Opendoor technologies (NASDAQ: OPEN) began its publicly traded life on a high note. Shares of the cloud-based residential real estate broker have more than tripled in their first eight months on the market.
But the joy didn’t last long. Opendoor shares have fallen 94.6% from their February 2021 peak.
The stock isn’t exactly a bull’s-eye today, but I do see signs of better times ahead. Opendoor deserves your attention if you’re interested in a robust turnaround attempt. A small, speculative investment today could yield impressive returns over the long term.
The story so far
Opendoor has been around since 2014, starting with local home selling services in Phoenix and Dallas. The company aims to disrupt the vast housing market by offering a simple alternative: skip the traditional process of listing, fixing, and showing your home and sell it to Opendoor in a few clicks. The company pays cash up front, takes care of the cleaning and necessary repairs, and then finds a new owner.
After six years of accelerated expansion, the company decided to go national and went public in December 2020. Investors initially embraced the seller-friendly platform, despite the economic strain of the COVID-19 pandemic. But the bullish real estate market stalled in 2021, collapsed in 2022 and has since settled at historic lows in existing home sales.
The timing of that downturn hit Opendoor like a freight train. Trailing revenue peaked at $16.5 billion in the fall of 2022. After seven straight quarters of declining sales, that metric has fallen to $4.5 billion.
A snapshot of Opendoor’s recovery
The housing market is still in dire straits, but Opendoor is starting to turn its financial woes around.
Sales are still declining, but the year-over-year declines have slowed in the last two reports. Earnings before interest, taxes, depreciation and amortization (EBITDA) are hovering just below the breakeven line. If Opendoor can continue its topline trend, sales should start to rise again and positive profits should follow.
Home sales may be low, but average prices continue to rise. Against this backdrop of mixed markets, Opendoor has refined its marketing message. The previous focus on direct response campaigns has shifted to brand awareness. People have previously seen online home sales services from larger rivals such as Zillow Group And Red finand potential customers often skip Opendoor’s detailed service descriptions in favor of a more familiar brand. The heavier brand awareness push is paying off, as evidenced by the company’s improving financial trends.
The company is also adding new services. The straight-up cash offers are now combined with the option to list the home on the traditional multiple listing service (MLS) for 30 days. That option has proven attractive to home sellers hoping for a bigger payout, and a successful listing earns Opendoor a commission without the financial burden of owning that property for a while.
This service is new, but Opendoor has seen a 10% increase in Net Promoter Score (NPS) since launch.
Opendoor clears a path forward
Opendoor is finding better ways to run its business in this challenging housing market. Meanwhile, both Zillow and Redfin have shuttered their competing iBuyer services to refocus on MLS listings. Their exits leave Opendoor with fewer competitors and an easier path to build its brand.
The road ahead is full of potholes, and I can’t guarantee that Opendoor will make it through without breaking an axle. But I do think the company’s chances of succeeding in a less crowded sector are good, the financial trends are starting to move in a positive direction, and the stock is priced for absolute disaster. Those are three good reasons to give Opendoor stock a chance.
If nothing else, former rivals like Redfin and Zillow might decide to return to the iBuyer market via acquisitions, painting buyout targets on this stock. So you certainly shouldn’t bet the farm and all the chickens on this stock, but Opendoor is worth a modest investment today. That bet could pay huge dividends if this proves to be the nadir of Opendoor’s potentially disruptive adventures.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Opendoor Technologies, Redfin, and Zillow Group. The Motley Fool recommends the following options: short August 2024 $11 calls on Redfin. The Motley Fool has a disclosure policy.
1 Growth Stock Down 95%, Buy Now was originally published by The Motley Fool
