With many special purpose acquisition company (SPAC) opportunities out there, why go with Social Capital Hedosophia (NYSE:IPOB)? It’s simple. Once IPOB stock acquires real estate disruptor Opendoor Labs, you can expect shares to take off.
How so? Well, Opendoor is an iBuyer. Using algorithms to make instant offers for homes, iBuyers address many common points of pain among home sellers. Simply put, this business model has big potential to disrupt the old-school residential real estate business.
As the buying and selling of homes moves online, iBuyers like Opendoor stand to win. The company has already scaled into a multi-billion-dollar business.
And it’s still getting warmed up. Given the fact that it’s yet to expand nationwide, the runway remains long for this unique combination real estate and tech play.
Of course, Wall Street is already well aware of the tremendous growth opportunity with Opendoor. That’s why shares in the SPAC remain pricey, even after the recent pullback.
But does that mean you should avoid it? Not so fast. Don’t miss the forest for the trees and pass up on this just because of the valuation. With its strong prospects, now’s the time to get into this potential long-term winner.
IPOB Stock, Opendoor and The Future of Real Estate
So, how can iBuyers like Opendoor disrupt the traditional real estate business?
Firstly, they have an edge when it comes to listing fees. While fee structures in other industries have gone down thanks to technology, a 6% listing fee remains the norm in real estate. But, as I previously discussed, the company’s lower listing fee of 5% offers a tremendous value proposition.
Secondly, there’s the convenience factor. Instead of listing with a traditional realtor and waiting for a buyer to make a bid, Opendoor gives you an instant quote for your home.
What does this all add up to? The potential for iBuyers — and Opendoor in particular — to grab a commanding share of the $1.6 trillion U.S. real estate market (Page 7). The company’s own conservative projections of 3% market share mean it could become an almost $50 billion per year business (Page 41).
With this in mind, it’s no surprise investors have given IPOB stock a premium valuation. Sure, compared to recent results, this valuation looks very frothy. But, relative to its potential, the growth premium is more than reasonable.
Premium Valuation? Yes — But Don’t Sweat It
Like with many megatrend stocks, you have to pay up for growth. That’s the case here with IPOB stock, even after the recent sell-off. Based on its current trading price (around $17 per share), the pro-forma valuation — with 630.7 million shares outstanding after the deal closes — is around $10.7 billion.
Granted, that’s pricey relative to the company’s 2019 sales numbers of $4.7 billion. Yet, while the pandemic may slightly impact 2020 sales, this hiccup pales in comparison to where revenue could be just a few years out.
$50 billion in annual sales may sound like a stretch. But, Opendoor has yet to expand into some of America’s most expensive housing markets, like in the northeastern United States. In short, the company is just getting started. Even if there’s a growth premium baked into the price, you are still getting in on the ground floor.
Keep in mind, there may be some volatility along the way. Shares could continue to head lower as we approach the close of the Opendoor deal. But, another move lower also gives you the opportunity to enter at an even more attractive entry point price.
While the valuation is rich, the tremendous possible growth here makes IPOB stock worth it.
Buy This SPAC Before The Deal Closes
Tech disruption of old-school industries is a trend that’s not stopping anytime soon. First, technological innovation upended retail, creating the massive e-commerce industry. Then, with the rise of online automotive retailers, tech disrupted the traditional auto dealer industry.
Now, iBuyers like Opendoor are changing the game for residential real estate sales. In turn, that means massive share-price upside for IPOB stock. Even as the stock continues to trade at a premium valuation, buying today will pay off big in the future.
And if the excitement around SPACs continues to cool down in the coming days, this stock could head lower in the near-term. That pullback would just be another reason to enter a long-term position.
Bottom line? Buy IPOB stock now, ahead of its promising Opendoor acquisition.
— Matt McCall and the InvestorPlace Research Staff
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Source: Investor Place