Opendoor Technologies Is Worth 161% More, Now That Its SPAC Merger Closed

On Dec. 17, shareholders of a SPAC (special purpose acquisition company) named Social Capital Hedosophia Holdings Corp II agreed to merge with Opendoor Labs. The combined company was renamed Opendoor Technologies (NASDAQ:OPEN) on Dec. 18.

A picture of the OpenDoor (DOOR) app on a phone.


I now believe the stock is still severely undervalued and is worth at least 161% above the price it was at on Dec. 18, or $77.19 per share.

The new shares and related warrants will start trading on the Nasdaq (not the NYSE where IPOB was) on Monday, Dec. 21 under the symbol OPEN. It is highly likely OPEN stock will rise close to its forecast value over the next week or several weeks.

You can see my reasoning why it is worth so much more by reading my previous article on IPOB stock (now OPEN stock) on Oct. 21. At the time, it was trading at $21.48 per share, but as of Friday’s close, the stock was at $29.50 per share, up 37.3%.

However, I showed at the time in my article that IPOB/OPEN stock was worth at least 100% more (actually 112% more), or $45.73 per share. Therefore, even though IPOB/OPEN stock was at $29.50 on Dec. 18, it was still worth 55% more.

But now I want to update you on this analysis so that you can see how it should be valued going forward. Opendoor Labs buys real estate and then repairs and resells the properties. It started losing money during the Covid-19 pandemic outbreak. So it decided to raise capital by going public with this SPAC deal.

What Opendoor Technologies Is Worth

First, we have to establish what the market capitalization is after the merger. Fortunately, the company filed an 8-K report on Dec. 18 that stated on page 2 there are now 544.422565 million shares outstanding. There are also 19.9333333 million warrants outstanding that have the right to buy OPEN stock by paying just $11.50 per share.

Therefore, at the closing price on Friday of $29.50, the market capitalization for OPEN stock is $16.06 billion (i.e., $29.50 times 544.423 million shares). The warrants are clearly in the money, and I expect that they will convert into shares over the next year or earlier.

This will bring an additional $229 million to Opendoor Technologies. In addition, Opendoor received cash at the closing, both from IPOB and a PIPE investment (private investment in public equity). As a result, based on Exhibit 99 to the SEC filing on Dec. 18, Opendoor has $1.25 billion in net cash (after deducting cash liabilities).

Therefore, to find the enterprise value we deduct the net cash (not including the warrants) from the market cap. This means that the enterprise value is now $14.9 billion ($16.06 billion minus $1.25 billion).

Comparison With Zillow

Here is why that is important. On page 39 of the original slide presentation, Opendoor indicates it expects to make $3.5 billion in revenue for 2021 and $6.2 billion in 2021.

That means the EV-to-sales ratio is just 2.40 times ($14.9 billion EV divided by $6.2 billion in 2021 sales).

Now compare this figure to Zillow (NASDAQ:Z), which also buys pieces of real estate en masse and fixes them up for resale. For example, Zillow now has a market cap of $31.79 billion, and an enterprise value of $30 billion. As its forecast 2021 sales are $4.79 billion (as per Seeking Alpha), its EV-to-sales multiple is 6.28 times.

So here we have a situation where Opendoor has a forward multiple of 2.4x and Zillow has a metric of 6.28 times. That implies that OPEN stock is at least worth at least 161% more.

To be even clearer, this means the fair value for OPEN stock is 2.61 times its Dec. 18 price of $29.50, or $77.19 per share (.i.e., $29.5o times 2.61).

What To Do With OPEN Stock

Therefore, if you see OPEN stock shoot up during its first week of trading in the week of Dec. 21, 2020, right before Christmas, you will know why.

Moreover, you can also determine if there is any more upside left in the stock price. Its fair value is $77.19. This can help you judge whether to buy it or not.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.

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