Shares of Opendoor Technologies (OPEN 2.90%) plunged nearly 30% on Friday after the real estate iBuying company delivered worse-than-expected fourth-quarter earnings. The results show signs of weakness, but for long-term holders this drop could be an opportunity.
On Thursday night, Opendoor reported a fourth-quarter loss of $0.31 per share, well short of analyst expectations for an $0.18-per-share loss. But revenue of $3.82 billion beat expectations by about $600 million, and the company guided for first-quarter revenue of $4.1 billion to $4.3 billion, which at the low end is $800 million more than what analysts expect.
The company purchased 9,639 homes in the quarter, up 378% from a year ago. CEO Eric Wu said in a statement Opendoor is making progress mainstreaming iBuying for consumers.
"It is our fundamental belief that in a matter of years, millions of homebuyers and home sellers will pick a simple, certain, and fast experience and transact themselves, completely online," Wu said. "More importantly, we know Opendoor's digital, seamless experience is and will continue to be what consumers choose now and for decades to come."
It is worth noting that Opendoor shares were up 18% prior to earnings, which likely explains some of Friday's fall. But there were some troubling numbers in the report: Opendoor's contribution margin, a rough gauge of the profitability of its core buying and selling business, fell to 4% in the quarter, from 12.6% a year ago. Opendoor's long-range target is 4% to 6%, and it did deliver 6.5% for all of 2021.
Investors might have also been turned off by the massive growth in stock-based compensation in 2021. Opendoor reported a full-year net loss of $662 million, compared to $253 million in 2020, driven primarily by stock-based compensation growth to $536 million from $38 million.
Still, there is a lot of reason for hope contained within the results. The viability of iBuying was thrown into question last year when Zillow Group abruptly pulled the plug on its competing effort. Opendoor appears to be having a lot more success.
At year-end, 8% of Opendoor homes in inventory had been listed for more than 120 days, which is significantly better than the overall market average of 24%. And Opendoor expects to produce positive earnings before interest, taxes, depreciation, and amortization in the first quarter, an improvement of $37 million year over year at the midpoint of its guidance.
We're still in the early days of the iBuying experiment. Real estate is notoriously cyclical, and we have no data yet to see how Opendoor will perform as rates rise or some other market shift occurs. But the quarter, if nothing else, showed no reason to panic, and no indication that Zillow's problems are industry-wide. And following the decline Opendoor is now trading at about one times sales, a discount to other real estate disruptors like Zillow and Redfin.
Opendoor is still unproven enough that it is best kept to a small, speculative part of a well-diversified portfolio. But for those interested in buying in and seeing how the business develops, Friday's job provides an opportunity to acquire shares at near a 52-week low.