Opendoor Technologies’ (OPEN) stock sunk more than 67% year-to-date, significantly worse than the broader market. Opendoor’s iBuying business essentially cuts out the middle man and allows users to sell their homes in the most convenient manner.
Nevertheless, the iBuying sector was taken by storm when Zillow (Z) exited the market, which also resulted in OPEN stock falling over 80% from its highs achieved last year.
However, a $43 trillion dollar market opportunity in the U.S. residential real estate market remains, and the field is now clear for Opendoor to garner a much larger market share. Investors might fear buying OPEN, but those with a high tolerance for risk may appreciate its massive upside potential. I am bullish on OPEN stock.
Opendoor is Now a Front-Runner
Zillow, Opendoor’s competitor, exited the iBuying market in late 2021. This cleared the field for Opendoor to become the go-to service in the iBuying industry. It closed out 2021 with a whopping $8 billion in sales, up nearly 211% from the previous year. Its revenue for the trailing 12 months is now $12.4 billion.
Moreover, the home buying giant sold more houses than it purchased, ending 2021 with almost $6.1 billion in inventory. As a result, total sales of homes in 2021 shot up by 119%, reaching 21,725. This fueled revenue growth and helped Opendoor exceed its targets.
However, the company’s net loss increased to $191 million in the last quarter of 2021 compared to a $54 million loss in the same quarter in the prior year. The higher-than-expected loss was primarily due to high inflation and high-interest rates, which increased selling costs. Nonetheless, OPEN surprisingly reported a profitable quarter in Q1 2022, achieving $28 million in net income.
According to Opendoor’s CEO, Eric Wu, millions of home buyers and sellers are opting for a simple, convenient, and robust process while dealing in homes. He added that Opendoor’s seamless experience would continue to help customers and solve burning needs for decades.
These remarks offer hope to disheartened investors. However, there’s only so much that statements can do. Therefore, the company must continue to turn up its profitability to enhance its attractiveness and reward stockholders.
The Dangerous Competitor is Gone
Since Opendoor operates in a perfectly competitive market, it couldn’t dodge competition and eat all profits. Opendoor and Zillow, at some point, were fighting to buy identical houses. However, Zillow dropped out because it couldn’t price homes accurately. This didn’t entirely destroy competition for Opendoor since there are still multiple iBuyers in the industry, but Zillow was one of the top players.
Currently, Opendoor’s closest competitor is Offerpad (OPAD), which generated $3.16 billion in sales in the past 12 months – much less than OPEN. Hence, it appears that Opendoor will leverage its existing leads and become a growth juggernaut in the field.
Opendoor reported a positive EBITDA margin of 0.7% for the first time in 2021 – right after its rival exited the market. This implies that the company is set to reap profits and lead the industry.
Extensive Market Opportunity
As stated above, the U.S. real estate market is worth trillions of dollars. This presents enormous opportunities for Opendoor to grow if it controls costs in the long run.
Around 6.1 million homes were sold in the country in 2021. Opendoor sold exactly 21,725 homes last year, which makes up a mere 0.35% of the market. Hence, Opendoor could become one of the most powerful companies globally with its hold in such a massive market.
Opendoor is expanding in existing markets, helping it generate higher revenues. In 2021, Opendoor operated in 44 metropolitan markets, and now it has opened up operations in New Jersey, New York, and San Francisco.
Wall Street’s Take
Turning to Wall Street, OPEN stock maintains a Moderate Buy consensus rating. Out of seven total analyst ratings, there were four Buys, two Holds, and one Sell rating assigned over the past three months.
The average OPEN stock price target is $11.36, implying 141.2% upside potential. Analyst price targets range from a low of $7 per share to a high of $18 per share.
Takeaway – Is OPEN Stock Attractive?
OPEN likely currently reflects all the possible adverse outcomes and none of the positive ones. The relatively cheap valuation leaves plenty of room for massive upside and offers a potential buying opportunity for long-term investors.
Undoubtedly, selling homes is tiresome, meaning sellers will be interested in Opendoor’s offerings. So, if the company successfully attracts sellers and grows its transactions, OPEN could become an outstanding stock.
Currently, the stock is struggling, but with improving financials, the absence of a major rival, and a vast market opportunity, OPEN can potentially become a screaming Buy.