From its humble beginnings, OpenDoor Technologies (OPEN) – a prominent player in online home flipping – has been among the poorest performers in the stock market throughout its history.
The company that thrived during the real estate boom caused by the pandemic has now failed, due to rising interest rates and a struggling housing market. Many homeowners who took advantage of low mortgage rates during the pandemic are hesitant to sell their properties, leading to a decline in the business. This stock has plummeted, with its value dropping 96% from its highest point in 2021.
Surprisingly, the real estate stock has experienced a significant surge in the past few weeks, fueled by popular trends on social media platforms like Reddit’s WallStreetBets and X.com. Strikingly, this rise occurred despite no substantial alterations in the company’s underlying business operations, with the stock price skyrocketing by an impressive 160%.
It appears that the belief that the stock might follow a trajectory similar to Carvana (CVNA), which made an impressive comeback from the brink of bankruptcy in 2022, could be driving the current rise.
The next Carvana?
In a May post on WallStreetBets, a user presented arguments suggesting that Opendoor might follow in the footsteps of Carvana.
a shift in strategy (connecting customers with agents rather than providing direct quotes), the possibility of benefits from lower interest rates, reductions in transaction losses, cost savings from layoffs and other cuts, and even a possible short squeeze due to high levels of short interest.
Essentially, according to the bullish argument, this company has enough financial resources (liquidity) to keep operating smoothly and could potentially thrive with reduced interest rates. Yet, it’s important to note that while it’s feasible to construct a turnaround story for many undervalued stocks, drawing parallels to Carvana in this context is not accurate.
Initially, Opendoor isn’t experiencing difficulties due to impending bankruptcy, but rather because its business strategy appears questionable to financial analysts on Wall Street. In fact, no company has managed to execute large-scale house flipping effectively before now, and rivals such as Zillow and Redfin have withdrawn from the iBuying market because they were losing money and couldn’t see a profitable future in it.
Transforming homes is an entirely distinct process compared to trading secondhand automobiles. Unlike cars that come in standard makes and models, homes can vary greatly in design, structure, and condition. Repairs on homes are often complex and require specialized skills, making it difficult to transport them to a central location for fix-ups like Carvana does for cars. Moreover, the business model for selling used cars is well-defined, with numerous secondhand car dealerships scattered nationwide, whereas home flipping involves unique strategies tailored to each property.
Conversely, flipping a house is distinct compared to selling a car. It requires knowledge about the local real estate market, familiarity with local zoning regulations, and contacts of reliable local contractors for necessary repairs. The process involves more complications than selling a vehicle, not forgetting the usual 6% commission that’s often associated with home sales.
Beyond that, Carvana had consistently shown sales growth over a prolonged period, with an impressive 23 consecutive quarters of revenue growth before the stock’s downturn. This surge was primarily influenced by factors similar to those impacting Opendoor, such as increasing interest rates and fluctuations in used car prices due to the pandemic and the 2022 supply chain bottlenecks. To add to their woes, Carvana also finalized an acquisition of ADESA, the automobile auction business, at a less than ideal time.
Carvana successfully reduced expenses while maintaining consistent profits in the resale of pre-owned vehicles, which positively impacted their stock. This was further boosted by a burgeoning bull market during the years 2023 and 2024.
Where Opendoor stands today
In my perspective, replicating Opendoor’s recovery in today’s market appears quite remote, if not completely improbable, given the extraordinary nature of the pandemic-driven real estate climate we witnessed. The housing market during those times was unlike any other in the industry, and it’s highly unlikely we’ll see a repeat of such unique circumstances.
Mortgage rates plummeted to unprecedented lows, dipping below 3%, which fueled an extraordinary surge in demand for homes. This surge wasn’t just about owning a roof over our heads; it was about creating spaces that could accommodate the new norm of work and play from home, as well as serving as a haven for those seeking to escape crowded city life and embrace warmer climates with ample outdoor space and social distancing room.
In its initial phase, the company earned a gross profit of $99 million from sales totaling $1.2 billion, and its contribution profit, encompassing additional costs directly associated with home sales, amounted to $54 million.
In a recent report, the company showed a reduced net loss, going from $80 million last year during the same quarter, to just $63 million this time. However, they did experience a loss in earnings before interest, taxes, depreciation, and amortization (EBITDA) of $30 million. But, good news is on the horizon as they anticipate turning that EBITDA loss into a profit between $10 million to $20 million during the upcoming second quarter.
In summary, Opendoor’s business seems to have found some balance, yet it still experiences financial losses. Without a major shift in the real estate market, it might be challenging for the company to achieve substantial progress. Moreover, anticipated tariffs could increase costs and complicate interest rate reductions, adding further strain to the business.
Although a surge in meme stocks might temporarily boost OpenDoor’s share price, the company’s long-term business prospects appear concerning.
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2025-07-21 16:55