What happened

Shares of Opendoor Technologies (OPEN -3.37%) fell 20% on Friday morning after the real estate company reported a worse-than-expected loss. There was a lot to like in the report, but investors haven't shown much patience with young, unprofitable companies so far this earnings season, and Opendoor is proving to be no exception.

So what

Opendoor, a residential real estate iBuyer that acquires houses directly from sellers and then resells them, lost $0.31 per share in the quarter on revenue of $3.82 billion. The earnings missed Wall Street's expectation for a $0.18-per-share loss, though revenue did come in ahead of the $3.17 billion estimate.

For the year, Opendoor reported a net loss of $662 million, more than double the $253 million loss reported in 2020. The higher loss was primarily driven by stock-based compensation, which ballooned to $536 million compared to $38 million in 2020.

Two people shaking hands by a house model.

Image source: Getty Images.

Other metrics looked better. Total homes sold in 2021 soared 119% to 21,725, helping to fuel revenue growth of 211% to $8 billion. Opendoor for the year posted a positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $58 million, compared to a $98 million loss in 2020.

"In 2021, we saw a significant and durable shift in demand for our digital product, demonstrated our market leadership, and delivered exceptional results," CEO Eric Wu said in a statement. "And yet, we are still just scratching the surface of our opportunity to transform one of the largest, most antiquated industries in the U.S."

Opendoor also forecast revenue of between $4.1 billion and $4.3 billion in the first quarter, better than Wall Street's $3.3 billion consensus estimate, and said it expects adjusted EBITDA of between $30 million and $40 million in the quarter.

Now what

Stock-based compensation matters, and the loss was worse than expected, but the sell-off appears to be an overreaction. It's possible some of today's sell-off is just blowback from yesterday, when investors bid Opendoor up 18% prior to earnings, but the stock is still down more than 25% for the week.

This company is still very much a work in progress, but the numbers suggest that Opendoor is figuring out how to make iBuying work. At year-end just 8% of Opendoor homes in inventory had been listed for more than 120 days, much better than the overall market average of 24%. Contribution margin, which is a rough measure of the profitability of the core housing business, was 6.5% for the year. Opendoor's long-range target is 4% to 6%.

It's important to look at these numbers in the context of Zillow Group's disastrous foray into iBuying. After Zillow shuttered its unit, there were some who wondered if the economics of iBuying would work for anyone. Opendoor is still a risky investment as it tries to disrupt a well-established real estate business, but long-term oriented investors should take some comfort in numbers that suggest Opendoor is gaining traction and doesn't appear to be on the same trajectory as Zillow.