Venture capitalist Chamath Palihapitiya is having a fantastic run. He brought a whole bunch of special purpose acquisition companies (SPACs) to market in 2020, and they’ve pretty much all been successful. He’s also become more popular on television and social media over the past year. He’s been able to use his higher profile to effectively market his investment ideas. One of those is Opendoor (NASDAQ:OPEN). OpenDoor stock has already surged from $10 to $26, and looks headed for more gains this year.
OpenDoor is one of the leaders of the online real estate space. It aims to replace traditional real estate brokerage services with an easier digital alternative. In particular, it focuses on making it easier to sell homes without having to pay huge commissions.
As Chamath explains, OpenDoor is building a “virtuous cycle” in which it can buy homes from consumers within three days. Once customers are interacting with OpenDoor, the company can also sell them loans, insurance, and other housing-related services. He also says that OpenDoor’s long-term fundamentals will be strong. Thanks to upcoming tax changes, the work-from-home phenomenon, and demographics, Palihapitiya believes the housing market will be robust for an extended period of time.
The Housing Market Is Booming
So far, his vision is playing out. It’s no secret that the housing market is doing very well now, due to the government’s stimulus efforts and the Covid-19 pandemic.
Among those benefiting from that trend are appliance makers, landscaping companies and home-improvement stores. The shares of nearly all companies that sell housing-related products are climbing. That only makes sense, since the U.S. housing market surged by the largest amount in six years last fall.
Naturally, this has a positive impact on OpenDoor’s business as well. The value of the houses that it owns should be increasing. And the traffic on OpenDoor’s website should increase as excitement over the housing market builds. Meanwhile, the virtuous cycle that Chamath described should take hold. With people focusing more on their houses, it’s only natural that they’ll be willing to buy more services from OpenDoor.
OpenDoor Is Well-Positioned… for Now
OpenDoor has many vocal critics and skeptics. For example, take a look at this recent article which questioned the company’s business model, pointing out that it has thin profit margins and is burning a great deal of cash.
It’s reasonable to have concerns about OpenDoor . The company’s strategy of quickly buying houses is unproven. So far, OpenDoor has earned small profit margins with its house flipping.
Its profit margin was just 1% in 2019, for example. In a bad real estate market, OpenDoor could end up with a lot of expensive inventory that could result in substantial losses. Indeed, buying thousands of homes indiscriminately may not be the best use of shareholders’ capital.
That, however, is a problem for another day. Right now, the housing market is moving up sharply. So even if OpenDoor’s house-purchasing methodology isn’t perfect, simply having inventory in a rising market is going to be profitable. A rising tide lifts all boats, after all.
Bears raise some valid questions about OpenDoor. But timing is everything. Right now the market loves SPACs, Palihapitiya is on a massive winning streak, and the housing market is booming. OPEN stock is a play on all these catalysts. Concerns about the company’s business model will return at some point, but they won’t arise anytime soon.
The Verdict on OpenDoor Stock
When it comes to OpenDoor stock, investors have to determine how long they want to hold the shares. For those looking to invest in OpenDoor for the long-term, the bears raise some valid points. I’d carefully consider those risks before holding the shares for an extended period, since it hasn’t demonstrated that its business model is capable of dealing with downturns just yet.
That said, let’s not overthink this. In the short-term, the housing market is hot. Tech stocks are working. And everything Chamath Palihapitiya touches has been turning to gold lately.
Thus, the path of least resistance for OpenDoor stock is higher for the foreseeable future. And, compared to other SPACs, the stock hasn’t run up all that far yet. In this sort of market, it’s easy to see traders bidding up OpenDoor as the spring home-buying season gets under way.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
