$OPEN HOUSE: Episode 1 - Full Transcript
Big thanks to Jonathan for hosting and for the vision to put this series together. You can also check out his community for $HIMS investors at https://himshouse.substack.com/
Link to $OPEN House Episode 1 Interview on X: https://x.com/jonathanrstern/status/1968301987654418748
Time Stamps:
(00:59) $OPEN's early days & company culture
(04:14) Jeff's ownership stake
(07:52) $OPEN Army & meme status
(09:40) The importance of @ericjackson
(10:50) The twitter wars: Eric vs. Jeff
(15:27) Settings A+ goals: @CanadaKaz & @rabois
(23:17) Laying off 1,200 employees....
(27:55) Pricing algorithm and the housing crash
(40:57) Serving the "middle of the barbell"
(44:01) Being reborn as a seed-stage startup
(47:51) Partnerships with $PLTR, xAI, OpenAI?
(51:08) Valuation
FULL TRANSCRIPT:
JONATHAN STERN
Open House Episode 1. My name is Jonathan Stern. I'm here today with Jeff Ye who worked at Opendoor from 2016 to 2018 in the Biz Ops and Finance team. In recent months he's become one of the most outspoken former employees on the company's future direction. He's also launched a blog called Open Investment Labs where he publishes research on Opendoor. Here's how Jeff described his connection to the company recently. He said, I've been a die-hard Opendoor follower, employee and shareholder since I joined the company in 2016. In many ways, the company has defined my professional and personal career. Jeff now works at Deepsky, which interestingly was also founded by an Opendoor alum. Jeff Ye, welcome to Open House.
JEFF YE
Yeah, thank you. Thank you. Yeah, we have a lot of Opendoor folks at Deep Sky for better or for worse. It comes up a lot actually, it's funny.
JONATHAN STERN
Yeah, I don't want to call it a mafia, but it is a talented alumni base. We'll get into that maybe.
JEFF YE
Yes, of course.
JONATHAN STERN
Let's start with some background on you and your time at Opendoor. Why did you join the company back in 2016? What was your role? Tell us a little bit more about that. And what was the company like culture-wise when you were there?
JEFF YE
Yeah, I mean, I think I was very lucky. I had some good friends who were working at Opendoor at the time. I was in private equity and I was kind of like looking for my next gig, thinking about business school. And I was lucky enough to get an interview and join the Biz Ops team. It was my first foray into tech, so I was really thrown into it. And yeah, I mean, it was about 100 people. It was like really the fire hose from day one. I had a my boss at the time, Sri, who's now the CMO of the RealReal. He basically on my first day, he told me like, oh, here's a list of all our homes. They were like maybe 500 of them. It's like go through all the feedback, all the home visits data and like recommend like a price drop for every home. So on my first day, I was doing like vibe price drops. And that was like essentially my first role was like managing pricing manually and then was lucky enough to like start to work with the data science team to build that into like more of an algorithm. And yeah, I mean, I was lucky enough to kind of touch all different parts of the company. So happy to talk about that. But yeah, when I first joined, it was just the cream of the crop, like honestly, If you look at the people and where they currently are, a lot at OpenAI, a lot of C-suite folks, it was just essentially the best talent in the valley all coming together to solve this one really hard problem.
JONATHAN STERN
Were you guys in person at that time?
JEFF YE
Oh yeah, yeah, for sure.
JONATHAN STERN
You're in person in San Francisco, is that right?
JEFF YE
Yeah, at the time we were all in Soma. Like just kind of cranking it out.
JONATHAN STERN
So almost changed a lot in nine years too.
JEFF YE
Yeah, yeah, yeah, yeah. It has, yeah.
JONATHAN STERN
Okay, so what stage was the company in 2016? Was it Series A, Series B? You said 100 employees.
JEFF YE
Yeah, I think we're on Series B, maybe almost Series C. We were in two markets about to launch our third. And I mean, it was pretty crazy. When you think about how complex the business is, we were essentially scrambling on all aspects. But it was really just when you looked across the functional groups, it was just the best people, the best engineers in the valley, the best business people in the valley, the best subject matter experts, the best accountants, the best legal team, the best capital markets team. It was just amazing. The talent density that was able to come together. So it really was something special, I think. And it was a big testament to Eric and Keith to assemble a team like that.
JONATHAN STERN
I want to chat a little bit more about the culture, but just to get this on the table early in the interview, do you own shares of Opendoor right now? If so, have you pretty much held since you were at the company nine years ago or have you traded in and out?
JEFF YE
Yeah, I mean, I have mostly been in it. I think I sold some for kind of like a home renovation a few years back and kind of held my relatively small position after that was just kind of tracking the stock as it was, you know, kind of making it slow decline. And then I had a pretty small position, but at one point I was just like, this is kind of getting ridiculous. I can't believe it's only worth $2, $1 or $0.50. And at some point I was like, okay, this doesn't make sense to me. I need to make a bigger commitment. So I would say a big portion of my net worth is currently in Opendoor. But to be fair, I would say my wife has the more, I would say reasonable asset allocation. And then I have the I would say riskier VC-esque return profile to my investments.
JONATHAN STERN
Nothing wrong with that. Okay. So I want to get back to the company culture. It sounds like it was pretty intense and hardcore, at least during the period that you were there. What can you say about how it's transformed over the last, I guess, seven years after you left? Have you kept in touch with anyone still at the company? Are there sort of like waves that the company has gone through in terms of culture that you could speak to?
JEFF YE
Yeah, yeah. I mean, I think I kind of left right before COVID well, maybe a year before COVID and then kind of like wasn't around for like the peak of like the IPO and when the company was public. But you could kind of see, you can kind of feel the company like cresting towards that. It was really, I would say, set to be something big, really set to be the next Uber, the next 100 billion plus company. And then of course, the interest rates hit, housing crashed. And I think the best way to put it is the company essentially went into hibernation mode, hibernation survival mode.
SPEAKER 3
And.
JEFF YE
I really think that like it was a long, it was a long time, three, three, four or five years that it was just treading water, losing, just losing less money.
JONATHAN STERN
You're talking about 2021, starting in 2021 at this point, right?
JEFF YE
Yeah, I think it was like 2022 and then interest rates went up and the company was really not prepped for that. And it was kind of riding high. And ever basically since then till now, those three years, 2022 to 2025, it's been in kind of this hibernation mode. And, you know, my initial play was like, oh, this, this is gonna be like a macro play, a housing rebound play. I think the pieces are set. Like, I think this thing could easily go from 50 cents to five. Like, it'd be like a 10 bagger with kind of carries strategy, you know? And I was, like, pretty comfortable with that. Of course, I did not see all this other stuff happening, and now it's a, I think it's a fundamentally different investment, fundamentally different company, yeah.
JONATHAN STERN
It's such an interesting opportunity. So I want to ask you real quickly about the Open Army, which is the name that hundreds of people online have now given to the retail movement behind this name. And as someone that used to work for a startup and was like employee five, employee six at a fast growing tech company, that is not public. The idea that like hundreds of randos from around the world, thousands of randos, millions of randos from around the world would take an interest in the company that I used to work for and memeify it and become this army is really a wild thought. I mean, Opendoor is, yeah, it's just captured the imagination of people all around the world. And so, my question to you, as someone who used to work there, how does it feel that Opendoor is perhaps now the greatest meme story since GameStop?
JEFF YE
Yeah, you know, I think fundamentally, kind of deep down, I always thought the potential was there. And you even saw it early, kind of after SPAC, when it's, when it went up to like 30 or $35, like there was that kind of like excitement around it. And I think it kind of checks people's like boxes, like the primate brain of like, okay, tech disruption, housing. No one's really conquered it yet. Now we have like the macro tailwinds. Like I think it has the right recipe and it was just waiting for that fuse. But I never thought this would be like the reason why I went from $0.50 to $10. And I guess I just didn't think big enough. I think that was like my whole thing with Eric, right? I was much more of a this was my kind of like investment thesis.
JONATHAN STERN
By Eric, you mean Eric Jackson?
JEFF YE
Eric Jackson, the hedge fund manager.
SPEAKER 3
Yeah.
JEFF YE
Yeah, yeah, yeah, yeah. I mean, I think I was always more like this was my investment thesis around Carrie taking key agent. Here's what the math looks like. I think it could be real. I never thought like, oh actually the path was total leadership turnover, total business model turnover, retail army. Like I guess I just didn't believe and obviously like I was wrong.
SPEAKER 3
Yeah.
JONATHAN STERN
Well, you were, I don't want to say this. Is it true that you were one of the most outspoken like online notable people online resisting Jax's, Eric's, and Bush's?
JEFF YE
Yeah, yeah, I think I was them. I mean like it was not a huge, I'm a number of people that.
JONATHAN STERN
Weren'T a lot of people.
JEFF YE
It's not a gotcha.
JONATHAN STERN
I'm just like, yeah, I was, I was not following the Twitter interactions between, between you and Eric and Keith and others, like two months ago or even a month and a half ago. And so I just want to get the story right that, like, initially you oppose that. Is it fair to say now that you're supportive of the management shakeup?
JEFF YE
Yeah, yeah, yeah.
SPEAKER 3
Yeah.
JEFF YE
No, I, I mean, like I just mentioned, like, I think I just didn't, I think big enough. I just didn't think this was possible. And it's really just a different paradigm. Like, you know, I still come from, I come from like a financial background, right? Like, what's the potential cash flow? What's the growth profile? What's the, and there's all these now other factors that are relevant that, you know, I just had to get my mind around. And it really is like almost like, you know, you manifest what you want to see, right? It's like, I think that's really a testament to Eric Jackson, like kind of his grit and his like tenacity to manifest like the stock price to what it is going to hopefully go to. So yeah, I mean, it's some things are just not you just can't rationalize.
JONATHAN STERN
Eric Jackson has still been calling you out on Twitter. You like Eric, is that right?
JEFF YE
I do like Eric, yeah. I think, you know, I'll just put this out there. I think, you know, there's a Data Door Discord. I may have said something.
JONATHAN STERN
I'm in there.
JEFF YE
Yeah, I think I may have said some things about him where I was just like, I don't know if this is legit. And I think he may have taken offense to that. Okay. But, you know, it's not a big deal. I'm not like losing sleep over it. I appreciate Eric for what he's done, for sure. And first, you know, he it's funny because he's like he he says I'm dead to him. But then every day he like tweets about me, but he won't tag me. So it's fine. It's fine. He's a nice guy. He's a good guy. And yeah, I mean, I'm one of the biggest Opendoor bulls there are. Like, I really believe that it's like a pretty unique investment.
JONATHAN STERN
Yeah, we're going to talk about valuation in a little bit and how you think through that. Eric has been of course calling for $82 a share. I think he's getting to 82.
SPEAKER 3
By.
JONATHAN STERN
Comparing it to Carvana. It's not clear to me it's quite an apples to apples and we can chat about that. But Eric Jackson was being called out on Twitter today and yesterday by George Noble a pretty notable name like 30 years ago in finance. And I think he's going to come on the pod next week to respond to some of this. So he'll get a chance to respond. But he is fed up with Eric Jackson. Really not a fan. And I think it's fair to say, I think he said financial malpractice and was raising questions about whether he's done illegal stuff, this and that. Any thoughts about that?
JEFF YE
I mean, I think there's just so many examples in the public, like Tesla, right? Palantir. There's even Carvana to an extent. There's some examples where if you try to do the math, I don't know if it makes sense, but it's held up by something else. And I think you have to really embrace this new paradigm, like GameStop. You have to embrace this new paradigm or you're going to get left behind. And the new paradigm is not just financials, but it's retail support. It's the narrative. It's the total package of what this company represents, the brand. So yeah, it's politics. If you get the administration behind you, it's crypto. If you talk about crypto, there's so many things now that are not even related to like building a financial model. And I think if you don't embrace that, like you're just, you know, putting your head in the sand.
SPEAKER 3
Yeah.
JONATHAN STERN
At minimum, you're capturing maybe 20% of the story here.
SPEAKER 3
Yeah.
JEFF YE
And Hims is a great one, right? Hims is another one that's like has.
SPEAKER 3
That.
JEFF YE
Narrative behind it.
JONATHAN STERN
Hims.
SPEAKER 3
Yeah.
JONATHAN STERN
So I'm the founder of Hims House. Hims has been a great business for I don't know, really five, six, seven years now, free cash flow positives for several straight quarters revenue that's just up into the right except for the most recent quarter. But you're right that there are some storylines that are relevant and that any savvy investor should take seriously if they're thinking about buying or selling stock. So, okay, so I wanna get back to Culture and Kaz, the new CEO, and how we expect things to change over the coming weeks and months. At one point you said the company's general strategy has been to set C-minus goals and achieve C results. So basically set this standard for themselves that's mediocre and just barely eclipse it. And needless to say, that didn't energize the public markets, energize investors in the public markets. How is this going to change under CAS with Keith and Eric back on the board?
SPEAKER 3
Yeah.
JEFF YE
First, I'll say that the timing is pretty impeccable if you look at mortgage rates. I think we're almost 100 basis points 75, 100 basis points below, kind of like the yearly. I mean, that in itself is a huge tailwind. So, yeah, I mean, yeah, that gives them a lot, gives a new team a lot of, I would say, additional like room in terms of just like the fundamentals of the business and the macro being a tailwind versus a headwind, specifically like volume, right? Like demand, seller demand, buyer demand, like all that stuff is just going to make everything easier. For them. So I'll say, I'll say that. I think, you know, in prep for this interview, I watched some, like, CAS interviews, and I don't, like, know him at all personally, but, like, just from kind of his vibes, I would say he seems, like, very much a first principles thinker who's, like, I mean, it's clear that he's willing to go against kind of like common thinking or just think about things from like, okay, does this make sense? Why are we doing it like that? And to me that feels like the exact type of person that Opendoor needs at this time and maybe the industry needs. Like when you think about a lot of the things at Shopify that they've.
SPEAKER 3
Done.
JEFF YE
It feels like that that culture is like obviously going to be an improvement. To Opendoor. I will say though that like the industry, the real estate, and maybe this goes to the bear case a little bit, the real estate industry is like pretty cutthroat. And I was actually thinking about this, you know, Shopify in a way is kind of like a it's like a software company that supports small businesses, right? It's like it's trying to get behind the small business owner, make their lives easier in a lot of ways. Opendoors like almost the opposite, right? The real estate agents are like the small business owners here. They're the ones who are like scrapping. They're the ones who are like fighting for every inch. Opendoor is like kind of threatening to disintermediate them. And you can argue whether that's a good thing or bad thing, but I think that may be kind of like a bit of a shock is like Shopify, the model for Shopify was like these, these Small business owners want you to help them. They're going to be behind you. There's these tailwinds. At Opendoor, it's a big bet to go against the agents. I know some real estate agents and they're like the scrappiest, cutthroat, most hustle people you'll ever meet. And I think that's going to be challenging for the company to navigate. And it happened before, right? It's like Opendoor went against all these tactics that agents use to cut them out or just give them a bad reputation.
JONATHAN STERN
Are they scrappier on average than middlemen from other industries that were disintermediated?
JEFF YE
I don't know about that, but I think when you just think about an agent, their whole business model is like and whether this is good, it's like getting leads and managing the seller or the buyer and they're a lot of their, like, a lot of their mind share and a lot of what they're focused on is like getting access to that consumer and Opendoors like essentially threatening to take away their livelihood. And like, you know, you're a small business owner, right? Like imagine someone coming in and just kind of threatening to like take away everything that you've built. Like there's almost nothing you wouldn't do to like defend it. So I think that's something that like the company is going to have to figure out is like, It's all well and good to say agents are not going to exist after Opendoor is successful, but the reality is there are 2 million agents who are going to fight tooth and nail to prevent that from happening. So I don't know what that path looks like to get there, but it's probably not an easy one.
SPEAKER 3
Yeah.
JONATHAN STERN
So when we think about what an A+ goal might be that Cas and the rest of the team are now going to set, And again, in contrast to the C-minus goals that Carrie Wheeler and the former management team set and that were barely exceeded, and sometimes, to be honest, not exceeded, right? What are some of those A or A-plus goals that we can expect this new management team to roll out? I mean, already today, Kaz just tweeted that they're going to be expanding open to every market, right? Already. That is doing saying something and just tweeting about something that the the the former management team I don't think had ever said. Yeah, you said like maybe the goal of disintermediating agents entirely, saying no more agents.
JEFF YE
Yeah, yeah. I think that's the vision, right? If you listen or read anything that Keith has put out there, he is of the mind that agents are going to go the way of your travel broker or your insurance broker? I mean, I think so, but it's a tough path. Yeah, I think the A+ goal, just going back to kind of like first principles is like faster, better, cheaper, right? Like if you have a product, let's say you could sell your house instantly at a price that you think is fair and close to what you would get on by listing and you would pay less than what you would pay your broker plus the buyer broker. So you would play you would pay, you know, let's say call it less than 5% or less than 6%. I think that's a pretty no brainer. That's pretty much a no brainer.
SPEAKER 3
Yeah.
JEFF YE
So that that would to me be like the long term A+ goal is like you have a service that's like, you know, Uber, right? I remember when I was in college and I wanted to go to the airport in the middle of the night to catch my flight home, I would have to like pre-call the taxi service in Boston, be like, okay, please show up at my dorm at 3:00 PM. And you just, you're just praying they're gonna be there, right? And you have no like visibility into when they're coming or whether and you call, you have a card, like that experience and you pay like 100 bucks. Like that was just horrible. And I think like, I think it's clear why Uber won, right? Like if you could pull up your app, It's cheaper, you have visibility into where the car is. It's just better in every way. I think if you can make an experience like that for Opendoor, to me that feels like the no brainer. And I think that was maybe always the vision. It was just like, I mean a lot of things got in the way, right? I think the biggest thing was just probably the macro. It was just very hard to manage the business when the macro was so difficult.
JONATHAN STERN
Final thing on leadership and strategy. Keith has floated the idea that we need to move from 1400 employees to 200 employees. So a reduction of 1200 employees at the company.
SPEAKER 3
Yeah, yeah.
JONATHAN STERN
Maybe immediately. I think, oh, it may not have been you. I mix up the anonymous names on the Data Door Discord. Someone said that CAS held a company, company-wide meeting yesterday where he said, no layoffs, at least not immediately. Did you see this, Jeff?
JEFF YE
Yeah, yeah, yeah.
JONATHAN STERN
What's, what's going on there? Do you think layoffs are imminent? If not, why not?
JEFF YE
I mean, I don't know. I, I don't have, like, that good visibility. I don't have any visibility, but I think, you know, I think the direction is right. Like, I think less, not more, but, like, could.
JONATHAN STERN
Is 200 employees, is 200 employees totally detached from reality?
JEFF YE
I think in the long term, no. I think in a few years, no. In the medium term, maybe. In the short term, definitely. But I think maybe where Keith is coming from is when you think about how powerful AI is in some of these use cases. Do you really need 10 customer service reps on staff? You could probably automate a lot of the process, like just the paperwork shuffling that happens. You can probably automate a lot of the pricing. I mean, part of it is automated, but not all of it. And you can just have an Eng team and then you can maybe outsource all the renovations and all that. I think it's not impossible. But it really comes down to how do you get there? If you, you know, if Kaz just fired 1200 people tomorrow, like the company would probably just stop running. But I think if you had 200 amazing people who are like supercharged with AI and had all the tooling set up for them to be successful, right? Probably, probably. I don't know if that's the priority either. There's a lot of competing things that they could be working on.
JONATHAN STERN
Yeah, it very well may not be. They need to figure out where the offices are, right? And then ask the employees that are not living in those cities to move or come into the office or whatever they're going to ask those employees to do. And maybe they sort of quit as a result and that's how they get to 1,000 employees. I doubt that gets them to 200. But that may get.
JEFF YE
Yeah, yeah, yeah. But I would also say, you know, there's just like, you know, when you're, if you're selling your house to Opendoor right now, there's someone at Opendoor who's like handling your paperwork, who's making sure you're kind of like, get the processes happening. And if you just fire that person, like, the con, what that, you don't want that, that, that process to just like kind of fall through the cracks, right? Like, so there's, so there would definitely be some like execution risk. If you just, you know, really let these people go.
JONATHAN STERN
So, yeah, Elon fired something like 75, 80% of Twitter's employees. I think that's the consensus number. And the product did not collapse. In my opinion, the product did not collapse.
JEFF YE
Yeah.
JONATHAN STERN
Now, you could make the case that it got worse in a few ways or that, like, there are things about the platform that are, you know, unsavory now or this or that. I actually like the direction. In many ways that Twitter's gone in, but nevertheless, the product is still up. It didn't go down like it didn't break. Opendoor, you're saying, is fundamentally different from Twitter in a few ways because it requires manual intervention in like some pretty key ways. Is that right?
JEFF YE
Yeah, I think exactly. Twitter is more of a software platform site and yeah, I mean there were some things, but it was up. I think the more analogies may be firing 80% of the people at the Tesla plant, right?
JONATHAN STERN
Without the humanoids.
JEFF YE
Without the humanoids and just be like, okay, I'm going to randomly choose 80% of people, you guys are laid off. I don't think the cars are going to get off the line if that's the case. And I think that's a bit more, there's operational processes there that just need to kind of get moved through. And over time, yes, you can definitely use AI and tooling to smooth that out. Tomorrow, I don't think is reasonable or even a year from now, maybe four or five years from now.
SPEAKER 3
Yeah.
JEFF YE
Or, you know, that's probably too long. Three, two, three years from now.
SPEAKER 3
Yeah.
JONATHAN STERN
Let's go back to the product and technology. Can you walk us through, you said you worked on the pricing algorithm while you were there. Can you walk us through what it looked like when you were at the company? Were you surprised when it performed as poorly as it did?
SPEAKER 3
Yeah.
JONATHAN STERN
A few years ago, talk about some of those things.
JEFF YE
Yeah, I actually have a really, I have a lot to say about this because it's like so interesting. But yeah, I mean, the pricing algorithm, I don't know if it's changed a lot, but essentially it was like before LLMs, it was like a pretty standard machine learning algorithm where you gave it a bunch of features about the house, anything you can name, and then it would kind of run a regression, a lot of regressions, typical kind of machine learning. We moved over time to like what they call like comp OVM, which is like more similar to how a real estate agent does it. The model would find similar comps or similar houses that had sold or were maybe listed and kind of triangulate around there. But the reality was that there was always also a human at the loop in the loop, and the human was making manual adjustments at the end or during the process to like update the value. So I always thought it was funny because we had so many smart people working on the algorithm and at the end there would be this random appraiser who was just vibe changing the values based on pictures and his personal judgment. So there was some secret sauce there, but there was also a bit of.
JONATHAN STERN
Like, okay, with every house, there was a human at the end of it.
JEFF YE
Not on the immediate offer, but yeah, If the home was gonna go through like a contract process, then yeah, Opendoor would have a person like basically looking, manually looking at what the model was saying and just making sure it wasn't like super out of whack. And so I don't know if that.
JONATHAN STERN
Person would bump it, like how many percentage points?
JEFF YE
I mean, like a couple grand, like easily could bump it 10, 20 grand based off of like this picture of like a foundation crack or a weird layout or Just like vibes, right?
JONATHAN STERN
Yeah, yeah. But probably on the order of like 3 to 5%. Is that fair?
JEFF YE
I mean, meaningful for the valuation.
JONATHAN STERN
Totally.
JEFF YE
Yeah.
SPEAKER 3
Yeah.
JONATHAN STERN
And I think but like not 10% probably.
JEFF YE
I mean, there's probably cases where that happened. Yeah.
JONATHAN STERN
Okay.
SPEAKER 3
Yeah.
JEFF YE
This is a bit outdated. Like this was, you know, when I was there. But like my guess is like they still probably have something like this. Where there's like kind of a human in the loop to just kind of like correct it. And I think honestly, there probably is something here where you could use like a, say the R LLM model to like do a lot of that. Like I tested actually just using like 03 to do some like price my home based off pictures and some like, you know, details about it and actually did a really good job. So I do wonder like what the potential is here.
JONATHAN STERN
To just like use a foundational model without fine tuning. Like I'm sure it'd be even better with fine tuning. Just like drop some photos into it.
JEFF YE
It was amazing. It was amazing. In my sub neighborhood, we knew the comps. It gave me a price that was like way exactly in line with what I would expect.
JONATHAN STERN
And like totally not technology that you guys were using couldn't have been. Seven years ago, nine years ago, right?
SPEAKER 3
Yeah. Yeah.
JONATHAN STERN
That's fascinating.
SPEAKER 3
Yeah.
JEFF YE
And I think what there was, I, I made, I made a point around this in one of my worst AI article, but when Carrie was like, oh, we're using schools and comps in our model pricing algorithms. I was like, I wanted to, like, pull my hair out. I was like, what are we, what are we doing? How are you just using schools? Like, this is literally the first thing anyone.
SPEAKER 3
Yeah.
JEFF YE
Looking at a house would ask, are the schools good here? So my guess is there's a lot of low hanging fruit there still, especially now with what the modern AI models could implement, whether you use a mixture, the traditional ML plus LLM oversight, or you just use the LLM, or you could maybe solve the human. But my guess is a hybrid is probably going to do pretty well.
JONATHAN STERN
But yeah, talk to us a little bit about the macro economy. Like, were it not, yeah, yeah.
JEFF YE
So before I go into the macro, there's like a bunch of pieces. So that was like this, what we call like the R pricing sell side model. So that was like the offer. And then we also had like a whole team that was dedicated to like pricing the home for resale. So, you know, when you, if Opendoor also had like, algorithms around, okay, when you list a home, and this is when I talked earlier about doing price drops and stuff, like what is the optimal kind of pricing strategy to get the maximum value out of your home? So we had a lot of that as well. We had a lot of technology around that as well. And I think my guess is the team just really hasn't improved it that much. If you look at some of the Data Door data, all they really seem to be doing is just like listing the home really high and then just like praying that someone will buy it at a high price, which to me like, I mean, there's there's no secret sauce there. And I think also Keith has mentioned like innovating on the buyer side is like so important because this was always the flywheels like if you can sell your home quicker and at a higher price on the buyer side, then you can purchase the home for less on the seller side, you can give the seller essentially a lower spread or a lower fee because you're confident you can sell that home for a profit on the back end. So both pieces are really important.
JONATHAN STERN
Do you want to shift to the macro? Why it matters so much? Why the interest rate hiking cycle, unprecedented speed, caused a 98 or 99% drop in share price.
JEFF YE
Yeah, yeah, yeah.
JONATHAN STERN
Usually when there are macro headwinds, stock prices suffer, but it's unusual that stock prices declined by 98% as a result.
JEFF YE
Yeah, this is funny. It's kind of this kind of hot take, but we did have a risk team at Opendoor when I was there.
JONATHAN STERN
How many people?
JEFF YE
Maybe two or three or four, but they were like good, they were smart. They were like, they were like PhDs.
JONATHAN STERN
Oh, it was 100, not at the scale where we are now.
JEFF YE
Yeah, yeah, yeah. But it was clearly, you know, we had thought about risk. Okay. Like what happens if a black swan?
SPEAKER 3
Yeah.
JEFF YE
And it was like the insurance policy. It's like, okay, we hired these people. They're going to help us figure out, you know, when COVID happens or when interest rates go up a lot. And like, clearly that didn't work. So it was just like you bought this insurance policy that didn't actually pay out. And I'm guessing those people just got let go or they left. So it's funny, you know, you have like this risk team that like, actually didn't actually do anything in terms of like managing risk. I thought that was a bit ironic. But I do think like fundamentally, and I wrote this in, I think my initial article for my blog was that like it really, the interest rate changed like the 500 basis points or 550 basis points really kind of exposed the core weakness of the model of the of the model. And I think like going forward, it probably makes sense to have some hedging or like insurance policy like that you like essentially buying like insurance in the financial markets or having some like being an insurer thinking like you're an insurer and having like a pool of capital that you can use to essentially risk manage during interest rate like volatile environments. And it was funny because I think Ian mentioned they had looked into it, but it was like, he said it was too expensive. I was like, oh, it's more expensive than losing like $2 billion? Probably not. So I hope that's something they look into. So I think you could think of it like this is like, you buy a home.
JONATHAN STERN
Did Ian say this like on the record or did he say this on a tweet?
JEFF YE
I think it was a tweet. I think it was a tweet 'cause I had suggested it in one of my X posts. And then he was like, oh, we looked into it, but it was too expensive. Like, yeah, it was probably expensive at the time, but then when you look at Retro, it's like, oh yeah, that's why you buy insurance. That's why you buy health insurance, right? 'Cause you wanna pay for your million dollar cancer treatment. But I think one idea would be like, you have a pool or you've kind of bought puts or something, or you buy some sort of mortgage rate product, and then when mortgage rates spike, you get a payout. And then you can essentially use that to like insure any losses on the homes that you've bought and that you've underwritten in a different like mortgage rate environment. So like that's exactly what happened to Opendoor was like they bought these homes when mortgage rates were like 2% and then six months later mortgage rates were like 6%. And what happened was like buyer affordability crashed. And all the homes that they had purchased were now 20% actually overvalued. But instead, if you had some insurance policy, you could either just underwrite, take the loss, or you could maybe have a mortgage rate product where you say, you could still buy this house at 2% or 3% and we'll just cover the delta, something like that. But essentially thinking through these Black Swan scenarios because To me, that was like one of the biggest lessons is like they said they had like risk management, but like really when it happened, like there was clearly no risk management.
JONATHAN STERN
In fact, I think Eric Wu said that the company was set up to perform really well when interest rates went up. Is that right? Because it...
JEFF YE
I think because the idea was that like the spreads would adjust in real time.
JONATHAN STERN
Right.
JEFF YE
And I mean, I don't know if they did.
JONATHAN STERN
I think because it would provide more certainty, like as rates are rising and that's presumably what sellers would want or what buyers.
JEFF YE
That's true. If you can keep your spreads tight. If all of a sudden you realize you have to charge like 20% spreads under Carvana's regime, Sure, their sellers will sell, but no one really wants to take a 20% haircut on their home value. That's a tough value proposition.
JONATHAN STERN
It sounds like you are reasonably convinced that this is a stock you can own when the macro is good and the macro is bad, so long as the company implements a little hedging and takes risk more seriously. Is that right?
SPEAKER 3
Yeah.
JEFF YE
I mean, I think this is all in retrospect. Like, I mean, I feel like I'm sounding kind of almost like bearish in this interview. I'm not trying to be, I'm just.
JONATHAN STERN
Trying to like, no, you don't sound bearish compared to some people I've been talking to.
JEFF YE
Yeah, my own take. Like, you know, talking about like a Martin Short, like, I think what's going to actually kill him is the macro headwind. Like, I think he's thinking, Martin Shkreli, Martin Shkreli. Yeah, yeah. I think he's thinking like, oh, this company, you know, not making any money, they're going to go under. But I don't think he realizes that if housing comes back, it's going to come back a lot. And I think it's really not a.
JONATHAN STERN
Company you want to short as.
JEFF YE
Yeah, exactly. I don't think it's a company you want to short even if you don't believe in the current business model because just as hard as the company got hit when interest rates went up, it kind of swings the other way too. When we saw it during COVID right? The company was like printing money because every house they bought like appreciated 20% and it was just like, oh, so easy. I think there's something potentially similar here. But that also is like less relevant now, I think almost because I really don't know what the new business is. I'm kind of trusting that like an A team, A plus team management and A+ management team will be able to figure it out. And like, I think honestly, that's, that's the bet now. The bet is less like, like I said, okay, we can 10x on macro tailwinds and key agent and steady execution. The bet now is like, oh, we can 100x on like the one of the best teams and disrupting the biggest industry.
JONATHAN STERN
I want to get to the key facets of your investment thesis and valuation. But real quickly, there's something that was interesting from the interview that Molly O'Shea did with Keith yesterday morning, the Sorcery VC podcast. Excellent show, actually. And good interview. Keith said that Opendoor's mission is to serve the middle of the barbell. You suggested something interesting in your essay on AI, which is that if Opendoor added more AI, to its price pricing algorithm, like seriously use the new technology, then it could expand its buy box outside of the middle of the barbell.
SPEAKER 3
Yeah.
JONATHAN STERN
Like how reasonable, feasible, serious is that suggestion in the medium term?
SPEAKER 3
Yeah.
JEFF YE
And I think the medium term is definitely reasonable. And I think, you know, also in that interview, Keith mentioned the middle of the barbell is like 80th percentile. So that's like Very much the middle, right? That's like 20 to 80.
JONATHAN STERN
That's like, that's a lot of, I.
JEFF YE
Don'T think Opendoor is not touching that right now. Like Opendoor is so, like, if you think about that.
JONATHAN STERN
Okay, so yeah, I guess where do you think Opendoor is now? Like 45 to 55?
SPEAKER 3
Yeah.
JEFF YE
300 to 500, like kind of single family. They don't do condos, really. They don't do townhouses. They don't do a lot of different types of homes. Like, so I don't think their buy box right now is anywhere close to.
JONATHAN STERN
Like the full middle.
JEFF YE
Yeah, it's really the full middle. But I was thinking more from like first principles, right? Like, yeah, New York is a tough market. But even if you like go to two similar homes next to each other in Phoenix, like depending on who lived in them, they're going to have like very different feels and like there's going to be a lot of things that are just as hard to price between like two homes that are like very similar as like, oh, a really unique brownstone in New York or something. And I think fundamentally it doesn't feel like the company should be like, oh, we just can't do that, especially now with AI. If a real estate agent can do it, I don't see why Opendoor shouldn't be able to do it. So yeah, I think my vision for AI is really the, you could really have like an LLM AI, LM based like AI valuation agent. So think like the best real estate agent or the best appraiser that you've ever worked with. And like, there's no reason that person shouldn't, like, Opendoor shouldn't be able to cover like the full buy box if they could build that like model or that like agentic, pipeline agentic like framework that can you just give it any any house in the US give it the relevant data and it should be like as good as like the best appraiser in the world who's like just focused on that market at valuing the house like I think I mean if you look at these AI systems I honestly I don't think we're that far away from that.
SPEAKER 3
Yeah.
JONATHAN STERN
I want to read something that you tweeted recently, Jeff Ye, you said one way I'm thinking about Opendoor now is basically that it's been reborn as a public seed stage AI company valued at around five to six billion dollars with some of the best talent in tech. Think safe super intelligence or thinking machines. I think those are both companies founded by ex OpenAI founders. It's a very unique investment profile that isn't typically available to retail and should potentially be a small or big part of every investor's portfolio. Say a little more about that.
SPEAKER 3
Yeah.
JEFF YE
I mean, I think this is kind of like when you think about SPACs.
SPEAKER 3
Like.
JEFF YE
Giving the average person access through the stock market to companies that haven't 100x yet in the private markets or companies that are more like series A, series B. And I think this kind of squarely fits in that profile. Basically every retail person is kind of like an angel investor, like a kind of like follow on investment to like Keith and Eric's check into Opendoor recently. And I don't really think like you can get like the average person certainly I can't get access to like the next round at Stripe or the next or not Stripe, the next round at cursor or the next round at like anthropic, right? So I think this is kind of like a very unique thing where like somehow this company is public, right? It's not really profitable. It's still pretty cheap and it's going to go through this huge change. And like, if you think from a asset allocation perspective, it makes sense for some like people to have maybe a small part of their net worth in something that could 100x, right? It's like crypto. Maybe that's bad. Like, bitcoin or something, having a small part of your allocation in bitcoin.
JONATHAN STERN
Why do you call it, yeah, I couldn't agree more. Why do you call it a seed stage company?
JEFF YE
I call it because the business model seems to have not been quite solidified. Like, I don't know if they're, are they going to do I buying still? I think so.
JONATHAN STERN
What do you think the odds are that they like discontinue I buying? That'd be wild, right? Like this is the biggest iBuyer in the world.
JEFF YE
I don't think they're going to discontinue iBuyer, but it seems like from what Keith has alluded to, they're going to innovate on maybe the financing side. So like he's mentioned assumable mortgages or on the buyer side, having like different financing options, right? Like instant mortgage, instant like underwriting for someone.
SPEAKER 3
And.
JEFF YE
Yeah, I think like it's essentially a seed stage company in the sense that like these are things that they haven't done and they need to kind of prove out.
JONATHAN STERN
Yeah, like with Carrie, we got a little bit of like key agents was new, cash plus was new, right? But that was sort of the extent of the innovation.
SPEAKER 3
Right?
JEFF YE
And at least they copied that from Offerpad, sadly.
JONATHAN STERN
Sorry, say that again.
JEFF YE
I think they copied that from Offerpad.
JONATHAN STERN
All right, so Opendoor is no longer leading. Got it. But your thesis now is that the business itself is quite fluid and we literally have no idea what they're going to roll out over the next six months.
JEFF YE
Yeah, I think iBuying sticks around. I mean, I think the product, the experience is going to be better. But after that, I don't know. I think.
JONATHAN STERN
What about partnerships? You mentioned in one blog post, Palantir, XAI, Nvidia, OpenAI, Google, Microsoft.
JEFF YE
Yeah, yeah, yeah.
JONATHAN STERN
Which of these should OpenDoor try to partner with?
JEFF YE
Well, it's funny because I don't know, John Chu, he was like, we overlapped. He was like a PM at OpenDoor. He's at CoStar now, I think. He's very against the Palantir. Partnership, but I think specifically, specifically he's.
JONATHAN STERN
Against Opendoor Palantir.
SPEAKER 3
Yeah.
JEFF YE
Okay. Well, he's like, oh, I don't think the Palantir Foundry product really makes sense. But actually, I, I don't know. I, I kind of disagree because, like, when you think about what found, what Palantir does, they basically, like, use Ai and they, like, automate complex business processes using Ai. And, like, they have, like, their thing called the ontology, like, where they, like, map out all the different like business logic and all the assets that need to get moved around. Like that to me feels very salient when you're buying a home and the process of buying a home, using AI to automate a big piece of that makes a lot of sense. But the question is whether Opendoor would want to outsource that or have a partner to build that. My guess is probably not now with.
JONATHAN STERN
Do you know if Shopify worked with Palantir?
JEFF YE
I don't know. I'm sure we can look it up. But there's like two pieces, right? There's like asking a leading edge AI solutions provider to come in. So that would be like a Palantir helping Opendoor build that agent appraisal model maybe. And then there's another piece of selling Opendoor's data. I don't know. I think that could be compelling, but that's not something like Keith has mentioned that could be just too far from the core mission of making buying and selling easy. So I doubt anything happens now with the talent. And I think I'm okay with it. If you can get the right talent at the company, you don't need to like outsource the AI work.
JONATHAN STERN
Yeah, I saw Cas opened up a Google form for engineers, I think all over the country or world, to just enter in their name, email address, GitHub profile. They can submit that and I guess they'll be considered or yeah, Cas will be in touch with them.
JEFF YE
Yeah, yeah, yeah.
JONATHAN STERN
It sounds like he is all in on recruiting. The best and the brightest from anywhere in the world and getting them to the physical locations in office wherever those end up being. So, yeah.
JEFF YE
Yeah, but I do think, you know, and this is a little, has like a bearish tint, but like, I think he should, he needs to be mindful that like agents are not going to be, you know, what if they really pivot and, you know, kind of try to disintermediate the agent? Like, you can, you know, kind of think of like a zombie movie. There's going to be like 2 million agents crawling on Opendoor trying to slow it down. And, you know, it'll be interesting to see how the company navigates that.
JONATHAN STERN
Let's close with talking a little bit about valuation. You said you own shares. You also said you're sort of treating it as like a seed stage investment, which is kind of cool because those opportunities aren't really available. But it is a public company. We do have the financials. We do have the current valuation, which seems to change like 10% every day. Some days 75%, 80%. What is the right approach to valuing this thing? Are there comps? Carvana's tossed around as a decent comparison. How do you think about this?
JEFF YE
You know, for like a financial person, I'm like not the biggest fan of using like valuation multiples. But I do think there are a couple of milestones that will help. Like if the company can show like maybe one or two quarters of EBITDA sorry, maybe not EBITDA because they've already shown that, but like real like contribution margin positivity or like gap adjusted positive margin positivity, I think that's going to be like a huge accelerant. And I think that was the change for Carvana. It was like really almost a binary thing. They went from being like, oh, this business is going to go out of this model is not viable to like, okay, actually they can stick around. And then when you can show that you can actually be like generate any amount of cash flow. Like even if it's $1, you just get rerated by like, you know, all of Wall Street. And that's when the multiples actually make sense. Like that's when you can say, okay, Opendoor should be worth 4x revenue or I was looking at some numbers like 40x EBITDA. So, you know, those are the numbers that like Carvana, Uber have. But until they, I think until Opendoor can show that they have a viable business model that is like actually profitable. It's hard for anyone to actually give it those anyone like who has who has like big institutional money to give it those multiples. So yeah, I think it's just going to be vibes from here on out for a while. And that's okay. You know, it's going to be like retail support, I think, like hopefully Eric, Eric Jackson doesn't slow, slow down, you know, if you can get like, yeah, actually, I think one huge thing is like Trump, the administration getting on, on board, right?
JONATHAN STERN
What does that mean? Like, I had no idea they even might be part of the story until Eric Jackson's posting a photo with Eric Trump last night.
JEFF YE
I don't know. I don't know. Maybe like a co-investment, maybe one of the Trump family funds, like, takes a small stake. Maybe there's some mortgage innovation that Opendoor can lead. There's so much.
JONATHAN STERN
I will say the PULT family.
JEFF YE
Yeah, they're a big home builder family.
JONATHAN STERN
I think they made an investment in Opendoor in 2022. Is Pult in the administration now?
JEFF YE
Yeah, he's head of housing.
JONATHAN STERN
Federal Director of Federal Housing Finance Agency. All right, so look, there's potential connections there.
JEFF YE
Yeah, that's why I'm like, I can't believe Shkreli is shorting. It's better to leave this alone. Even if he doesn't believe it, it's probably better to leave it alone than like covering.
JONATHAN STERN
Yeah, covering him's house. I used to be amazed that people would bet against these companies that really could like two or three X overnight. Like if only there's a piece of news that goes the company's way. Mind you like the companies are doing well. Well in Opendoor's case it's TBD.
JEFF YE
Hopefully.
JONATHAN STERN
The case of Hims and hers like the company is killing it for a core slowdown and yet it's the most shorted stock on the S&P mid-cap 400.
JEFF YE
Oh is it really?
JONATHAN STERN
But we don't have to touch on his and hers. I talked about that on another channel.
JEFF YE
But- I need to order my GLPs from, can I still get my GLP from them?
JONATHAN STERN
You can, yeah. It's sort of up in, some investors think it's up in the air, which is probably part of the short interest. And if the GLP ones were to go away, that really would be bad news for them.
JEFF YE
When the GLP pills come out, I'm going all in.
JONATHAN STERN
HIMS may not have access to those right away.
JEFF YE
Oh, really? Okay, never mind. Like, yeah, I think there's so many catalysts to the stock price and like.
JONATHAN STERN
What do you, it was interesting to me today that JP Morgan is overweight Opendoor. So they just came out like with some.
JEFF YE
Is that a question?
JONATHAN STERN
Say that again.
JEFF YE
Analyst Dale Lee from JP Morgan? I think so, right? Yeah, yeah, yeah. He's one of like the four analysts that cover Opendoor. It's pretty funny.
JONATHAN STERN
So I don't know what the rating was two months ago, right? But the stock was, I don't know, is it $2 two months ago, right? Yeah, maybe a dollar. $1.50 two and a half months ago. And yet despite the price appreciation, which is 10 to 20x depending on the starting point, they came out with a note today supportive of the hire of CAS as CEO and said they maintain their open weight sorry, overweight rating on the stock, which is like, it's interesting because if anyone's doing evaluation analysis, it's the analyst that covers the company at JP Morgan. So I haven't seen the full report and what they're doing to get into an overweight, but interesting.
JEFF YE
Yeah, I mean, I mean, I think those guys are going off Vibes, too. Like, they have to, right? There's not much to go off of right now. And I think I think day day is the analyst there. He's probably just the he's just the he's the only one willing to stick his head out for now. But once the company, you know, shows the turnaround, hopefully, like all the analysts will fall in line, as they always do, of course.
JONATHAN STERN
Yeah, they're a little late, typically. But just just to close, I want you to paint like a worst case scenario, bear case. Like, let's say Shkreli is right and is, you know, running laps around all of us talking about how he was right a year from now. It turns out Opendoors at three dollars a share.
SPEAKER 3
Right.
JONATHAN STERN
What, what do you think went wrong?
JEFF YE
Yeah, I mean, I think it would probably come down to, like, some of the things I mentioned earlier, like.
SPEAKER 3
The.
JEFF YE
Agents all kind of like colluding and like essentially building a wall. Like for better or for worse, most sellers still have an agent and most buyers still have an agent. And if your agent is like, don't work with Opendoor, they're like unscrupulous, like their homes suck, it's kind of hard to go around that. So I think you saw a little bit of that earlier on. So that's why I keep kind of harping on this is like, it's a bit of a, it's a big bet to go against, I mean, not just Gnar, but like the whole agent kind of universe. So I would say that that's kind of like one piece. Maybe you could do it with better product. I think Keith's answer to that would be like, we'll just build a better consumer experience. No one will work with agents. Yeah, maybe. And then I think the other piece that would have to kind of like also not work is like the company. And this was kind of the typical bear thesis was the company scales up its I buying. And then there's another sort of like interest rate shock, maybe, you know, another black swan kind of thing, maybe like war breaks out or there's just something that happens that's like not good for the macro economy.
SPEAKER 3
And.
JEFF YE
The company is just kind of like has a bunch of like overvalued homes on its books again. So yeah, I mean, I think the scaling problem is always going to be there. It's like if you want to take on a lot of homes on your balance sheet, there's always going to be risk there. So it'll be interesting to see how they navigate that.
JONATHAN STERN
Can you map out a Can you map out a bull case to close? Like let's say we're at $30 or even $82 in a couple of years. How did we get there?
JEFF YE
Yeah, I think the beauty of the company is like it doesn't even need to be that big, right? Like there's so many transactions. There's five to six million existing home. I mean, in a good market, there's like five to six million existing home transactions.
JONATHAN STERN
And per year, per year, six months turnover in the year.
JEFF YE
Yeah, you have to take out like.
JONATHAN STERN
The new homes, but that's not even international, right?
JEFF YE
Yeah, it's not international, but we're just talking about the U.S. and I think, you know, they they they're able to maybe it's like millennials, maybe it's like Gen Z that just are comfortable buying and selling their home directly. They have a they have a service that's like kind of what I mentioned with Uber, right? Better, faster, cheaper, no brainer. And if they can get like, I mean, I don't know exactly how the math works out, but if they can get to like 5% market share and show ramp to 20 or 40 or 50, like that's what gets it that 4 to 5x revenue multiple that Carvana has. And then this thing is easily, you know, 100 billion. So, yeah, I mean, I think there's some behavioral change leaps that you have to make or you have to believe in. Like, I don't know if you've ever bought or sold a house, but like the first thing you do is you get an agent. So I think how you get around that, maybe you build a better product experience.
JONATHAN STERN
Have you bought or sold a house, Jeff?
JEFF YE
Yeah, yeah. I bought a house and I used an agent.
SPEAKER 3
Yeah.
JEFF YE
And it wasn't like the greatest experience. But like, would I use, would I not use an agent for my next house? Maybe. Maybe.
SPEAKER 3
Yeah.
JEFF YE
Hard to say, though. Would like the average person not use an agent for their, for buying or selling their next house? Maybe if Opendoor is like a meme, big enough meme. Yeah, I think it may be like similar to Tesla, you know, like, would the average person have considered an electric car like 10 years ago?
JONATHAN STERN
It did move the market.
JEFF YE
Yeah.
JONATHAN STERN
Tesla sort of created the market in many ways.
JEFF YE
Yeah, and I think it's kind of changing by our consumer behavior. What's like normal. But if they can do that, then yeah, the opportunity is like unlocked essentially.
JONATHAN STERN
Cool. Well, Jeff, thank you so much for being the guest on Open House episode one. I think this is going to be a mini series. If it turns out to be something bigger than that, we'll certainly have you back on the show. Yeah, three months or six months. Yeah, thank you so much for being a part of Open House.
JEFF YE
Yeah, yeah, awesome.
