Opendoor Technologies Is Moving in the Wrong Direction on Fundamentals Alone

Opendoor Technologies (NASDAQ:OPEN) operates a platform for buying and selling residential real estate online under the premise that it can reduce the hassle of buying and selling a house. Thus, an investment in OPEN stock is an investment in real estate tech.

Opendoor was brought public in December via a SPAC through Social Capital Hedosophia Holdings Corp. II. 

Basically, sellers can sell to Opendoor and get an instant offer after doing a video walk-through, and sellers can list real estate on Opendoor paying 5% in closing fees. 

Tech stocks have been hit hard recently as bond yields rise and capital flows out toward safer investments with improving returns. That’s part of the reason OPEN stock has been volatile of late. Further, there are questions surrounding the company and equity. 

Let’s jump into those. 

A Closer Look at OPEN Stock

On March 4, Opendoor released its Q4 and full-year 2020 results. Opendoor looks to be cash healthy, but in a manner that’s potentially dilutive to stock.

That’s because upon the merger Opendoor raised net proceeds of $970 million. Then, in February the company did a follow-on equity offering of $860 million. The result was that the company carried a cash and marketable securities balance of $1.46 billion at Q4’s end.

I’ll get to actual sales in a minute, but first I’d like to focus on an issue that’s apparent when viewing Opendoor’s operating statements. Aside from the decrease in revenues from 2019 to 2020, the persistent losses are troubling.

Throughout 2019 Opendoor had a 6.3% profit margin. Margins actually slightly increased to 8.5% during 2020. That’s a positive.

Losses Are Concerning

However, investors should be aware that although net losses decreased in 2020 in absolute terms, net losses increased as a percentage of revenues. In 2019, for every $13 of revenue Opendoor made, it lost $1. In 2020, that figure went in the wrong direction. Opendoor lost $1 for every $9 it made in revenue.

The trend became worse in the last three months of each full year as well. In the last three months of 2019, Opendoor recorded a net loss of $91.72 million on $1.255 billion in revenues.

In the last three months of 2020, it recorded $87.79 million in losses on $248.88 million. That’s nearly identical losses in absolute terms, but on roughly 80% less revenue. 

Opendoor predicts top-line results may take several years to rebound. The revenue issues aren’t immaterial. I showed that they are concerning not only in absolute terms but also as a percentage. 

The bullish thesis for purchasing OPEN stock is that the company is digitizing the less-than-fun process of buying a home. But that alone isn’t a compelling reason for buying into shares now. 

A cursory glance at Opendoor’s cash position indicates that it has much more cash to end 2020 than it did when it ended 2019. But that’s simply a product of having converted preferred stock to common stock. 

Despite what I’ve implied, Wall Street seems to also be bullish on OPEN stock. One month ago, there were three analysts with coverage of the equity. Two of them judged it to be a buy, while the other judged it to be a hold. In the last month, two more analysts have initiated coverage of OPEN stock. Now four have it a buy, and one judges it a hold.  

The Bottom Line

I plainly disagree with their positive sentiment around OPEN.

What I see are too many red flags and a company that has gone in the wrong direction over the past year.

The numbers don’t reflect a company that is simply being dragged down by a recent tech sell-off as bond yields rise. Rather, it looks like something more fundamental. I wouldn’t put money into the company now.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.