B (5:08)

That's right, it was the classic fat cat, Wall street person, cigar in mouth, getting excited, looking at stock updates, coming over on a ticker tape machine. I had to laugh. It felt so archaic.

A (5:18)

Well, I will always be nostalgic for the classic ticker tape machine, but we are nonetheless glad to have public the investing platform that's been made for this century with a clean, intuitive, modern design. Public combines a wide range of asset classes with the tools you need to build and manage your wealth, whether it's with stocks, options, bonds or crypto. So find your account in minutes or less. Get started at public.com brewmarkets that's public.com/brewmarkets.

B (5:41)

Paid for by Public Investing. Full disclosure in Podcast Description and now.

A (5:46)

My interview with Eric Jackson. So Eric, talk to us about one of the terms that you've used a lot in the public domain, and that's a cult stock. You've called Open Door a cult stock, not a meme stock. What's the difference between the two?

C (5:58)

Meme stocks are usually, usually shooting stars. They have some popularity for a short duration and then they're gone. I don't think of them as durable businesses. I think of them as sort of flash in the pans that have, you know, where there's almost they almost inexplicably have risen to importance. I personally, like you couldn't pay me to buy any of the stocks that are so called meme stocks. GameStop, AMC, I think BlackBerry for a time in 2021. More recently GoPro, I think, I think American Eagle was when they announced their Sydney Sweeney ad. So these are Dunkin, not Dunkin' Donuts. What was it? Krispy Kreme. Krispy Kreme Doughnuts. These are not real businesses. Cold stocks, though. I can only name two other than Opendoor in the last 10 years and one was Tesla at the end of last decade and the other is more recently Palantir. Cold stocks are real businesses. They are misunderstood businesses, usually misunderstood by the institutional community and adopted first by the retail oriented community. And so that's what's happened with those other two stocks. That's what's happened with Open Door. There's a lot of still skepticism, I would say, from the institutional community about Opendoor. They don't understand it. The the mainstream media likes to categorize it as a meme stock, but it's quite different and I expect it to be, you know, quite enduring.

A (7:29)

Well, there's a couple of things you said in there. We'll come back to valuation and sort of moonshots or shooting for the stars. So hold that thought. Let's talk about a real business versus not. I would argue Krispy Kreme is absolutely real business. It's got a real product, it's got broad distribution. You may not like the valuation, but the product is there. Same with American Eagle. It's a real business you may not like the valuation, but it's got stores and it's got product and it's got, you know, awareness. That I think is difficult to argue with. Open Door, in contrast, has got a couple of relevant precedents. Zillow closed its business, the iBuying platform, in 2021. Redfin closed its business in 2022. You know, there's a public comp out there that's lost 99% of its share value. Isn't that the market's way of saying that actually this isn't a real business?

C (8:15)

I would look at it differently where there is a. There's a huge market here that we're talking about residential real estate in the U.S. it's a $20 trillion market, 14 trillion of which is tied to a mortgage. And then obviously internationally, it's multiples of that. And this business is, I would say, an inefficient business today, where for whatever reason, historically, real estate agents have populated it. And we have come to accept that we need to pay 6 or 7% of every transaction to those real estate agents, often for doing nothing. We have seen other markets that have been democratized and made much more efficient by the advent of technology and apps. You know, and so we can point to Uber, we can point to Airbnb, we could point to Carvana and Used Cars, where we're dealing directly and buying and selling used cars rather than going to the car dealership, just because that was always the way to do it. And yet we haven't seen that happen where there hasn't been an uberfication of real estate transactions yet. And so Opendoor has been around for a while. And you're right to say that, you know, it sort of failed when interest rates rose rapidly in 2021, 22. However, I don't think you can point to the failure of Zillow or Redfin as evidence that I buying or the uberfication of real estate cannot ever work. It's just that it hasn't worked yet. Obviously, we're not using Lyco search engines today. We're using Google because there was a better way of doing search engines than the first generation. And I think the same is going to be proven true here. Again, what's also interesting is that Opendoor's core business was always iBuying, whereas Zillow's was ads and Redfins was brokerage. And so in a down market, it's always very easy to for if you're losing money in some new ancillary business, to retreat from it. And to go back to your core business, Opendoor didn't have the luxury of doing that. And therefore now they're now in a position that's much rosier than Carvana was in December of 2022 when it was a $3.50 stock where Opendoor really has no national competition to go after the Uber ification of this market. And that's what they're doing. And that's why I saw value when the stock was, you know, got as low as 51 cents almost two months ago and, you know, it should be. And I think it's on its way to being an $82 stock and much, much more in the years ahead.

A (10:55)

Well, let's talk about, let's talk about the path potentially to get there. And that's actually the business model itself. So to your point, you know, you believe that there is still, you know, market share available to them. What's fundamentally changed, though, if this is proven by Opendoor to be a successful market to go after, why doesn't Zillow and Redfin just switch, switch the flip the switch, come back online and talk to us about why you think this will be fundamentally different this time? Why, why is the next year, two years, five is going to be different for Opendoor than it has been?

C (11:25)

So they, they have tons of market share. They are less than 1% national market share today. What's, what's interesting about Opendoor versus those others is that whereas Zillow has a lot of, I call them looky loos who come to their site to browse around and take a look at, you know, expensive homes in Hilton Head island or Newport Beach, California or whatever. They're not really looking to do transactions. Opendoor has one and a half million Americans who come to it every year and request a quote on their house to sell their house to. And so just as you know, that's a very valuable starting point. It's sort of the equivalent of like search intent for the real estate community. And as we've seen with Google in search, that intent can be whereas lookaly lose cannot other players in the real estate space. Probably the biggest player today is Rocket Mortgage, offering plain vanilla mortgages from call centers in Michigan to Americans. And again, like, that's, that's, that's a different value proposition that people are going to for, you know, there versus people looking to, to, to transact. And so from that starting point, Opendoor is in a really strong position to be able to become this, this Uber or Carvana of residential real estate. And so what will be different is that as we again, the playbook is Carvana. And so Carvana doesn't make that much money from buying and selling cars. Very little. In fact it makes, you know, virtually all of its 20 plus percent EBITDA margins from finance and interest. So there's a, there's a bundling that occurs for a Carvana and having that direct relationship with, with the customers nationally with very, you know, very little sort of national competition just puts them in a stronger position to, to make a bundle sale. Opendoor can do the same. They didn't really do that before. They subsisted. They survived on ibuying alone, which is a low gross margin transaction.

A (13:33)

Right.

C (13:34)

Opendoor's. Opendoor's equivalent to finance and interest like Carvana is mortgage and title. So they can get into mortgage and title much more than they did historically and they can get into some, they can add on some other services and make it a much more profitable not, not a Google's, you know, 80 plus percent margin transaction. But like the equivalent of Carvana, which has obviously been a very successful stock. It's a $40 billion business today. That's very different than Opendoor, which was on June 25, a $397 million market cap company that was sort of left dying on the vine by a sort of an absentee board of directors. Well, that's could have been acquired until retail, you know, saw the value and rescued this company.

A (14:17)

Well, let's just talk about the value. So you've, you've, you've got an interesting idea, Eric. You're basically saying that the business model needs to shift. Right? You're right. Uber's not the right comparison here. Uber is an asset light business is not making purchases of cars, for example, in the way that this business is actually expending cash. Right. To go and buy the asset and actually hold it on its balance sheet itself. And what I've heard you say is the gross margin on that piece of the business is very low and diversification is necessary to fuel the growth potential that you see here. Nevertheless, it's the core reason people are going to Opendoor in the first place. This is your point is to look at that purchase. Now again, if we go back and we say why has Opendoor struggled before now? I hear you on diversification, but let's talk about its core product. What is fundamentally different? We've got a higher interest rate environment than we've seen before. We've still got limits in housing stock. Why do you think the core product can Succeed where it's failed to before with other places and also in its own history.

C (15:15)

Well, they just had their first EBITDA positive quarter in for the first time in three years in, in what we would both agree is a high mortgage rate environment. And so that came through cutting and hacking away at the business. And yet they're, they're still a, I would say fat business with 1,407 employees working there. I think they could operate at probably 20% of that headcount, but nevertheless. And they have yet to really push into mortgage and title, which I said is sort of the path to that 20 plus percent EBITDA margin land that they can get to. And yet they were still EBITDA positive in this environment. Now we know from Jackson Hole that interest rates obviously are coming down perhaps as much as 50bps this month and probably more to come after that. We know that the Trump administration needs to lean heavily on home affordability in the, in the, you know, the years to come, certainly leading up to the midterms. And so there are a number of levers that they can potentially pull to help from a political perspective in lowering that affordability. All of those, all of those things directly lead to higher volumes for Opendoor and a much more profitable business than what Wall street expects, which is virtually nothing. I mean this is, this is a company that was sort of left for dead by Wall Street. A number of firms dropped coverage and basically gave up on it and walked away. And so the expectations are low, you know, on the floor low. And so any, any, any surprises, whether it comes from a macro perspective or from, from moves that they make themselves are going to be seen as heroic.

A (16:59)

Well, it's interesting we talk about the macro. One of the comments that Fed Chair Jay Powell did say in Jackson Hole was that he believes the neutral be higher than it has been historically. Which to jargonize it for our audience means expect even post rate cuts for them to be higher certainly than we saw, you know, in the decade prior to the pandemic. Do you think that's a structural shift different from the days when Open Door was founded?

C (17:22)

No, I mean this is a ten plus year old company. So you know, they, they, they existed for a while in a non zurp environment. Obviously, you know, home purchases were off the charts when we were at, you know, basically had no, no interest. I don't expect that we're going back there. Although I think Jay Powell's proven that he's not the best judge with foresight on exactly where interest rates are going, so nobody really knows. But again, they're making money today in what most would say is an abnormally high environment that we will probably never see again for the next 10 or 20 years. So rates are certainly going lower. It'll be a much more favorable environment for Opendoor and they'll, they'll make a ton of money there.

A (18:07)

Let's talk about valuation. And so I have in front of me, Goldman Sachs is one of the Wall street firms that continues to cover Opendoor. I've got their research report from August 5th, their price target here for the next 12 months being $1. So to your point, very different from yours, you've said, Eric and I saw you posted on X yesterday that you have, quote, long term conviction on a quote, road to $82, $200 and $500. At 82 bucks, a open door would be worth about 60 billion DOL who you look at is about five times projected 2029 revenue. What kind of valuation do you believe in that gets to $200 a share, which would be, you know, more like 12 times 2029 revenue, $500 a share, significantly more than that. What are the metrics, the specific valuation metrics you use to get to those 200 and $500 numbers?

C (19:00)

So to get to the $82 target originally on my first tweet on July 14, you know, I was BAS 2029 and what the Bloomberg consensus of revenue would be for Opendoor at that time, which is $12 billion, which is still less than 1% national market share in real estate transactions. And using a forward price to sales multiple, not a, you know, EV to Ebitda or EV to earnings multiple because this is a, this has been historically a money losing business just like Carvana was. And so if you take forward price to sales and you look at Carvana's snapshot as sort of like a guide to where we probably are going with Opendoor. In 2020, Carvana traded at a 6 times forward EV to sales multiple. It got down as low as 0.5 times forward sales in June of 2022, just before it sort of dumped down to $3.50 a share, down from $400 a share by the way, in 2020. And now it's come all the way back to nearly 400 dol. Over 400 for a couple of weeks. And now its forward price to sales multiple for Carvana is close to five times. So Opendoor by contrast was as high as seven times in the good old days. After it de spacked, it got as low as 0.1 times for revenues. And my assumption was if things normalize it proves steady state profitability. Maybe we get someone like Keith Raboy, the guy who wrote the original business plan and was a co founder of this company to come back Steve Jobs like esque to the board of directors and help in the selection of the next CEO. I think it's reasonable to think it could go back to five times forward by 2028 looking to 29 and that's how you get to $82 a share. I think there are other levers though now that I know the business more over these past eight weeks from getting to know the business and that includes investing heavily in AI. It includes like you know, reducing the headcount enormously. I think there are some asset light levers that they can pull your point. I mean I think they will always be in the ibuying business but there are some interesting ways they can match buyers and sellers which will raise their gross margins. So with all of, if all of those blue sky things start to happen, if they dominate in the US first as Uber did and then expand internationally by the way, where people are dying for an open door type of solution in various countries which I can talk about, that's how you get to 200 and then $500 a share.

A (21:33)

So you still take work.

C (21:34)

It's not a layup the way I think $82 is okay, but it's very possible.

A (21:39)

So you have high conviction on getting to $500 a share which would equate to double digits multiple of 2029 revenue.

C (21:46)

I mean it's going to take work. Just my point is that global real estate is an enormous market to go after and to Uberfy and there's really no, you know, the largest players probably rocket today which you know again is probably 40 billion.

A (22:03)

I just challenge the Uberfication because it's, that is an example you bring up frequently and that again is an asset light model. It's very, very different from actually deploying cash to buy and sell a hard asset like real estate. So I hear you on your thesis but I don't think you know, ification just for the purposes of just, just clarity on, on the different sort of margin profiles and the cash intensity of these businesses necessarily directly.

C (22:29)

Let's call it Carvana fication carbon ification.

A (22:31)

There we go. So let's, let's talk a little bit about some more of the pushes. You have talked about wanting to see change on the board. You've called for the return of the founder. What Specifically, would you like to see done at the board level? Eric?

C (22:45)

Well, this, if I was going to wave a magic wand and I would have someone like Travis Kalanick run this company, I think now I think he's busy. I think he's running cloud kitchens. Obviously he was, he was the, the, you know, the co founder and original CEO of Uber. But you know, the ethos that, with which he, he built Uber is exactly what Opendoor needs at this point. This board has been a caretaker board. This board elevated the prior CFO to the CEO position because they didn't know who else could take the job. And that CFO person did a lousy job of running this company. The company declined down to the, to the point of being $0.51 a share and probably being an easy acquisition target and probably this board would have accepted some sort of 80 cent takeout price for this company which has this opportunity to be. You don't like the word Uber? Okay, I'll say the Carvana of global real estate. And so the dominant player, the brand name that our spouses use and they have no idea like what this word means and the company behind it and all the effort and work that went into turning that company into just a word we casually throw around, that's the opportunity that, that the next CEO will have. And I hope they'll have a board that believes in that vision as well.

A (24:12)

Our thanks to Eric Jackson for joining us. It's 4pm on the east Coast. The markets have closed and while we don't have a ticker tape, we're going to throw it over to our human ticker, our producer, John.

B (24:25)

That's right. All the major indices finished up today with the S&P 500 and the NASDAQ up about a third of a percent. And the Dow was up half a percent. Shares of cable news and media network Fox were down nearly 5.5% today after the Murdoch family succession plan was finalized. And the company announced the pricing of a large secondary offering of its Class B common stock tied to a resolution within the Murdoch family trust. And shares of UnitedHealth were up as much as 9% today after the company in a regulatory filing estimated that 78% of its Medicaid Advantage enrollees would likely qualify for a bonus payment from the federal government.

A (25:01)

A lot going on in the markets this week. We have got IPO chatter picking up. We have got inflation fears ticking up and we've of course got controversial labor market data. So lots more we're going to unpack, particularly on the macro front as we move through the rest of this week. Now, one thing we didn't have a chance to do today that we love to do is we get questions from the audience and we always try to answer them as quickly as possible. Today, of course, we had our terrific interview. But if you do have a question and feel free to send it or any feedback on our show by email or a voice memo, Send it to brewmarketshoworning brew.com that's Brew Marketsshow@morning brew.com that's it, folks, for today's Brew Markets Daily.

B (25:42)

And Brew Markets Daily is hosted by Anne Barry and produced by John Crateau, Tarek Abdelatif and Emily Milian. Our technical director is Uchena Waiaogu, and the president of Morning Brew, Inc. Is Devin Emery.

A (25:52)

Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.