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Is Opendoor a Buy?

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Is the ibuying company a good long-term investment?

Real estate technology company Opendoor Technologies (OPEN 8.49%) is laser-focused on ibuying, which involves directly buying homes from sellers and selling them to buyers at a profit. But with a high valuation and no track record of profitability, is the stock a smart long-term investment? In this Fool Live video clip, recorded on March 15, Fool.com contributors Matt Frankel, CFP, Brian Withers, and Dan Caplinger discuss Opendoor's long-term growth prospects.

Matt Frankel: So, Opendoor Technologies -- Brian already started it on me. This is a real estate technology company. Their primary focus is what is called ibuying, which essentially means cutting out the middleman and buying homes directly from consumers and selling them directly to buyers. Think of this as, Zillow (Z 6.05%) (ZG 6.26%) does a similar thing, where they make an all-cash offer on a house, buy it directly, and aim to sell it to a homebuyer at a profit. No one has been able to do this profitably at scale yet and Opendoor is no exception. Ticker symbol is OPEN. They sold 18,800 homes in 2019. It dropped off dramatically in 2020 due to the pandemic. But this is a big market opportunity. Roughly 5 million homes are sold every year in the United States with about $1.6 trillion of total sales volume. If they are able to figure out, one, how to make money off of this, and two, scale the business, there's a lot of money to be made. Are you guys sold on the ibuying trend? I'm on the fence.

Brian Withers: Well, I actually have experienced the Opendoor process. I really like their technology. We were able to go out to houses and unlock them on our own and walk through. That's the whole idea is, it makes it really easy for people to, one, sell their property, and two, then their second step is to get it sold again. But for me, I looked for a house last year in May and the Opendoor houses that we saw seemed like they needed a lot of work and that people left in a hurry. It's a data point of two or three. But I like Redfin's (RDFN 8.74%) process, it's more engaging with its customers, versus Opendoor's, who just take a check and run.

Dan Caplinger: I like the general idea behind it. As a homeowner who thinks about selling from time to time, the idea of forgoing the whole listing process, inspection process, mortgage check process. If you live in a super hot market, in a sellers' market, it's one thing, but if you live in just an ordinary market where pretty roughly equal balance, it's a tough deal for a seller. So seller proposition's good. I'm not sure why I'd want to buy on it though.

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Stocks Mentioned

Opendoor Technologies Inc. Stock Quote
Opendoor Technologies Inc.
OPEN
$5.11 (8.49%) $0.40
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
ZG
$33.80 (6.26%) $1.99
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
Z
$33.67 (6.05%) $1.92
Redfin Corporation Stock Quote
Redfin Corporation
RDFN
$8.96 (8.74%) $0.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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