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Opendoor Stock Looks a Lot Better After the Big Sell-Off

After the sell-off, what’s next for Opendoor Technologies (NASDAQ:OPEN)? Opendoor stock dipped after the former special purpose acquisition company (SPAC), formerly known as Social Capital Hedosophia II, closed on its merger with the privately-held iBuyer.

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


Shares have fallen from over $30 per share to around $23 per share, but this pullback may be the time to enter a long-term position.

This company has many of the ingredients in place to be a long-term winner. Going forward, iBuyers stand to gain a larger share of the residential real estate market from traditional realtors. The sky’s the limit for this company given it’s in a $1.5 trillion industry.

Yet, while this is one of the more promising SPAC stocks out there, keep in mind the several risks on the table.

High expectations remain priced-in, even after the sell-off. Partially because of megatrends favoring the iBuyer space, but also because of the recent success of Chamath Palihapitiya, one of the company’s key principals.

Add in the risk of a 2021 stock market correction, and it’s risky to dive in today. Yet, now may be the time to enter a long-term position. Tread carefully, but consider shares a cautious buy at today’s prices.

Opendoor Stock and Its Long-Term Potential

The bull case for Opendoor stock hinges on iBuyers “disrupting” residential real estate sales. What are iBuyers? iBuyers make near-instant purchases of homes, using algorithms for pricing.

While these platforms charge commissions (albeit less than traditional realtors), their real profit center is in buying low, selling high. That is to say, Opendoor makes money from the spread between buying and selling prices.

As our own Matt McCall wrote on Dec. 23, iBuyers stand to gain significant market share, at the expense of traditional realtors. From this perspective, iBuyers may offer homeowners more value.

Although Opendoor profits from buying and reselling homes, its alternative pricing structure could mean greater proceeds for homeowners. In addition, with its instant quotes offering greater convenience, it may have an edge over the “old school” competition among millennials, who prefer online transactions.

More importantly, it’s not as if Opendoor needs to grab a double-digit market share to make the numbers work out. The key number with Opendoor is hitting $50 billion in annual sales. While analyst estimates say it won’t hit that number by the decade’s end, it may be attainable.

U.S. residential real estate is a $1.5 trillion market. To hit $50 billion, all Opendoor needs is single-digit market share. Also, things are still just getting warmed up. Opendoor has yet to enter lucrative metro areas like New York and Washington, D.C.

Put it all together, and it’s easy to see this stock being a compounder through the 2020s. While it looks to be a slam-dunk opportunity, there are few risks to keep in mind. Even with the recent pullback, shares could still head lower in the near-term.

Risks to Keep in Mind

Besides its exposure to real estate megatrends, there’s another factor that’s helped bolster support for Opendoor stock. SPAC impresario Chamath Palihapitiya is the key principal behind this company. You may recall his involvement with a prior successful SPAC stock, Virgin Galactic (NYSE:SPCE).

Given the confidence in his investing prowess (partially driven by tweets like this), it’s no shock many believe he’ll be successful again with Opendoor. But, even with the stock’s recent pullback, much of its upside is already priced-in. The company is expected to be unprofitable through 2025. Based on 2029 revenue projections ($37.4 billion), it may take more than a decade to hit the $50 billion number.

Also, while Opendoor doesn’t need high market share to hit $50 billion in annual sales, competition may limit its long-term runway. Not only could traditional realtors adapt to changing home seller preferences. Tech-savvy companies like Zillow (NASDAQ:Z) are formidable rivals as well. Its future success is far from guaranteed.

To top it all off, buying this “hot stock” today requires confidence that 2020’s “growth at any price” market continues into 2021. Bears have lost their shirts calling a top early. But, if markets correct in the coming months, growth names have much room to fall if things reverse course.

Bottom Line: A Cautious Buy on the Pullback

While I like this more than other SPAC stocks, the jury’s still out on Opendoor. On one hand, it’s easy to see how it can live up to its ambitious growth expectations. On the other hand, there’s a lot that could push shares lower in the near-term.

But, considering how much runway it has long-term, buying today may still be a profitable move. So, what’s the call? Don’t be the ranch, as story stocks continue to look risky. But, consider Opendoor stock a cautious buy following the recent pullback.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.

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