Saying it's been rough for Opendoor Technologies (OPEN -1.96%) over the past two years is an understatement. The real estate technology company, once a market darling, has been crushed under the weight of higher interest rates. With higher mortgage rates, homeowners aren't selling, and with little on the market, there's not much to buy.
Opendoor stock is now about 97% off its highs and trades for just over $1 per share. That's either a value trap, or one of the best deals in market history. Either way, it's a huge risk, but at that price, there's not so much to lose. At least one Wall Street analyst thinks that Opendoor stock is going to double over the next 12 months. Here's what you need to know.
Why Opendoor could disrupt real estate
Opendoor is one of several real estate companies that are using digital means to disrupt the industry. Its main service is ibuying, or buying homes in bulk to fix up and resell. By relying on artificial intelligence (AI) and machine learning to find attractive values and price them for resale, and operating an online marketplace, Opendoor thinks it can improve the process and offer a better product.
Before interest rates went up, it was performing well, with high increases in revenue and many homes sold. Real estate is one of the largest industries in the U.S., with a $1.9 trillion addressable market, but it's underpenetrated in digital, with only 1% of transactions happening online.
Why it's not happening -- yet
Opendoor became a public company when interest rates were rock bottom. That still says a lot about its platform, since buyers and sellers were choosing it when they had many options available. However, it came onto the scene when home selling was high in general, reaching a peak in 2021 before sliding.
Real estate is cyclical and closely tied to interest rates, and Opendoor's business will be affected by them, no matter what else is going on in its business. It continues to be a depressing market, with homes sold declining 5.5% year over year in February.
NASDAQ: OPEN
Key Data Points
Opendoor has been making progress in getting itself out of a slump, but it's a few steps back, a few steps forward. Fourth-quarter revenue was up 25% year over year, and homes sold were up 19%. Full-year revenue was down 26%, with homes sold down 27%.
For the full year, gross margin expanded from 7% to 8.4%, and it purchased 14,684 homes, which was 3,438 more than the previous year. Adjusted net loss narrowed from $778 million to $258 million.
How it could double
It wouldn't take too much progress to move the needle on Opendoor stock, but investors are losing confidence because it doesn't look like there'll be much to move the needle. The real estate market isn't showing signs of a recovery, and management updated shareholders that the microenvironment was worsening heading into 2025.
In the meantime, the company is focusing on becoming more efficient and improving profitability, improving its product, and getting its brand noticed.
Management is guiding for revenue to decline slightly year over year in the 2025 first quarter, and for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be flat or improve slightly.
Still, the analyst consensus isn't to sell Opendoor stock, but to hold. It trades at a dirt cheap price-to-sales ratio of 0.16, which means any improvement can easily boost the stock price. If the market changes or Opendoor beats Wall Street's expectations for the coming quarter, the stock should follow. Opendoor stock is only for the most risk-tolerant investor, though, and most investors should wait on this one.
