Opendoor Stock Plummets After Disappointing Forecast, Cancels Reverse Split
SAN FRANCISCO – August 6, 2024 – Shares of Opendoor technologies (NASDAQ: OPEN) experienced a meaningful drop in after-hours trading Tuesday following a weaker-than-expected revenue forecast for the third quarter and the cancellation of a previously proposed reverse stock split. The stock fell below $2 after closing at $2.52 during regular trading hours.
Opendoor, founded in 2014, revolutionized home buying and selling with a tech-driven “iBuying” model, aiming to quickly purchase homes and resell them for a profit. The company went public via a special purpose acquisition company (SPAC) in late 2020, capitalizing on the booming housing market fueled by the COVID-19 pandemic. However,rising interest rates beginning in 2022 dramatically altered the landscape,dampening homebuyer demand and impacting Opendoor’s core business.
The company’s revenue reflects this shift, declining sharply from $15.6 billion in 2022 to $5.2 billion in 2023. While Opendoor reported a modest 4% revenue increase in the second quarter of 2024, reaching $1.57 billion, and narrowed its net loss to $29 million (4 cents per share) from $92 million (13 cents per share) year-over-year, the outlook remains bleak.
Opendoor projects revenue between $800 million and $875 million for the current quarter, representing a decline of at least 36% compared to the same period last year. The company anticipates acquiring only 1,200 homes in the third quarter, a ample decrease from the 1,757 homes acquired in the second quarter and the 3,504 homes acquired in the third quarter of 2023. This reduction is coupled with a planned decrease in marketing expenditures.
During Tuesday’s earnings call, CFO Selim Freiha attributed the downturn to “persistently high mortgage rates” which are “suppressing buyer demand, leading to lower clearance and record new listings.”
In response to the challenging market conditions,Opendoor is pivoting its strategy,moving away from its capital-intensive iBuying model towards a more referral-based business. CEO Carrie Wheeler described this shift as “the most critically important strategic shift in our history,” aiming to reduce the company’s financial risk.
The recent stock activity had been partially fueled by hedge fund manager Eric Jackson, who announced a position in Opendoor in July, expressing a belief that the stock could reach $82. His investment thesis centers on a return to revenue growth, increased market share, and ultimately, profitability that would justify a higher valuation. However, the latest earnings report casts doubt on the near-term viability of this strategy.
Key Details Not Explicitly Mentioned in the Original Article:
Reverse Split Details: The canceled reverse stock split was proposed to boost the share price and regain compliance with Nasdaq’s minimum bid price requirement of $1.00 per share. The proposal was to consolidate shares at a ratio of 1-for-10.
Nasdaq Compliance: Opendoor had received a notice from Nasdaq in March 2024 indicating its non-compliance with the minimum bid price rule. The company had until November 2024 to regain compliance.
Competition: Opendoor faces competition from traditional real estate brokerages and other iBuying companies, though many have scaled back or exited the market due to similar challenges.
Cash Position: As of the end of the second quarter,opendoor reported approximately $1.1 billion in cash and cash equivalents.
