The Covid-19 pandemic has had an impact on every aspect of our lives. Travel, work or real estate, everything has seen a transition, and our homebuying habits have also changed significantly. Opendoor (NASDAQ:OPEN) is making the most of this change and is offering products and services that meet the demands of the consumers of today.
Rival Zillow (NASDAQ:ZM) has been in the news for a lot of reasons, one of them being the company putting an end to iBuying. OPEN stock reacted well to it and is under pressure.
OPEN stock has gone from $22 on Oct. 11 to $19 on Nov. 10 and closed last week above $23 a share. The stock saw volatility after the Zillow announcement and is up more than 50% over the last three months.
Opendoor’s third-quarter results show the strength of the company and throw light on the massive potential of the $2 trillion housing market in the U.S. The results are impressive and the company has beaten analyst expectations making it an interesting buy.
Let’s dig deeper into my investment case for OPEN stock.
Mind-Blowing Q3 Results
Analysts had expected Opendoor to report sharp growth in revenue and a lower loss on the homes it bought and sold and the company did just that. For the third quarter, it generated $2.3 billion in revenue, up 91% from the second quarter and bought 15,181 homes. It sold 5,988 homes in the quarter, which is a 72% rise from the previous quarter.
This is despite the impact of the pandemic on the buying and selling processes. Further, the company reported $170 million in Contribution Profit versus $128 million in Q2 and expanded to 44 markets, including five new markets in this quarter.
Meanwhile, Contribution Margin — money made on buying and selling homes — came in at 7.5%, down from 10.8% in the previous quarter. As Loup Funds highlighted in a recent note, “the contribution margin trend is encouraging for the iBuying theme,” wrote analysts Gene Munster and David Stokman. “Although the company is still losing money after factoring in operating expenses, the contribution margin trend is encouraging for the iBuying theme.”
The revenue in the third quarter increased by 72% year over year which led to a loss of only 9 cents a share. This is a significant improvement as compared to the previous year. For the fourth quarter, the company expects revenue ranging between $3.1 billion to $3.2 billion.
Futuristic Business Model
The company uses Artificial Intelligence (AI) to make cash offers on the homes for sale. It offers exactly what the consumers are looking for. Consumers are not keen on waiting for weeks or months to sell or buy a property and Opendoor understands this. They make the process quick and hassle free, removing the stress and anxiety associated with it.
The iBuying industry is hot and it continues to gain momentum which means there is a lot to look forward to for Opendoor Technologies. Zillow was the second-largest player in the industry, after Opendoor, and its departure will work as a huge catalyst for OPEN stock.
Opendoor has launched a new service known as Opendoor Complete, which is a simplified process of selling a home. It will help consumers coordinate the process of buying and selling with ease.
As iBuying is the future of real estate, Opendoor has an early-mover advantage here. My InvestorPlace colleague Luke Lango calls OPEN stock the next Amazon and I agree with him considering the technology used by Opendoor which gives it an advantage in the market.
The Bottom Line on OPEN Stock
The dip in OPEN stock is a chance to add it to your portfolio. Opendoor will thrive in the market with its unique and well-designed services. With Zillow out of the market, there is a lot of growth potential for Opendoor.
At $22, with a market cap of $14 billion, OPEN stock is trading at a discount and it is a good chance to buy. It may not be this cheap for long. The shares are trading at 3.16 times sales and 6 times cash flow.
The real estate industry in the US is massive and there is monstrous growth potential. The revenue numbers are proof that Opendoor Technologies is working in the right direction. With a massive inventory of homes, it is here to transform the industry.
On the date of publication, Vandita Jadeja 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.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long-term gains. Her knowledge of words and numbers helps her write clear stock analysis.
