Opendoor Technologies (OPEN -1.01%) has been on the minds of many investors recently, and with the stock nearly quadrupling since the beginning of July, it isn't too much of a surprise. Specifically, shares of the iBuyer pioneer have climbed by 288% in less than six weeks.
One big reason is that a notable hedge fund manager gave an extremely bullish thesis on the stock, and it attracted the attention of the so-called "meme stock" traders, who have been very actively buying and selling. However, the reality of Opendoor's business doesn't necessarily match the recent price action, so it's very important for investors to know exactly what they're getting into before they buy shares.
With that in mind, here are the key details of the bull case that started Opendoor's rally, details of its latest earnings results, and whether Opendoor might be worth a closer look now.
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Could Opendoor be a 100X stock?
The thing that initially attracted traders' attention was a bullish post by hedge fund manager Eric Jackson, which made the case that Opendoor could be a "100-bagger" in a few years. With the stock trading for $0.82 at the time, this implies an $82 price target.
There are a few key components to Jackson's thesis.
First and most significant is Opendoor's AI potential. Jackson said that Opendoor isn't just a "low-margin house flipper." It has an extremely valuable and untapped U.S. residential real estate dataset.
Opendoor has completed more than 200,000 real estate transactions, which gives it unparalleled data on real-world repaid outcomes, customer behavior, local market volatility, and more. Jackson believes that with the right AI partner, a company like OpenAI, this could create the "best home pricing engine ever built."
Not only would Opendoor's data be valuable in this way, but it would create a high margin business. Jackson's thesis claims that the software-as-a-service tools that could be created would be worth as much as $5 billion to $10 billion on Opendoor's market cap.
Jackson also thinks the iBuyer has potential. He said that he sold a home and bought another through Opendoor a few years ago and that it was the "best model ever." He's also impressed with the new asset-light model of working with agents to provide initial cash offers, as well as the company's cost-cutting efforts.
Opendoor's business is telling a different story
I recently wrote an earnings take on Opendoor, so I'll keep this short and sweet. On a positive note, Opendoor's second-quarter earnings numbers were stronger than expected, with revenue handily surpassing estimates. Plus, the company's adjusted loss of $0.01 per share isn't bad, given the market conditions, and the company posted its first adjusted EBITDA profit in over three years.
However, there are some negatives to take into account:
- Opendoor's third quarter sales guidance calls for a big revenue decline.
- Inventory is about $700 million lower than it was at this time in 2024.
- Perhaps worst of all, management reported seeing "continually worsening housing conditions" throughout the quarter.
In short, the real estate market is horrible right now. Elevated interest rates have persisted longer than most experts had predicted, and that has caused many would-be buyers to stay on the sidelines.
The bottom line
On one hand, Opendoor is close to being a breakeven business in a terrible real estate market, so that's an impressive achievement worth noting. On the other hand, this is a business that would need a lot to go well to become consistently profitable, and there is a lot that can go wrong. For example, so far we really haven't seem home prices decline, at least not on a national level. But with thousands of homes in inventory, a declining market could cause the company to post massive losses.
The bottom line is that Opendoor is still very much a speculative stock, and it's important for investors to avoid putting in money they can't afford to lose. Although Jackson's $82 price tag may be a bit unrealistic, there's a solid case to be made that Opendoor could be a multi-bagger if market conditions cooperate. But there's also a case to be made that the stock could go to zero if it continues to lose money.
