Real estate, with its large transaction sizes and frequent use of bank wires, has proven to be an especially lucrative target for cybercriminals.
Tag: Opendoor Technologies Inc
-
Here’s why Zillow, Redfin and other real-estate stocks tanked after a jury ruling
Shares of real-estate names plunged Tuesday following a jury ruling that has the potential to shake up the way people purchase homes.
A Missouri jury earlier Tuesday deemed that the National Association of Realtors, HomeServices of America and Keller Williams colluded to inflate or maintain high commission rates. Jefferies analyst John Conaltuoni said in a note to clients that a judge could issue an injunction preventing commission sharing on MLSs, or multiple listing services, which would hurt the buyer-agent business.
Shares of Opendoor Technologies Inc.
OPEN,
-9.09%
plunged 9% on Tuesday, while shares of Zillow Group Inc.
ZG,
-6.87% Z,
-6.98%
fell 7%, shares of Redfin Corp.
RDFN,
-5.67%
dropped 6% and shares of RE/MAX Holdings Inc.
RMAX,
-4.36%
declined 4%.Conaltuoni thinks the recent ruling could bring big changes to the Participation Rule, which is an NAR requirement for seller agents to disclose the compensation being offered to buyer agents when they list through an MLS. The Participation Rule could soon get banned or turn optional, in his view.
Such a ban “would cause negotiations about buyer agent commissions to occur when an offer is presented, since there would no longer be an avenue to communicate splits up front,” he wrote. “This would eliminate the seller’s incentive to compensate buyer agents, which would force them to seek compensation directly. Shifting the burden of payment to buyers would likely meaningfully reduce their use of agents given most already struggle to cover closing costs.”
Conaltuoni further commented that were the rule to become optional, the “status quo” likely would continue.
Read: Why aren’t homeowners selling their homes? It’s not just the ‘lock-in effect’
What would these developments mean for Zillow, which reports earnings Wednesday afternoon? He flagged that nearly two-thirds of the company’s revenue comes from its Premier Agent business, which itself is primarily made up of revenue from buyer agents. “[A] reduction in their usage would force [Zillow] to pivot to offering products for seller agents and create near-term headwinds to revenue,” he wrote, while cutting his price target on Zillow’s stock to $48 from $60.
Bernstein’s Nikhil Devnani wrote that Zillow “is NOT part of this case and not directly impacted by the ruling,” but there’s the potential for repercussions down the line.
“Premier Agent is built around buyer commissions,” Devnani said. “And a reduction to commission rates (which could happen if cooperative compensation were outright banned in the worst case scenario) would create challenges for industry revenue growth, in our view. Maintaining the current structure with more transparency would have less impact we believe. It would need a stronger decoupling of who pays for buyer and seller agents.”
While Redfin shares dropped Tuesday along with other names, Chief Executive Glenn Kelman put out a blog post titled: “Change Comes to the Real Estate Industry.”
“The judge may take days or weeks to decide what structural changes the jury’s verdict will entail,” he wrote, and appeals could take years.
But traditional brokers “will undoubtedly now train their agents to welcome conversations about fees, just as Redfin has been doing for years, especially when advising a seller on what fee to offer to buyers’ agents,” he continued. “Rather than saying that a fee for the buyers’ agent of 2% or 3% is customary or recommended, agents will say that a buyers’ agent fee, if one is offered at all, is entirely up to the seller. This is as it should be.”
RBC Capital Markets analyst Brad Erickson wrote after the ruling that just over half of Redfin transactions come from the buyside. Its stock and Zillow’s “partially reflected these risks coming in,” in his view.
-
Tech IPO drought reaches 18 months despite Nasdaq’s sharp rebound in first half of 2023
Karl-Josef Hildenbrand | AFP | Getty Images
Car-sharing service Turo filed its IPO prospectus in January 2022. A month earlier, Reddit said it submitted a draft registration for a public offering. Instacart’s confidential paperwork was filed in May of last year.
None of them have hit the market yet.
Despite a bloated pipeline of companies waiting to go public and a rebound in tech stocks that pushed the Nasdaq up 30% in the first half of 2023, the IPO drought continues. There hasn’t been a notable venture-backed tech initial public offering in the U.S. since December 2021, when software vendor HashiCorp debuted on the Nasdaq.
Across all industries, only 10 companies raised $100 million or more in U.S. initial share sales in the first six months of the year, according to FactSet. During the same stretch in 2021, there were 517 such transactions, highlighted by billion-dollar-plus IPOs from companies including dating site Bumble, online lender Affirm, and software developers UiPath and SentinelOne.
As the second half of 2023 gets underway, investors and bankers aren’t expecting much champagne popping for the rest of the year.
Many once high-flying companies are still hanging onto their old valuations, failing to reconcile with a new reality after a brutal 2022. Additionally, muted economic growth has led businesses and consumers to cut costs and delay software purchases, which is making it particularly difficult for companies to comfortably forecast the next couple of quarters. Wall Street likes predictability.
So if you’re waiting on a splashy debut from design software maker Canva, ticket site StubHub or data management company Databricks, be patient.
“There’s a disconnect between valuations in 2021 and valuations today, and that’s a hard pill to swallow,” said Lise Buyer, founder of IPO consultancy Class V Group in Portola Valley, California. “There will be incremental activity after a period of absolute radio silence but it isn’t like companies are racing to get out the door.”
The public markets tell an uneven story. This year’s rally has brought the Nasdaq to within 15% of its record from late 2021, while an index of cloud stocks is still off by roughly 50%.
Some signs of optimism popped up this month as Mediterranean restaurant chain Cava went public on the New York Stock Exchange. The stock more than doubled on its first day of trading, indicating high demand from retail investors. Buyer noted that institutions were also enthused about the deal.
Last Friday, Israeli beauty and tech company Oddity, which runs the Il Makiage and Spoiled Child brands, filed to go public on the Nasdaq.
That all comes after a big month for secondary offerings. According to data from Goldman Sachs, May was the busiest month for public stock sales since November 2021, driven by a jump in follow-on deals.
Apple, Nvidia outperform
While investors are craving new names, they’re much more discerning when it comes to technology than they were at the tail end of the decade-long bull market.
Mega-cap stocks Apple and Nvidia have seen outsized gains this year and are back to trading near all-time highs, boosting the Nasdaq because of their hefty weightings in the index. But the advances are not evenly spread across the industry.
In particular, investors who bet on less mature businesses are still hurting. The companies that held the seven-biggest tech IPOs in the U.S. in 2021 have lost at least 40% of their value since their debut. Coinbase, which went public through a direct listing, is down more than 80%.
That year’s IPO class featured high-growth businesses with even higher cash burn, an equation that worked fine until recession concerns and rising interest rates pushed investors into assets better positioned to withstand an economic slowdown and increased capital costs.
Employees of Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, watch as their listing is displayed on the Nasdaq MarketSite jumbotron at Times Square in New York, April 14, 2021.
Shannon Stapleton | Reuters
Bankers and investors tell CNBC that optimism is picking up, but ongoing economic concerns and the valuation overhang from the pre-2022 era set the stage for a quiet second half for tech IPOs.
One added challenge is that fixed income alternatives are back. Following a lengthy stretch of near-zero interest rates, the Federal Reserve this year lifted its target rate to between 5% and 5.25%. Parking money in short-term Treasurys, certificates of deposit and high-yield savings offerings can now generate annual returns of 5% or more.
“Interest rates are not only about the cost of financing, but also getting investors to trade out of 5% risk-free returns,” said Jake Dollarhide, CEO of Longbow Asset Management. “You can make 15%-20% in the stock market but lose 15%-20%.”
Dollarhide, whose firm has invested in milestone tech offerings like Google and Facebook, says IPOs are important. They offer more opportunities for money managers, and they generate profits for the tech ecosystem that help fund the next generation of innovative companies.
But he understands why there’s skepticism about the window reopening. Perhaps the biggest recent bust in tech investing followed the boom in special purpose acquisition companies (SPACs), which brought scores of less mature companies to the public market through reverse mergers.
Names like Opendoor, Clover Health, 23andMe and Desktop Metal have lost more than 80% of their value since hitting the market via SPAC.
“It seems the foul odor of failure from the 2021 SPAC craze has spoiled the appetite from investors seeking IPOs,” Dollarhide said. “I think that’s done some harm to the traditional IPO market.”
Private markets have felt the impact. Venture funding slowed dramatically last year from record levels and has stayed relatively suppressed, outside of the red-hot area of artificial intelligence. Companies have been forced to cut staff and close offices in order to preserve cash and right-size their business
Pre-IPO companies like Stripe, Canva and Klarna have taken huge hits to their valuations, either through internal measures or markdowns from outside investors.
The waiting game
Few have been hit as hard as Instacart, which has repeatedly slashed its valuation, from a peak of $39 billion to as low as $10 billion in late 2022. Last year, the company confidentially registered for an IPO, but still hasn’t filed publicly and doesn’t have immediate plans to do so.
Similarly, Reddit said in December 2021 that it had confidentially submitted a draft registration statement to go public. That was before the online ad market took a dive, with Facebook suffering through three straight quarters of declining revenue and Google’s ad sales also slipping.
Now Reddit is in the midst of a business model shift, moving its focus beyond ads and toward generating revenue from third-party developers for the use of its data. But that change sparked a protest this month across a wide swath of Reddit’s most popular communities, leaving the company with plenty to sort through before it can sell itself to the public.
A Reddit spokesperson declined to comment.
Turo was so close to an IPO that it went beyond a confidential filing and published its full S-1 registration statement in January 2022. When stocks sold off, the offering was indefinitely delayed. To avoid withdrawing its filing, the company has to continue updating its quarterly results.
Like Instacart, Turo operates in the sharing economy, a dark spot for investors last year. Airbnb, Uber and DoorDash have all bounced back in 2023, but they’ve also instituted significant job cuts. Turo has gone in the opposite direction, more than doubling its full-time head count to 868 at the end of March from 429 at the time of its original IPO filing in 2021, according to its latest filing. The company reportedly laid off about 30% of its staff in 2020, during the Covid pandemic.
Turo and Instacart could still go public by year-end if market conditions continue to improve, according to sources familiar with the companies who asked not to be named because they weren’t authorized to speak publicly on the matter.
Byron Deeter, a cloud software investor at Bessemer Venture Partners, doesn’t expect any notable activity this year, and says the next crop of companies to debut will most likely wait until after showing their first-quarter results in 2024.
“The companies that were on file or were considering going out a little over a year ago, they’ve pulled, stopped updating, and overwhelmingly have no plans to refile this calendar year,” said Deeter, whose investments include Twilio and HashiCorp. “We’re 10 months from the real activity picking up,” Deeter said, adding that uncertainty around next year’s presidential election could lead to further delays.
In the absence of IPOs, startups have to consider the fate of their employees, many of whom have a large amount of their net worth tied up in their company’s equity, and have been waiting years for a chance to sell some of it.
Stripe addressed the issue in March, announcing that investors would buy $6.5 billion worth of employee shares. The move lowered the payment company’s valuation to about $50 billion from a high of $95 billion. Deeter said many late-stage companies are looking at similar transactions, which typically involve allowing employees to sell around 20% of their vested stock.
He said his inbox fills up daily with brokers trying to “schlep little blocks of shares” from employees at late-stage startups.
“The Stripe problem is real and the general liquidity problem is real,” Deeter said. “Employees are agitating for some path to liquidity. With the public market still pretty closed, they’re asking for alternatives.”
G Squared is one of the venture firms active in buying up employee equity. Larry Aschebrook, the firm’s founder, said about 60% of G Squared’s capital goes to secondary purchases, helping companies provide some level of liquidity to staffers.
Aschebrook said in an interview that transactions started to pick up in the second quarter of last year and continued to increase to the point where “now it’s overwhelming.” Companies and their employees have gotten more realistic about the market reset, so significant chunks of equity can now be purchased for 50% to 70% below valuations from 2021 financing rounds, he said.
Because of nondisclosure agreements, Aschebrook said he couldn’t name any private company shares he’s purchased of late, but he said his firm previously bought pre-IPO secondary stock in Pinterest, Coursera, Spotify and Airbnb.
“Right now there’s a significant need for that release of pressure,” Aschebrook said. “We’re assisting companies with elongating their private lifecycle and solving problems presented by staying private longer.”
WATCH: The private market index is trading up for the first time in two years
