of final yr. I concluded that piece of analysis with this conclusion.

I’m passing on any funding suggestion regardless that I do discover the agency’s enterprise mannequin intriguing. If Offerpad makes it by way of this downturn within the housing market, that is the title I’d most likely look onerous at accumulating in the direction of the top of any recession because the central financial institution ends its financial tightening stance after the inflation genie is put again into her bottle.”

That turned out to be the proper suggestion because the shares have cratered since that preliminary evaluation was posted. The bigger query for the corporate and its shareholders is whether or not Offerpad can survive till the Federal Reserve ‘pivots‘ and the housing sector improves. An up to date evaluation follows beneath.

Firm Overview:

Phoenix primarily based Offerpad Options, Inc. operates an actual property options platform referred to as iBuying for on-demand buyer. This enables purchasers to promote and purchase houses on-line with streamlined entry to ancillary providers, resembling mortgage and title insurance coverage providers. The corporate additionally buys, sells, rents, and renovates properties to owners in the US as its imaginative and prescient is to be one-step store for patrons and sellers. Offerpad has a renovations crew in every of its markets that may rapidly do renovations to extend the worth of the itemizing whereas the house goes by way of the gross sales course of.

OPAD inventory at present trades for simply over fifty cents a share and has an approximate market capitalization of $150 million.

In FY2022, the corporate bought 10,000 houses for the primary time in Offerpad’s historical past. It additionally accomplished 9,985 renovation tasks and elevated their asset-light FLEX transactions, together with itemizing, shopping for and mortgages by 90% over FY2021.

Fourth Quarter Outcomes:

On February twenty second, the corporate posted fourth quarter numbers. Offerpad had a GAAP lack of 49 cents a share, roughly 1 / 4 worse than anticipated. Revenues fell simply over 21% on a year-over-year foundation to $677.2 million, which was $110 million over expectations.

Nonetheless, administration drastically took income steerage down for 1Q2023. They put a gross sales vary of $480 million to $540 million (on 1,300 to 1,450 houses) when the consensus analyst view was for roughly $625 million value of income this quarter on the time.

Offerpad had a web lack of $148.6 million for the fourth quarter which included a $44.1 million stock impairment cost. As will be seen beneath, whereas the quantity of houses Offerpad bought in FY2022 was considerably increased than FY2021, its gross margins fell dramatically throughout the quickly deteriorating housing market.

Full-12 months 2022 Monetary Outcomes

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Probably the most aggressive Fed coverage for the reason that early 80s and the decline in housing affordability hit Offerpad in a few important methods. The primary was that the corporate wanted to promote its housing stock that was acquired previous to the market deteriorating. The second was securing further capital to strengthen their steadiness sheet which Offerpad not too long ago achieved (see part beneath).

Stock of houses acquired earlier than September 1st, 2022 went from roughly 4,000 to 225 through the quarter. Houses acquired after September 1, 2022, which have bought are recording constructive returns in keeping with administration. The corporate had roughly 1,800 houses inside it stock as of YE 2022.

Liabilities for the corporate’s housing stock has dropped roughly $500 million from its peak. As well as, since peaking in August, Offerpad has diminished their total workforce by roughly 50%. This contains the newest discount in February. These strikes have resulted in a mixed complete annual financial savings of roughly $40 million.

Analyst Commentary & Steadiness Sheet:

Since fourth quarter outcomes got here out, each JMP Securities and Cantor Fitzgerald have reiterated Purchase rankings with similar $1.00 a share worth targets. J.P. Morgan has maintained its Maintain ranking on the fairness.

Roughly 15% of the corporate excellent float is at present held quick. There was no insider exercise on this inventory in 2023 up to now. A director did buy simply over $3 million value of shares final August at a mean price of simply lower than $1.70 a share. The corporate ended FY2022 with an unrestricted money steadiness of $97 million. Earlier this yr in February, Offerpad accomplished a $90 million personal placement of pay as you go warrants, that are convertible within the widespread inventory.

Verdict:

The present analyst agency consensus has the corporate shedding 43 cents a share in FY2023 as revenues fall greater than 40% to $2.24 billion. In FY2024, the consensus requires the corporate to interrupt at the same time as gross sales rise almost 35%. Nonetheless, given the uncertainty of the housing market, there may be huge variance round earnings for 2024 starting from a lack of 22 cents a share to a revenue of 46 cents a share.

I’ve all the time like what Offerpad is making an attempt to perform in streamlining/integrating your entire house shopping for/promoting course of. Sadly, it has rolled out this imaginative and prescient because the housing market is in limbo due to common mortgage charges greater than doubling for the reason that begin of 2022.

Administration appears to be taking the proper steps in lowering stock and working prices in addition to not too long ago shoring up its steadiness sheet. The query is how lengthy with the housing market stay extraordinarily challenged. Till circumstances enhance, Offerpad’s enterprise mannequin is more likely to stay underneath stress. Subsequently, the inventory ought to solely be thought of by aggressive buyers that the Fed will quickly ‘pivot’ and that can flip the housing sector round.

Hell is reality seen too late.”― Thomas Hobbes, Leviathan

Editor’s Observe: This text covers a number of microcap shares. Please concentrate on the dangers related to these shares.