Key Points
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The market is concerned about how the real estate company can grow amid rising interest rates and a poor housing market.
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There has been progress in the business, both in home sales and cost efficiency.
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Opendoor stock is now 95% off its high.
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Shares of digital real estate company Opendoor Technologies (NASDAQ: OPEN) fell 20% in October, according to data provided by S&P Global Market Intelligence. There was negative market sentiment as interest rates stayed steady and are expected to increase.
Two words: interest rates
Opendoor operates a digital platform that hosts a real estate marketplace and buys homes to renovate and sell. Clearly, it’s a capital-heavy business because homes cost a lot of money, which means it needs access to capital at cheap rates to keep going.
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The model has been challenged by the poor housing market. High interest rates don’t just mean it’s harder for it to buy homes, but it also means that there are fewer homes for sale and fewer buyers looking.
The company brought in a new CEO last year to change things up and breathe life into the business, and there has been progress. In the second quarter, it bought 77% more homes than the first, and the percentage of homes on the market for over 120 Days declined from 10% to 9%, compared with 27% for the industry.
It’s also becoming more cost-efficient. Operations expense per home closing declined from $8,400 last year and $5,000 in the first quarter to $3,000, and it made 6,908 on $5 million marketing spend, whereas the last time it topped 6,000 acquisitions, it spent $81 million.
However, the quarter-over-quarter metrics were still disappointing. Revenue dropped 44%, it sold 1,960 fewer homes, and net loss expanded from $29 million to $162 million.
New CEO Kaz Najatian claims that the company will have positive adjusted net income on a 12-month, go-forward basis by the end of the year, meaning the run rate for the forward period will be positive.
Can Opendoor make it?
If interest rates do come down, or the housing market is somehow rejuvenated, Opendoor could have a shot at real growth. However, it looks like it could still be a long time until that happens. That’s how the market is pricing the stock right now.
Not only did Opendoor stock lose 20% in October, but it’s down 69% this year, and it’s 95% off its high. It looks like the market was giving Nejatian a shot, but it doesn’t see the light at the end of the tunnel.
However, Opendoor reports third-quarter results on Nov. 5, and if there’s enough progress, the stock could jump higher.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
