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Could Opendoor Technologies Be a Millionaire-Maker Stock?

By Matthew Frankel, CFP® - Jun 28, 2021 at 6:37AM

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There's still quite bit of execution risk, but the addressable market is huge.

There are few industries with as much potential to be disrupted as real estate. Specifically, the way we buy and sell houses is antiquated, and Opendoor Technologies (OPEN -7.81%) believes there is a better way. In this Fool Live video clip, recorded on June 15, Fool.com contributor Matt Frankel, CFP, and Chief Growth Officer Anand Chokkavelu discuss why Opendoor has such a huge opportunity and what needs to happen for investors to see big returns. 

Anand Chokkavelu: Opendoor Technologies ticker, O-P-E-N. Opendoor's strategy is to make the home selling process easier by taking out agents altogether. They give sellers an offer on their house and they take a 5%-8% service charge for the convenience. Remember that sellers typically pay 5% or 6% percent broker fees and then stuff like inspection costs and frictional costs like having double mortgage payments if they are to be believed sellers love it. Opendoor counts a seller Net Promoter Score of 70, which is pretty darn high. They also offer services on the buy-side too. They do it in 27 markets now up from 21, I think just the end of 2020 across the U.S. so there's growth upside in increasing that number and in further penetrating those markets. Now their penetration is very low even in their own market, it's because of all the competition. Then you can add all the add-on services in real estate that a number of these folks are trying to do. The pandemic was rough on Opendoor. Its top-line is less than half its pre-pandemic 2019 sales, but is climbing back now. You can imagine that when you're actually buying and selling homes. We saw that with say, Zillow (Z -6.52%) (ZG -6.80%) as well, and I think Redfin as well, where you kind of want to scale back your buying and selling when there's so much uncertainty. They have a $10 billion market cap, five times sales with an 11% gross margin. They like the others, I think they're all trying to make online a process that has traditionally been offline with agents. We've got Opendoor ranked at number eight. Anything to add?

Matt Frankel: I'm going to pick on Anand for a second here because I picked on Jason a minute ago.

Chokkavelu: Great.

Frankel: One question I have for Anand, not really picking on him. You ranked Opendoor and eXp (EXPI -4.40%) very highly. That leads me to believe that you believe in the iBuying business as a long-term viability.

Chokkavelu: Well, I ranked Redfin (RDFN -8.44%) and Zillow higher. I believe in having an online platform more. But then, yes, I think that it's also more of that they are earlier in their business cycles. I think there's more upside.

Frankel: My question is, if all three of them can successfully scale their iBuying business, isn't that bad for traditional realtors like the ones that work for eXp?

Chokkavelu: Potentially, it depends if it's coming at the expense of like the Keller Williams of the world and Century 21 of the world.

Frankel: Right. I think that's fair. I would think there would be a lot of consolidation if high volume is new successful and there will be a few big players to come out on top, which could actually be good for a company like eXp.

Chokkavelu: Yeah, and having that balance it does scare me a bit, but they do take healthy gains as long as they're making bad offers to folks. Same with like Better (AURC 0.00%). If I was a Better shareholder, I would hope that they're offering you too higher refi rates than you could've gotten elsewhere for the convenience.

Anand Chokkavelu, CFA owns shares of Opendoor Technologies Inc., Redfin, Zillow Group (A shares), and eXp World Holdings. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Opendoor Technologies Inc., Redfin, Zillow Group (A shares), Zillow Group (C shares), and eXp World Holdings. The Motley Fool recommends the following options: short August 2021 $65 puts on Redfin. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Opendoor Technologies Inc. Stock Quote
Opendoor Technologies Inc.
OPEN
$5.43 (-7.81%) $0.46
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
ZG
$36.33 (-6.80%) $-2.65
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
Z
$36.25 (-6.52%) $-2.53
Redfin Corporation Stock Quote
Redfin Corporation
RDFN
$11.07 (-8.44%) $-1.02
eXp World Holdings, Inc. Stock Quote
eXp World Holdings, Inc.
EXPI
$16.28 (-4.40%) $0.75
Aurora Acquisition Corp. Stock Quote
Aurora Acquisition Corp.
AURC
$9.85 (0.00%) $0.00

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