What happened
Shares of Opendoor Technologies (OPEN 3.38%) fell last month after the real estate tech company posted disappointing results in its second-quarter earnings report. The company continues to feel pressure from elevated mortgage rates and a sluggish housing market.
According to data from S&P Global Market Intelligence, the stock lost 24% in August. As you can see from the chart below the stock plunged on its earnings report at the beginning of the month, though it recouped some of those losses toward the end of August as stocks rebounded.
So what
Opendoor shares fell 26% on Aug. 4 after the company, which is best known for rapid home sales, released disappointing earnings results. Management has scaled back the business due to the challenging housing market, and as a result, revenue fell sharply and losses widened.
Opendoor actually beat Wall Street estimates in Q2, but guidance for the third quarter was much worse than expected as its pipeline of homes is purposely shrinking. Revenue in the second quarter fell 53% to $1.98 billion, higher than analysts' expectations at $1.84 billion, as homes sold in the quarter fell by nearly half to 5,383.
Management focused on selling off its longest-held homes in the quarter and rebuilding healthy inventory at better price points. The company purchased 2,680 homes, down 81% from the quarter a year ago, as it's using higher risk spreads to account for the volatility in the housing market.
Management also significantly trimmed adjusted operating expenses from $204 million to $78 million. An inventory valuation adjustment led to an adjusted earnings before interest depreciation and amortization (EBITDA) loss of $168 million, down from an EBITDA profit of $218 million in the quarter a year ago.
With the help of a gain on debt extinguishment, the company posted a generally accepted accounting principles (GAAP) profit of $0.03, which was better than the consensus estimate of a $0.38 loss.
Now what
Management expects the business to slow in the third quarter, calling for revenue of $950 million-$1 billion, worse than estimates at $1.36 billion and down two-thirds from $2.94 billion in Q3 2022. It also expects an adjusted EBITDA loss of $60 million-$70 million, showing it's narrowing its losses.
While the business seems to making improvements, the company will likely need interest rates to fall and the housing market to pick up back up in order for the stock to rebound, and that seems unlikely to happen in the near term.
