Billionaire investor Chamath Palihapitiya is unveiling his latest SPAC investment. His SPAC, Social Capital Hedosophia II (Nasdaq: IPOB) is merging with OpenDoor, a real estate startup.
Per the terms of the deal, Palihapitiya will be investing $1 billion into OpenDoor which will value the company around $6.2 billion. Social Capital Hedosophia II's shares were 14% higher following the announcement.
Palihapitiya has been at the vanguard of the SPAC movement. He currently has four SPACs listed and already brought Virgin Galactic (NYSE: SPCE) public through this route, while promising that more are coming in the next few months.
His ambition is to form the Berkshire-Hathaway (NYSE: BRK) of the tech world. Like Buffett, his career is off to a promising start with a stint as an early employee at Facebook, (Nasdaq: FB) focusing on user growth and developing the News Feed which made him a billionaire.
OpenDoor Background
OpenDoor was founded with the premise to make home selling easy. The website gives anyone a quote for their house and allows them to sell it with one click. It offers convenience, and the chance for sellers to save on fees and the headaches associated with selling a home.
It also has an inventory of homes and offers a variety of additional services related to the process like inspections, repairs, and renovations. It also has an automated process to help buyers and sellers save money on closing costs.
Home buying and selling account for nearly $1.6 trillion in economic activity, so there's considerable room to grow. Currently, it earns a 4% margin on transactions but believes that this will continue increasing as the company's software and processes become more efficient.
In a sense, OpenDoor is combining Zillow Group (Nasdaq: Z) and Redfin (Nasdaq: RDFN). Zillow is a website where people can find information about home listings and see house price estimates. Redfin is attempting to become a 21st-century brokerage.
Stock Price Outlook
Given the upside given the market size and value proposition offered by OpenDoor, it's likely that the stock will do well. This is especially the case as the bull market in housing is strong. The combination of a surge in homebuying due to the coronavirus, low mortgage rates, and low housing supply are supportive factors that should keep home prices trending higher for years.
On a longer-term basis, OpenDoor has an opportunity to simplify and expedite the process which can be expensive and take weeks to complete. It seems out of sorts with today's fast-paced world and an area that is ripe for disruption. Another catalyst is the 75 million millennials who are entering their prime, home-buying years.