Opendoor Technologies (OPEN +13.37%) made major changes to its executive ranks and board of directors this month. The company announced it hired Kaz Nejatian as CEO, starting in October. Co-founder Keith Rabois will become board chairman, and another co-founder, Eric Wu, will rejoin the board.
Following the Sept. 10 announcement, the shares skyrocketed from $5.86 to close at $10.52 that day. Through the Sept. 18 close, the stock gained 70%.
Has the market overreacted, or do the leadership changes represent the start of a turnaround? It's time to take a step back and analyze the business and its long-term prospects.
Image source: Getty Images.
The business
Opendoor Technologies began operations in 2014 under an interesting premise. It seeks to use technology to make buying and selling homes more efficient. As anyone who has made such transactions knows, the process can take a long time with lots of agonizing moments.
The company seeks to solve this problem by buying homes directly from sellers. They receive an initial estimate online, followed by an appraisal and final offer. Opendoor takes a fee, does any necessary repairs, and sells the property. That's its core business, although the company also offers listing services where sellers work with agents.
Anything that makes home selling less cumbersome and quicker is a positive. However, even after more than a decade in business, Opendoor sold only about 13,600 homes last year. Management views traditional agents as its biggest competition, and its sales represent a fraction of the more than 4 million homes sold in the U.S. last year.
Poor results
The number of homes the company has sold has dropped over the last few years. It fell from about 39,200 in 2022 to 13,600 last year. During this time, revenue dropped 67% to $5.2 billion.
The company's results are tied to economic factors that affect home sales. These undoubtedly played a role as existing-home sales -- hurt by high mortgage rates, among other things -- declined over the last few years.
Still, management took a cautious approach. It paused its expansion plan, remaining in 50 markets over the last couple of years. Growth opportunities may prove challenging given the persistent losses under generally accepted accounting principles. Last year, the company lost $392 million.
NASDAQ: OPEN
Key Data Points
Recent results showed some progress. During the second quarter, it sold 4,299 homes, up about 5% from a year ago, when it sold 4,078. Revenue grew 5.3% year over year to $1.6 billion.
However, investors shouldn't get too excited since management expects third-quarter revenue to fall to a range of $800 million to $875 million. That's quite a drop from the corresponding year-ago figure of $1.4 billion.
Can management turn around the business?
Nejatian, the incoming CEO, spent the last six years at the e-commerce company Shopify, which had success, but he and Opendoor's two co-founders face different challenges in their current turnaround project.
The company talked about bringing in a "founder's brain" and Nejatian's experience cutting costs and ability to lead the "AI-first" company. It also mentioned Rabois and Wu bringing "founder DNA" to the board of directors.
It's hard to see the vision right now based on the company's general statements. Meanwhile, the stock may have gotten ahead of itself. Already a meme stock before the leadership announcements, the price gained more than 44% this year (through Sept. 18) compared to 13.3% for the S&P 500 index.
Given the challenges facing Opendoor, I would pause before buying the shares. After all, it's prudent to hear the new CEO discuss specific steps he and his team plan to take. Then, you can measure the progress before committing your money.
