There are lots of reasons to believe that Opendoor Technologies (NASDAQ:OPEN) stock could be a winner in the long term.
The traditional house-buying process is antiquated and leaves many home buyers frustrated. So, if Opendoor can lessen buyer and seller frustration they can certainly rise moving forward.
In the short term there are also many positives to highlight. There was a lot of good in the company’s recent earnings report.
Yet, despite these positive catalysts, there are as many reasons to remain cautious about OPEN stock.
Overall, it looks like it should trade sideways for the time being. Let’s begin with the good.
Q1 Earnings Report and OPEN Stock
On May 11, Opendoor released its Q1 earnings report, and it gave investors plenty to celebrate. The company increased its coverage by six markets in Q1 of 2021, to 27 total at the end of Q1.
Not only did it grow the scale of its market, but also the scope. Opendoor increased its underwriting process coverage by 25%. This means it can buy and sell homes at a wider range of price points as well as home types.
When Opendoor released the earnings report, on May 11, its market coverage had risen to 33, and it is aiming for 42 markets by the end of 2021. All of this is undoubtedly a positive despite other mixed results.
Metrics including revenue, home purchases, and inventory can all be spun positively when compared to Q4 of 2020. Opendoor recorded $747 million in revenue in Q1, up exactly 200% over Q4 of 2020.
The same is true for homes purchased, which rose from 2,016 to 3,594 total homes between the quarters. as well as for ending inventory which ended at $841 million, up from $466 million in Q4.
But these figures are much less impressive when contrasted with Q1 2020 earnings. Yes, Opendoor purchased more homes in Q1 2021 (3,594) than it did in Q1 2020 (2,892), and yes, Opendoor ended Q1 2021 with slightly more inventory ($841 million) than it did in Q1 2020 ($824 million), but that’s where the positives end by and large.
Although revenue increased 200% between Q4 2020 and Q1 2021, it was a completely different story from a year prior when Opendoor posted $1.256 billion in revenue.
This year, that number dropped 40.56%, to $747 million. However, to Opendoor’s credit, it did manage to squeeze 7% greater GAAP-based gross profit out of those 40.56% lower revenues.
Overall that leads me to my conclusion that Q1 earnings were not the screaming success that some have painted them to be. Opendoor clearly has work to do, but at the same time, deserves praise for some of the successes it has had. But it also must be remembered that Opendoor does not operate in a bubble.
While it’s all well and good to assume that Opendoor has a massive addressable market in front of it, the company faces competition.
It would be fatally naive to assume that bigger names like Zillow (NASDAQ:Z) and Redfin (NASDAQ:RDFN) aren’t right there attempting to carve out a dominant position in iBuying or whatever you might call it. It’s difficult to imagine that Opendoor has a technology that will give it a serious competitive advantage vis-a-vis its competition.
Further, competition is one thing, but the state of the housing market is entirely another. Is it in a bubble, as many have suggested? Or, as others suggest, will it continue to rise?
I tend to side with the former argument because prices are so high, but they could easily continue to rise. After all, just because we want more affordable housing doesn’t make it magically so.
So, due to the variety of contradictory factors, I’d say Opendoor will continue to trade sideways for the time being.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.