Recently public real estate startups are valued at over $42 billion

U.S. homebuyers have generally been doing well over the past few years, with average home prices rising significantly.

Sadly, the same isn’t true for those investing in newly publicized real estate startups. The opposite is true there, with many housing-focused stocks hitting new lows this month after an already difficult year.

Overall, venture-backed U.S. real estate-focused companies that have gone public in the past two years have fallen an average of 85% from their offering prices, according to Crunchbase analysis. Nothing beats the price offered.

Some of the worst performers are down 90% or more.This includes the i-buying platform open door When offer padeven as Dirt floora homeowners insurance start-up.

To give you a broader understanding of how venture-backed real estate firms have performed in the public market, we’ve put together below seven charts that have debuted over the last few years.

All in all, it’s a pretty staggering reduction. As of earlier this week, the post-debut market cap totaled over $42 billion.

At a glance, $42 billion is far more than the combined market capitalization of the second and third largest homebuilders in the United States. (Those companies, Renner When Parte Group, with a total market cap of about $31 billion. )

This is the kind of decline that usually has a fairly obvious cause. For the newly published real estate player, next he can point out four.

1. Initially rated too high: Markets were more active when the companies on our list debuted, and valuations reflect estimates of a brighter future than current fundamentals.

take open door.When I debuted at Nasdaq Following the completion of the SPAC merger in December 2020, it was initially valued at approximately $18 billion.

That’s an ambitious figure, given that in the three calendar quarters before going public, the company had revenues of $2.3 billion and a net loss of nearly $200 million. Even for a SaaS company with a high revenue-based reputation. But Opendoor’s business, buying and selling properties, has much lower gross margins than software.

or consider compass needleFast growing real estate brokerage firm. The company is also a relatively low-margin business, with him posting losses of $270 million in the year ahead of his IPO in 2021. Nonetheless, it managed a post-debut valuation of around $8 billion.

2. The company fell short of expectations: Many companies on the list also fail to meet investors’ performance expectations.

For example, the compass higher net loss It has beaten analyst expectations in three of the last four calendar quarters.We are also making cuts, including recently reported dismissal About 50% of our 1,500-person technical team.

we work also underperformed. Last quarter, Workspace, his provider, underperformed analysts’ projected earnings expectations, pushing its share price lower.

On the other hand, Opendoor faces various problems. The company paid $62 million this summer to settle FTC charges that it “used misleading and deceptive information” to market itself to potential home sellers. The company is also facing a class action lawsuit filed by multiple shareholders, alleging that its algorithm failed to adapt to changing market conditions.

3. Changing investor preferences: Loss-making growth companies entered the market a year ago, but now they’re out, and the public prefers earnings, dividends, and old-fashioned value stocks. This leaves little support for unprofitable and newly listed real estate companies.

4. Changes in the real estate market: Of course, the US real estate market is changing rapidly. Today, the average interest rate on a 30-year mortgage is hovering around 7% for him. That means buyers can no longer afford to buy homes at last year’s prices when interest rates were half that. Stock is sitting. Prices are falling. Demand for new mortgages has also plummeted.

While this change in circumstances is not necessarily catastrophic for newly listed players in the real estate industry, it does require some adjustments and possibly lower expectations.

Where does that leave startups?

Venture investors continue to fund real estate-focused startups at a good pace, even as public valuations plummet.

So far this year, investors have put about $4.6 billion Seeded through a growth-stage round of real estate-related US startups, according to Crunchbase data. This tends to make 2022 lower than last year when $7.95 billion was put into space.But venture funding steep descent Year-on-year in most sectors, this is not a bad result, indicating strong investor confidence.

The total includes some very large rounds.The biggest source of funding is Veeve, a construction technology company focused on the residential construction sector. He raised $400 million in a Series D in February. hook upthen came flow, Adam Newmanfounded a home rental start-up that took $350 million from Andreessen Horowitz In August.

another big round was made roof stockan online platform for investing in rental homes, raised $240 million in its Series E in March. knockA home finance start-up.

The Big Picture: While retail investors may not be too fond of recently-listed real estate companies, the private market still sees many advantages in this space. We’ll see if their enthusiasm continues.

Illustrated by Dom Guzman