Is Opendoor Technologies Stock A Buy?

Opendoor Technologies Inc (NASDAQ:OPEN) in a San Francisco, California-based online real estate company that’s changing the way homes are bought and sold. The company went public in 2020 when interest rates hit historic lows that spurred a housing market boom.

People bought houses at an unprecedented rate in 2020, which has many asking is Opendoor Technologies stock a Buy?

The housing market boom was caused by historic low federal interest rates. As interest rates rise, the bull market on Wall Street is in question, leaving a balancing act for politicians figuring out where stimulus funds are best spent.

Housing stimulus plans, like forbearance and eviction/foreclosure moratoriums, will inevitably end. This could create a housing market dip, but Opendoor may benefit from it. The company is an online real estate flipper that specializes in cash offers for distressed homes that it refurbishes and resells.

For investors, it’s time to appraise its portfolio to see if Opendoor Technologies will give them a quick buck or leave their portfolios in worse condition than when they bought.

Opendoor Owns Its Property Inventory

Opendoor Technologies is part of the wave of online real estate companies disrupting the market. Unlike rivals, Opendoor owns its property inventory, making it both a technology and real estate company.

The company was founded in March 2014 and opened its in-house mortgage business by August 2019. It partnered with Redfin Corp (NASDAQ:RDFN) to expand geographically. Each city and town has its own unique real estate market, and this partnership helped overcome hurdles.

In addition, the pandemic sparked the company to introduce contact-free and virtual viewings. This led to a SPAC merger through Chamath Palihapitiya’s Social Capital fund to go public on Wall Street by December 2020.

Now that it’s available for investment, some analysts believe it’s a game changing company. If you ever saw signs on the road advertising to buy your home, this is the digital version. And its vast footprint and online listing tools give it a competitive advantage.

But is the company a buy in a recovery market at today’s levels?

Is Opendoor Technologies Stock A Buy?

Opendoor Technologies had a market capitalization between that of Redfin (RDFN) and Zillow (NASDAQ:Z).

The company’s software makes it easier for homeowners to sell their property, and its revenue depends on a 5 percent fee for using its platform. It generated $2.33 billion in the first nine months of 2020, which is a 33 percent drop from the same timeframe of the prior year.

From this, it generated $173 million in gross profit, and that led to the successful SPAC merger for Chamath.

Opendoor is a technology play, much like Redfin and Zillow. But it’s targeting a different audience. People selling distressed homes are best served with an “as-is” cash offer from a house flipper.

Still – all three are looking to vertically integrate into a one-stop shop for all things mortgage, real estate, and insurance.

Investors jumping in at this point have reduced upside compared to Chamath and his fund. But that doesn’t mean this is a bad investment. In fact, some analysts believe it’s one of the best plays for the 2020s.

That doesn’t mean there are not inherent risks attached to the investment opportunity.

Opendoor Has A Niche In A Big Market

Opendoor Technologies advertises a $1.6 trillion per year housing market. But that’s not necessarily the full picture because it’s operating in a different niche to Redfin and Zillow. Each of these companies essentially divided territories, and Opendoor and Redfin are even partnered.

This means the company is most likely to succeed in the house flipping market of distressed homes, which isn’t the entire real estate market.

Its disruption also could end with the company holding more properties than it wants. Should the buyer’s market cool, Opendoor can find itself upside down and deflating, just like GameStop with its unsold inventory of used games it bought.

Essentially, Opendoor Technologies is akin to a real estate pawn shop. This business model has a place on the market for sure, but it’s not the only option when buying or selling a house. And with fast-moving deals, the MLS is still the best place for realtors to find a home.

This brings up the competition.

Opendoor Is Winning Market Share

Because they’re vertically integrating, all three digital real estate companies are competing with traditional realtors and finance companies.

Mortgages and the home buying process are confusing for the average person, and it’s not uncommon for loan officers to work with realtors and add extra fees in the form of points.

This often leaves borrowers upside down and leads to force-place policies and foreclosures on the backend.

Zillow reaches a lot of customers, but it’s known in realtor circles for lagging on it information. The good houses are often gone long before they hit the platform. Redfin and Opendoor need to buy houses to compete on speed.

Realty is ripe for disruption, and Opendoor is revolutionizing its niche.

Is Opendoor Technologies Stock A Buy? The Bottom Line

Opendoor Technologies is a real estate platform that lets homeowners sell their house fast. If the company doesn’t buy the house itself, it connects to potential buyers using the platform. It then refurbishes these properties and resells them for a higher price.

This business model worked well through the pandemic, as the company’s tech-focused approach offered virtual viewings.

Real estate is being disrupted by Opendoor, Redfin, and Zillow, and each is likely to continue growing while legacy companies without tech struggle. This changing of the guard should benefit investors in all three, but it’s unclear if one will outshine the others.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.