A sharp reversal in the housing market in 2022 has caught real estate tech firms open door technologies (Open 7.22%) To my surprise. As such, it has aggressively wiped out inventory purchased at higher prices, accumulating losses.
Fourth quarter earnings gave investors insight into Opendoor’s progress. Here are some key takeaways from this quarter: This will tell you if the company’s finances are viable or if there will be more problems in the future.
2022 is the year to forget
How much difference a year can make: Home prices soared soaring in early 2022, leading to bidding wars, talk of home tours, and people queuing out the door.
Opendoor, which buys homes for cash and resells them for a fee, purchased a whopping 14,135 homes in Q2 2022. and cooling demand.
30-Year Mortgage Rates by YCharts.
Opendoor has been desperately trying to ease the burden on those homes over the past two quarters, and has lost a lot of money in the process. Cash and marketable securities have fallen from $2.5 billion to just $1.3 billion in the last two quarters. Management noted that 66% of homes purchased in the second quarter had been sold or contracted at the end of the year, which should increase to 85% by the end of the first quarter of 2023.
Opendoor expects to lose $350 million to $370 million in the first quarter due to ongoing efforts to bring down these second-quarter homes.
In other words, a mistake in the second quarter cost Opendoor hundreds of millions of dollars and took a year to get the ship right. Co-founder Eric Wu has stepped down as his CEO, which may or may not coincide with this difficult time.
Opendoor’s business model requires enormous capital to operate (each transaction is worth hundreds of thousands of dollars), and the past year has shown just how little tolerance for error.
Can Opendoor get back on track in time?
New CEO Carrie Wheeler, the company’s former chief financial officer, outlined plans to slow growth to focus on profitability. Specifically, Opendoor is targeting her $10 billion annualized positive adjusted revenue by mid-2024.
The company generated $15 billion in revenue over the past four quarters, and has been shrinking operations to keep costs down.
The focus on profit is a encouraging sign that the company has learned from aggressive expansion and the resulting mistakes. Little competition for iBuying after partnering with Opendoor Jiro and see redfin Abandon practice altogether. Companies don’t have to chase market share at breakneck speed.
OPEN data by YCharts.
However, Opendoor’s financial situation is ever-changing, and this is a real threat that shareholders must closely monitor. The company’s cash is starting to run out. Things need to improve quickly as there won’t be enough to repeat losses in 2022, and management already paints a grim outlook for the first quarter of 2023. .
Opendoor may need more cash, but raising stock at such a low price could be a disaster. A $1 billion funding would roughly double the number of shares, a painfully dilutive result for shareholders who have already suffered most losses.
Can I buy Opendoor now?
Wall Street isn’t making a lot of money for Opendoor right now. Stocks are traded at book value. This is the value of assets on the balance sheet after deducting liabilities. As such, the market has very low expectations of the company. And there’s a reason for that.
OPEN book value (quarterly) data by YCharts.
Opendoor plans to turn its finances around, but part of the company’s fate is now out of control. We need to improve margins on homes purchased since the second quarter of last year, and this requires a stable housing market. A recession and continued rises in mortgage rates can make it harder to stand out, no matter what management does.
The company is much weaker financially than it was a year ago, which makes the stock much more speculative than it used to be. Think of Opendoor as a high-risk, high-return strategy for long-term innovation in real estate.
Justin Pope holds a position at Opendoor Technologies. The Motley Fool has positions in and endorses Opendoor Technologies, Redfin and the Zillow Group. The Motley Fool U.S. Headquarters recommends the following options: His $16 short call in May 2023 at Redfin. The Motley Fool’s U.S. headquarters has a disclosure policy.
