Opendoor Technologies Inc. (OPEN) Q4 2021 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Opendoor Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Elise Wang, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, and good afternoon. Full details of our results and additional management commentary are available in our earnings release and shareholder letter, which can be found on the Investor Relations section of our website at investor.opendoor.com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding Opendoor's financial condition, anticipated financial performance, business strategy and plans, market opportunity and expansion and management objectives for future operations. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Opendoor's most recent annual report on Form 10-K for the year ended December 31, 2021, to be filed with the SEC and Opendoor's other periodic SEC filings. Any forward-looking statements made in this conference call, including responses to your questions, are based on management's current expectations and assumptions as of today, and Opendoor assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The following discussion contains references to certain non-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors and supplemental operational measurements to evaluate the company's financial performance. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our website at investor.opendoor.com. I will now turn the call over to Eric Wu, Co-Founder, Chairman and Chief Executive Officer of Opendoor.

Good afternoon. On the call with me is Carrie Wheeler, our Chief Financial Officer; and Andrew Low Ah Kee, our President. Our customers are at the center of everything we do and per usual, let's start by hearing from one of them on the impact that Opendoor has had on their lives. [Audio/Video Presentation]

We are honored and proud to be helping families like the Thomas’, who have trusted us with not only their home sale but also their home purchase, so they can seamlessly move in one simple transaction. 2021 was a year that further demonstrated where we're heading, shifting away from a disjointed offline process centered around lead generation and agents and towards a digital experience, where consumers can buy, sell and move with just their mobile device. In the last 12 months, we generated $8 billion in revenue, representing over 200% growth versus the prior year. We delivered $525 million in contribution profit, up nearly 380% year-over-year. And on top of this growth in revenue and unit profits, we booked $58 million in positive adjusted EBITDA, up $156 million from the previous year. These financial results pulled forward our financial targets by years, significantly outperforming the ambitious expectations we set for ourselves across our key metrics. This tremendous growth was the result of focused execution and investments in our consumer experience, our consumer growth and our technology, pricing and operations platform. In terms of our consumer experience, we centered our work on improving our seller experience and differentiating our buyer experience. For home sellers, we focus on automation and reducing the friction of steps to sell. We launched virtual assessments, allowing home sellers to complete a home inspection virtually. And then we launched self-service assessments, giving the customer the ability to complete an inspection themselves. For homebuyers, we launched Opendoor Backed Offers, enabling buyers to make an offer backed by cash, which significantly increases their chances of winning their dream home and gives our customers a superpower, which has historically been exclusive for the wealthy. With our launch of Opendoor Complete, we combined 2 lengthy and disparate processes of selling your existing home and buying a new home into one simple experience. This is so impactful because it gives our customers control of their moving timeline and eliminates costly double mortgages and costly double moves. Furthermore, we acquired the RedDoor, Pro.com and Skylight teams, which will power our home personalization and digital mortgage efforts in 2022 and years to come. The result of all this work was both very high conversion at north of 35% of real sellers and a seller NPS of north of 80 in 2021. In terms of our consumer growth, this year marked a very rapid increase in the number of customers we are serving. We brought in our market coverage with the addition of 23 new markets, up from a total of 21, demonstrating the scalability and robustness of our systems, playbooks and service offerings. We extended our partnerships with homebuilders, now partnering with over 70 homebuilders and online sites such as Realtor.com, giving more home sellers a better solution. We also saw significant increases in customers from reengaging homeowners who registered in previous years, who were not yet ready to move, and this resulted in almost 30% of our acquisitions. Furthermore, our improvements in awareness led to over 0.5 million new homeowners requesting an offer from Opendoor in 2021, which will also help us drive our reengagement efforts and growth in 2022 and beyond. Last but not least, our core technology, pricing and operations platforms dramatically improved last year. We made improvements to our home operation system, Opendoor Scout, as well as the virtualization and centralization of multiple labor processes. This has resulted in our ability to deliver 3x more home assessments and repairs, with a similar level of operational staffing at 2 years ago. This also enabled significantly faster turnaround times and over 170 basis points of cost structure improvements. We continued our investments in pricing as our pricing system is our secret task. We analyzed hundreds of data points about each individual home we assessed, and we ingested millions of new data points, including image data and demand signals. This work led to a significant reduction of pricing variance and the expansion of our buybox by over 50%. Looking forward to 2022, we will take big steps towards our vision for a fully digital experience, while significantly growing our audience, revenue and contribution profit. First, given the positive customer feedback we are seeing, we will expand and grow Opendoor Complete and Buy with Opendoor as part of our suite of product offerings. We will continue to expand to more markets nationwide, including some of the largest markets in the U.S., such as recently launched SF Bay Area. We will continue to invest in our goal of having the lowest cost platform, automation and scalability, which will lead to lower costs for consumers and expanded contribution margins. We will continue to build on top of our differentiated pricing engine, being the only company to acquire the data and pricing insights necessary to price homes at scale. And finally, we will more deeply integrate home financing and home personalization into an e-commerce-like checkout flow when buying a home. Given the strength of our team, executional focus, market leadership and innovations in flight, 2022 will prove to be a defining year for Opendoor. Last, I want to thank our Opendoor teammates for your tireless work in servicing and delighting our customers during one of their most important life transitions. I'll now turn it over to Carrie to discuss our financial performance and expectations for Q1 and the year.

Thanks, Eric. 2021 was a record year for Opendoor, and we're entering 2022 with strong momentum. Q1 revenue is expected to be between $4.1 billion to $4.3 billion, up 460% year-on-year at the midpoint. Adjusted EBITDA is expected to be in the range of $30 million to $40 million, up $37 million year-over-year at the midpoint. Let me first touch base on some of the key financial highlights for 2021, including our strong finish in the fourth quarter and then I'll address our outlook. As always, you'll find all the details in the shareholder letter that we published today. Once again, we meaningfully exceeded our revenue guidance. We delivered a record $3.8 billion in sales in the fourth quarter, up 1,435% versus prior year. This outperformance was driven by our resale and operating capabilities, enabling us to lean into strong market demand. We ended the year with $8 billion in total revenue, 211% higher than 2020. And most importantly, we finished the year at a pace more than 2 years ahead of the plan that we came to market with, when we went public at the end of 2020. Our contribution margin was 4% in the fourth quarter, which was in line with our internal expectations. As a reminder, our margin trajectory was consistent with what we guided to throughout 2021, driven by temporary factors in the first part of the year related to a highly favorable inventory mix and conservative underwriting decisions relative to our HPA forecasting. We exceeded our expectations for the year with contribution margins of 6.5% relative to the guardrails we've indicated for 4% to 6% annually. Adjusted EBITDA was $0.4 million in the fourth quarter and we ended 2021 with positive $58 million versus negative $98 million in 2020. We ended the year with 17,009 homes in inventory, representing $6.1 billion in value, which was up 1,208% versus last year. We purchased a total of 9,639 homes in Q4, in line with what we indicated back in Q3 when we moderated our acquisition pace to ensure we could deliver a seamless customer experience and manage our system-wide operations capacity. Acquisitions were balanced by 9,794 homes sold in the quarter. That volume was over 11x the volume of Q4 2020. This is a reflection of our system's capabilities that allowed us to increase capacity to repair and list homes during the quarter, enabling us to manage our backlog of homes despite the trade labor shortages impacting the housing industry. As a result, we entered Q1 from a position of strength. Our repair timelines for new acquisitions are back to historical norms. We've built in greater operational capacity and flexibility, and our inventory is healthy. I call out that we're providing a new inventory metric to offer more insight into the overall health of our portfolio. We maintain a highly disciplined approach to inventory management, including how we manage the duration of our holding periods. As part of that, we track the number of days that our home was listed on the market. As of year-end, only 8% of our listed homes have been in the market for more than 120 days, which is well within the range that we manage to. Moreover, this metric indicates that our inventory is far healthier than the market, which had 24% of homes listed for more than 120 days when filtered for our buybox. Turning now to our guidance. As I mentioned earlier, we expect first quarter revenue to be between $4.1 billion and $4.3 billion, which represents 460% growth year-over-year at the midpoint. We entered Q1 with a strong inventory balance, which will enable us to meet the elevated demand we're seeing in the housing market, resulting in a high rate of sell-through for our homes. Therefore, we expect to pull in some revenue that would have ordinarily landed in Q2 into the first quarter. While it's difficult to predict with precision exactly when transactions close, we expect to generate approximately $8 billion in revenue for the first half of the year, representing over 300% growth year-on-year. Adjusted EBITDA is expected to be between $30 million and $40 million, which represents a 0.8% margin at the midpoint of the expected range. Adjusted OpEx, which we define is that delta between contribution margin and adjusted EBITDA, is forecasted to be up approximately $20 million versus Q4, as we continue to invest across our pricing capabilities, platform scaling, adjacent services and marketing. Contribution margins are expected to be up sequentially in Q1, consistent with our guidance. Before I open the call for questions, I want to echo Eric and thank all of our teammates, our customers and our shareholders for your support at Opendoor in what was an incredible year of progress and growth. We are energized and we're focused on delivering on our vision to provide an end-to-end home buying and selling experience that is simple, fast and certain. And with that, I'll now open up the call for questions. Thank you.

[Operator Instructions] Your first question comes from the line of Stephen Ju from Credit Suisse.

So Eric and Carrie, access to capital was pretty crucial to your ability to purchase an old inventory. So would you talk about whether there's been any sort of change in stance from your bankers in terms of the existing credit lines and as you prepare for additional growth in the future, access to additional credit lines? And also, is there anything we should be thinking about in terms of potential changes to your inventory holding period, which I believe historically was around 90 to 100 days?

Thanks, Stephen. I'll let Carrie take this.

Stephen, so with respect to our financing, we're well capitalized with what we have in hand today to support our growth plan for 2022. We have financing for over $10 billion of inventory. And if you think about how our terms work across the course of the year, that would be north of $30 billion of home acquisition firepower. We have not seen a change with -- in terms of our ability to attract financing from our lenders, since the exit of other people in our category. In fact, we've actually added to our overall facility since the fall. With respect to your question around hold periods, we did see an increase in holding periods in Q4. When you think about how we hold inventory, there's sort of 2 segments. There's the moment we acquire to when we list and then when we list until sell. What we saw elongated in Q4 is what we call that prelist period, and that was a function of working through some of the homes we acquired -- lots of homes we acquired in Q3 as we work through that backlog in Q4. And we exit the year with that repair timeline, back to where we want to be in terms of historical standards.

Your next question comes from the line of Jason Helfstein from Oppenheimer.

Two questions. First, revenue came in better, I think, than many of us were looking for, but I think gross profit was more in line. And so just maybe just help us understand just maybe some of the dynamics, kind of on the gross profit line this quarter? And then just any comment on kind of attached products and kind of maybe an updated time line? Would you expect to be with kind of attach and ancillary revenue, maybe as a percent of the mix by the end of the year?

Jason, I'll take that first part and then hand it over. With respect to where we ended up Q4, first of all, we feel really good about how we ended the year. Delivery revenue well beyond expectations to be $650 million and landed contribution margin and EBITDA in line with our guidance. And what you saw in the gross margin line and the CM and then down to EBITDA line that we made the decision to intentionally clear more inventory to free up that systems capacity we talked about coming out of Q3, having a lot of homes on hand, wanting to make sure that we did not degrade the customer experience and then we met our overall financial targets for the quarter, which we did. And then we're set up very well to walk into Q1 with a healthy book of inventory and our systems capacity back in line where we want to be. I'll hand it over to Andrew now to talk about Part 2.

Sure. Jason, on adjacent services, our title business continued to perform exceptionally well. We've grown it to become one of the largest title agencies in the country. On buyer and mortgage, those offerings are growing quickly, but they're still small compared to our core business, which is now a run rate of over $15 billion. Taking a step back, our approach to delivering on our long-term goals for services is to focus first on the consumer experience, then to scale it to all markets and then to maximize margins. We're on the first step, which is building the best experience in the market and seamlessly integrating it with the rest of Opendoor. We're seeing some positive signals. Our buyer NPS is currently 60, and we're increasing awareness in a few targeted markets. Additionally, in the fourth quarter, as you know, we acquired RedDoor. We believe it is a best-in-class mortgage experience, and we expect it to launch later in the first half. We believe this approach of focusing on the customer experience where we scale is the right one to deliver on our long-term goal of increasing contribution margin from 4% to 6% to the high single digits.

Your next question comes from the line of Michael Ng from Goldman Sachs.

Just two, if I could. First, based on the strong 1Q guidance for EBITDA and the commentary around adjusted OpEx, it sounds like there's an implied improvement in gross margin sequentially. I was just wondering if you could talk a little bit more about that and what's driving that implied gross margin improvement? And then I have a quick follow-up.

Michael, yes, no, you're exactly right. With respect to what we guided to for Q1 relative to EBITDA and then the OpEx guide we gave, we are seeing sequential improvement in contribution margins in Q1. We look to manage, as you know, that 4% to 6% guardrail on an annual basis, but we'll be well within that for the first quarter.

Great. And then I was just wondering if you could talk a little bit more about the $8 billion revenue outlook for the first half. I guess what does that imply for purchases in the first quarter? Is that moderating? And how does the current macroeconomic outlook affect that, if at all?

Yes, I'm happy to address that. So what we're seeing right now is a very healthy robust housing market and what's implied within our Q1 guide, is that we will continue. We're seeing incredible demand for our homes and a strong sell-through rate. We want to give people a little bit of context about the potential shape for the first half of the year. So excellent revenue in another quarter, a really good record revenue in Q1. We may pull a little bit of revenue from Q2 into Q1, and that's really what we're trying to indicate with the $8 billion guide. Year-over-year, still fantastic growth, up 200-plus percent quarter-on-quarter -- I'm sorry, year-over-year for both quarters. So that's what we're trying to indicate with the first half guide.

Your next question comes from the line of Edward Yruma from KeyBanc Capital Markets.

I guess first, impressive that I think you said that 30% of transactions are driven by repeat. I just want to understand the stick a little bit more, I guess, that's pretty surprising given the relative use of the business. And kind of where do you think that reengaged number could go to over time? And then as a follow-up, just wanted to understand, I know Opendoor Complete will be a big focus in the medium term. I guess what level of investment is still required within that business? Or do you feel like it's kind of all set?

Thanks, Ed. I'll take the first part, and I'll pass to Andrew for the second part. One of the things that we've been surprised by is our ability to reengage previously registered homeowners. And historically, we haven't had that large of a pool. And as we've grown the offering for people that are interested in understanding what their home is worth and what they can unlock with Opendoor, we've been able to reengage that pool of customers through the years and then convert them into sellers. We see that pattern pulling forward into the future, where our current pool of customers who haven't sold with us and have not sold in the market, will be potential sellers for us to tap into in quarters and years to come. I'll have Andrew speak to Opendoor Complete.

Sure. And just taking a step back, we just launched Opendoor Complete in November. And we launched Complete with the belief that we could help the 2/3 of our sellers who are also buying with their journey. Opendoor Complete brings together selling and buying into that one seamless experience. We're excited by the early signal. It's still early days, and we're focused right now on raising awareness amongst sellers in a few target markets. And the incremental investment associated with that is pretty small.

Your next question comes from the line of Curtis Nagle from Bank of America.

Just wanted to go back to the commentary on gross margin and make sure I understand what drove the 7.3% rate. What was that due to clearing homes? Or just, yes, what drove, I guess, sequential decline in the quarter relative to 3Q? And I'm not sure I understood what the implication was for 1Q, I think you talked to contribution margin. But do we expect that to go up in the first quarter?

Yes, I'm happy to take that, Curtis. So if we step back, when you think about the margin trajectory for 2021 and kind of what drove the trajectory, we've been very explicit that we had 2 large but temporary factors that were driving excess margin in the first half of the year. One was we came into the year with essentially no inventory, having kind of sold the inventory during COVID and rebuilding that back up. That was really good for margins and we knew would dissipate on the course of the 1.5 years or kind of back to normal given a $6 billion inventory balance. And the second part of that was the fact that as we came -- turn around our market, we came into the first part of the year, we deliberately made some conservative underwriting decisions relative to what was that time very, very high HPA and that flowed through into resales, into realized margins. Again, that was relatively excessive, relative to our 4% to 6% with the guardrail. So it wasn't that we missed on gross margin is like that we disclosed the trajectory we call for all year long. So that's Q4. Q1, what we're seeing is back to sequential contribution margin increases quarter-on-quarter and that will flow through to also the gross margin.

Right. I mean, can you be a little bit more specific on the gross margin? Just -- I mean, should it go back to 8%, 9%, up from 7%? Any commentary there?

We're not really guiding -- we're not really guiding to gross margin, but you can back into it because you're smart. You can do the math with my EBITDA and then add back. We're not guiding to gross margin. What I would say is we feel good about how the quarter is going to play out. And ultimately, what we are guiding to is that annual baseline of 4% to 6% contribution.

Okay. Fair enough. And then just as a follow-up, the commentary in terms of, I guess, the interplay between 1Q and 2Q, right? So maybe I guess, I always use the words a little pull forward. How many of that do you think could be related to people accelerating purchases ahead of rates and price appreciation still going up, I guess, on a declining second derivative, but still going up? So yes, how much do you think that could be a factor?

What we're seeing is an incredible demand for homes. There may be a little bit of what you said, which is people are looking to purchase in advance of the spectre of rising mortgage rates. Ultimately, I think we're designed to respond to whatever environment we're working in, whether rates are going up or they're going down or they're neutral. So this is more about just the shape of how the quarters were coming into and any commentary necessarily about our ability to acquire homes or sell-through.

Your next question comes from the line of Ygal Arounian from Wedbush.

First, on the macro front, I want to ask about inventory specifically, broadly not Opendoor inventory, but just the limited inventory in the market and how that's impacting your business, both on the sell side, what you're seeing in prices and that's reflecting -- and also how do you think about acquisitions in a limited inventory environment. If inventory continues to be at record lows as we kind of go through the year, how that factors in how you think about pricing, the number of acquisitions, presumably it'd be easier to sell homes in a tighter inventory environment? Just how the dynamic can play out for you guys? And then I have a follow-up.

Sure. I'll try to hit all of that, and you'll correct me where I miss something, Ygal, along the way. First part of your question is how are we responding to the current housing environment, what are we seeing in terms of just overall macro for housing. Our outlook for housing for 2022 remains really robust. I mean rate increase is notwithstanding. What we're seeing is all-time lows for supply. I mean, inventory is as low as it has ever been for this time of the year going back to like 1980 when Lennar started tracking it. And at the same time, we're seeing continued strong demand for homes. We're seeing that in the Q1 guidance numbers we just talked about, we're seeing in our clearance rates. So we don't -- we -- our forecast for the balance of the year is that and will continue to be very strong. that's on the resale side for us as you think about what market we're selling into. The second part of your question was on the acquisition side. In this constrained supply environment, what I can say is we are not having issues with acquiring homes, and we actually don't see as an issue going forward. Reason being consumers are coming to Opendoor because of what we offer, which is a superior alternative to the traditional listing process that's simple, certain fast. And at a time where it's really hard to buy your home, being able to do what we just talked about in Opendoor Complete, being able to marry both sides this transaction, buy your home and sell your home at the same time and be that assurance on both sides of the transaction has been a really powerful thing for consumers. We think that's fueling our business, too.

The last thing I'd add to that is we see the growth with sellers and the amount of customers coming to Opendoor for our solutions as an indication of the strength of our product market fit. The alternatives are to list and sell and that clearly is not a challenge, but people are still choosing Opendoor because of what we're providing in market.

Got it. Okay. That's really helpful there. And then I wanted to touch on pricing. You guys kind of called out a couple of times in the call, in investor letter, your breakthroughs and your pricing processes and improvements there. Just maybe a quick two-parter there. Has the exit of Zillow help you on your pricing at all? And then on the improvements, could we think about that as potentially over time giving you the ability to drive better profitability than what you've talked about?

Yes, it's a good question. We know that market leadership will be very beneficial to the business in the short term and long term. In terms of vis-a-vis competitors coming in out of the market, it hasn't modified our plan. And again, we've built a pricing advantage over the course of 8 years through both better modeling and as well as collecting local data through this time period. Our pricing continues to improve and it will compound over time as we process more homes, as we analyze more homes, as we resell more homes. And that's not a function of whether there's competition or not.

Okay. And potentially more better margins than we've talked about as you improve there? Or is that kind of built into the way you've talked about it?

Sorry, can you repeat the second part of that question?

As you improve, is that built into the kind of profitability that you've talked about? Or could that kind of drive improvements to what you've outlined?

We view it as it gives us optionality. It enables us to either capture the improvements as contribution margin or we can improve our pricing with consumers, which fuels additional growth. And so we view both the pricing improvements as well as operational gains with scale economies as optionality to either drive more contribution margin or drive more growth.

Your next question comes from the line of Ryan Tomasello from KBW.

In terms of your buybox expansion, where do you think the 60% can go, say, over the next year and longer term? And then as a follow-up to that, in the shareholder letter, you highlighted your intent to expand capabilities beyond single-family, and I was hoping you can elaborate on what opportunities that opens up for Opendoor and the unique considerations that there would be in terms of customer acquisition there and underwriting that different product?

So Ryan, Andrew here. 60% couldn't be more. I would start by saying 60% is already higher than many thought we might ever be able to cover, it's decidedly not niche. In principle, we should be able to cover the entire market. In practical terms, the effort to cover the range of tail scenarios that might exist out there, aren't likely to be worth it. But certainly, we believe there's room to continue to grow. And then in terms of expanding the coverage more broadly, condos, townhomes, other types of properties. Again, we believe our investments in our pricing capability and the sophistication we've got there is going to enable us to continue to grow and expand our market coverage.

And then maybe you can elaborate on the benefits of the various partnerships you have for customer acquisition, particularly with homebuilders. Is that driving a material portion of your volume today? And are there additional partnerships you could explore for larger customer acquisition funnels, perhaps with financial institutions or maybe even brokerages that could fit into the model?

Yes. It's Eric. We view some of these parts as extremely beneficial to both partners and consumers. And so an example of homebuilders, which does drive substantial volume for the business, it's a win-win-win. So the homebuilder gets certainty of execution. The consumer oftentimes is looking to buy a new build, contingent on selling the current home. And so we're able to help the homebuilder continue with the build and finish the the home for the consumer with certainty they will be funded and the consumer is able to make an offer on that new build without a contingency. And conversely, we are able to acquire inventory, which then fuels our flywheel. And so we really love the win-win-win situation with homebuilders. And we do view many other partners we have in the pipeline and that are also live as a win-win-win situation. In terms of where we can go from here, my belief is that every single homeowner in the U.S. wants to start their journey with an Opendoor offer. And they want to understand how much their home is worth and the equity they have in their home, and how to move seamlessly. And so wherever the customer is, we will be looking to explore partnerships there. And again, in our march to expand to every single homeowner in the U.S.

Your next question comes from the line of Justin Ages from Berenberg.

I'm just hoping you can expand upon the investments that you're making and the proprietary tool that you called out, seeing as you mentioned that they were improving your ability to get houses back on the market?

Sure. Our investments in our technology and operations platform is core to our ability to grow and scale and serve every customer across the country as Eric just called out. You're seeing us invest in capabilities like virtualization, centralization and externalization to actually let us grow and ramp capacity more quickly. What do those words actually mean? Virtualization means the ability to do something by video, which means the consumer may actually be able to do it themselves and self-serve via video. Centralization on the other hand, lets us take work out of the field and bring it to central teams, which lets us more agilely manage capacity across our now footprint of 45 different markets. And then externalization lets us use both our own teammates in talent as well as that third parties to flex capacity, to accommodate demand when we see surges. And so those are just some of the examples of the investments we're making in our platform and that we believe we're able to uniquely make, given our market leadership and scale.

No, that's helpful. And I appreciate the color. And then just one more, if I could, on competition. You mentioned that the exit of Zillow haven't seen really impacts of that. But in terms of other competitors in the markets where you overlap, are you finding that there's a lot of bidding for the same house given the buybox is relatively the same? Or are the markets still deep enough or you're not really bumping shoulders just yet?

I'm not sure I'd look at it that way. Again, this is Eric. Competition has not impeded our growth, and we do define our competition as the 99% of transactions that are offline. The other thing I would lean on is that I think about is that we have developed some robust and deep capabilities in pricing and operations and enable us to be very competitive in markets that we're in and be the market leader and grow much faster with a far better cost structure. And so the point I want to make is that we're -- our starts are aimed at the 99% of transactions that are offline. And no one is working as hard as us to build a digital integrated and seamless consumer experience. And so we remain focused on that.

Your next question comes from the line of Ryan McKeveny from Zelman & Associates.

Congrats on the progress and results this year. So high level one here. So my sense is there's a couple, what I'll call high-level overlays of uncertainty that investors are thinking through. And these would be, one, the impact of rising rates on the business, maybe not in terms of the availability of financing, as you talked about. What about in terms of inventory financing costs? And maybe also in relation to just affordability, the potential impact to sales and pricing? And then the second area is just inventory impairment risk. So can you talk a little about how you're managing the interest rate risk to the business? And maybe even late 2018 is a decent example where rates rose, housing slowed. So curious how the business fared at that time? And then if you can talk about the process of just managing the inventory risk. And on that second point, I'm sorry, I know this is long, is there a normal level of impairments as a percent of inventory that we should think is relatively normal, considering some homes will always be at kind of the tail end of things? Any thoughts on those would be great.

Ryan, I'll do my best to remember all that, but you'll keep me honest as I go through it. The first part of that interest rates and the impact to us headline is that we do expect rate increases, but we expect the impact to our P&L to be quite manageable. We're modeling an increase in our unit costs at approximately 20 to 30 basis points over the course of the year, and that's a relatively small impact to our overall cost structure on a per home basis. And moreover, we embed those costs in our offers. And so we'll look to pass it on to the consumer. There are assumptions that go into that guidance, including how to clear inventory turns over the course of the year. That's layering the current LIBOR curve and has some expectation for how our facilities come in over time, over the course of the year, fixed versus floating. But overall headline for us is we expect interest rate increases to be manageable. That was part one of your question. Part two was around, I believe, just the overall housing market in the sector for leasing rates or…

Yes, that. And then, I guess, part three was just on the inventory valuation side of things.

Yes. Let me hit that right now for a second. We understand the focus on overall inventory management and the health of our portfolio. That’s why we – you saw it, yes, we came with a new metric that people can look to as one measure of inventory health that we look at, which is days on market on an absolute basis and also relative to the overall market. As of the end of the year, just 8% of our listed inventory was at 120 days or older, days on market and we’re a lot healthier than the overall market because that same metric for the overall market was 24%. So that’s one. And the reason – part of the reason for giving that metric is – and how you talk about impairment, it’s not a great measure for how we’re doing. The ultimate measure you should hold us accountable for is how we’re doing on contribution margin delivery and how those resale cohorts are showing up in our P&L quarter-to-quarter. Impairment is an accounting standard, and it’s not a good measure of overall portfolio performance for us, when we are really managing our business more like an asset manager because it’s just taking down the things that are negative, and it doesn’t actually do the reverse, which is mark up the things that are positive. So it’s a measure that we will provide consistently because we’re required to by GAAP. It’s not a very good measure of how we’re performing. The ultimate measure should be in CM and then we’ve given you this new inventory metric. I would say what we saw in the last quarter was very modest on impairment.

Yes. Second question or maybe the fourth question here, in terms of the market coverage, so you had significant expansion in ‘21, you expect more expansion in ‘22. Can you maybe just talk about the benefits of that geographic diversification? And as we think about the concentration of the portfolio, where are the concentrations the greatest? Are they at desired levels? And maybe how does the new market expansion potentially add some geographic diversification?

Yes. I mean I think that falls within the risk management bucket, as you said. I mean one of the beauty is that it continued to expand in terms of scale and a number of markets is the benefits of diversification relative to overall risk management. We really do manage the portfolio on an aggregate basis across all our markets. And so we see the benefits of diversification by geography, by home types, and by what may be going on in an individual market when we can weave it across 45 and counting.

There are no further questions at this time. I would now like to turn the conference back to Eric Wu, Chief Executive Officer.

Thanks. In closing, I just want to say that we're extremely proud of the results we delivered in 2021 across all of our key metrics. I want to personally thank our teammates we put in the hard work to build our products and delight our customers. For our shareholders, we are heads down innovating for consumers and building the best business, and we are well on our way to fulfilling our mission. Thank you for joining.

This concludes today's conference call. Thank you for participating, and have a wonderful day. You may all disconnect.