Are These 2 Business Models Doomed? Investors Are Worried

Wall Street once again proved that stock prices can move upward even under the most horrible conditions. Even as disturbing reports come out of Ukraine, stock prices posted huge gains, with the Dow Jones Industrial Average (^DJI -0.98%) posting one of its 15 largest point gains of all time. Advances for the S&P 500 (^GSPC -0.46%) and Nasdaq Composite (^IXIC -0.64%) were also strong.

Data source: Yahoo! Finance.

Yet there were some high-profile misses from recent earnings reports that caused a couple of stocks in particular to post massive declines on Friday. Both Foot Locker (FL -4.11%) and Opendoor Technologies (OPEN -3.72%) saw their stocks drop more than 20%, and the size of those moves called into question some key fundamental aspects of how the two business models actually work. Let's take a closer look at both companies and their latest reports to see what has investors so concerned.

Is Foot Locker losing the race?

Shares of Foot Locker fell almost 30% on Friday. The footwear retailer reported fourth-quarter results that included revenue gains but also had headwinds related to its relationship with a key supplier.

Image source: Getty Images.

Overall, Foot Locker held its own. Total sales were up 7% year over year for the quarter to $2.3 billion. Adjusted earnings of $1.67 per share were up 8% from year-ago levels. Comparable-store sales inched higher by 0.8%.

However, Foot Locker said its apparel sales were much stronger than corresponding results for footwear. That's likely the result of its changing relationship with Nike (NKE -0.74%). Foot Locker said that no one vendor will represent more than 55% of total supplier spend as of Q4 2022, down from 65% last quarter due to "the accelerated shift to [direct-to-consumer] by one of the company's vendors."

That move is forcing Foot Locker to make its own efforts to diversify its merchandise and vendor mix, and to get out of shopping malls and find higher-growth brands. Even with those moves, though, Foot Locker expects sales to fall 4% to 6% in 2022, with adjusted-earnings decline to between $4.25 and $4.60 per share. That's the last thing investors wanted to see from the retail stock .

Is the door closing on Opendoor?

Meanwhile, shares of Opendoor Technologies fell 23%. The iBuying real estate specialist suffered losses in Q4 2021 even as volume rose substantially for the business.

Opendoor's Q4 financial report told the story. Total sales were a whopping 15 times what they were 12 months ago, with the company selling nearly 9,800 homes during the quarter, up 11-fold from Q4 2020. However, gross profit got cut by more than half, and that produced adjusted net losses that doubled from year-ago levels.

Even as rival Zillow Group (Z -1.10%) (ZG -1.10%) has backed away from iBuying, Opendoor has doubled down on the concept. The company has launched its Opendoor Backed Offers service to help homeowners when they look to upgrade to a higher-end home, as well as the Opendoor Complete service that integrates multiple products and services within a single offering. Opendoor now serves 44 markets, double what it did a year ago, and has longer-term plans to have a presence in many more real estate markets.

Opendoor's losses have been bigger than anticipated, showing the challenges of its new business model. It's still early, but Opendoor has to prove it can do better in order to restore investor confidence.