What happened

Share of Opendoor Technologies (OPEN -3.59%) stock rose 91% in May, according to data provided by S&P Global Market Intelligence. It released an earnings report that was better than expected, and the valuation had dropped considerably.

So what

Opendoor's business has been absolutely crushed by rising interest rates. It operates a tech-powered home-flipping model, which as a business looks like the future of home buying. Investors were excited by the company's concept when it went public via special purpose acquisition company (SPAC) in 2020, but its stock has tanked as macroeconomic factors exacerbate internal problems.

When Opendoor first came onto the scene, it was a typical growth company, with a promising, disruptive idea, high growth rates, and mounting losses. Investors could handle that in a strong bull market when it was easy to borrow money to develop a business.

Now Opendoor is dealing with the same high losses, but also staggeringly declining sales, a high interest rate environment, and a slow housing market.

In the 2023 first quarter, sales declined 40% year over year. However, they were higher than in the 2022 fourth quarter after falling for the previous three quarters. They were also 18% above the high end of management's guidance for the quarter. Opendoor sold 8,274 homes in the quarter, a 35% decline from last year. Ninety-two percent of its old book, or "Q2 cohort," which refers to homes it bought prior to the 2022 second quarter, were sold or in contract. That was above the expected 85%.

The company purchased 1,747 homes in the first quarter, an 81% decline from last year. There are fewer homes on the market to buy, and Opendoor needs to be cautious about its spend considering its precarious position. It slashed marketing by 45% to account for the fewer available homes on its platform.

Now what

Investors saw opportunity when Opendoor stock's price-to-sales ratio had sunk close to its low of 0.04, but its performance demonstrated more resilience than the market was accounting for.

Is there hope for Opendoor? It's hard to say. Its model looks like it could achieve success in theory, but so far it hasn't had the opportunity to demonstrate it in reality.

Real estate technology company Zillow Group went through its own fiasco last year when it had to close down its similar iBuying division. Zillow had its real estate platform to fall back on as its core business, which Opendoor doesn't.

Opendoor's first-quarter losses came in at $101 million. Management is guiding for second-quarter sales to be about $1.8 billion, or a 57% drop from last year.

Opendoor stock may be cheap, but it's business isn't working right now, and investors should wait to see more improvement before buying the stock.