Real estate tech company Opendoor (NASDAQ:OPEN) has fallen out of favor with investors. Speculative high growth stocks have gotten caught up in a broad-based market sell-off. Moreover, its competitor in Zillow’s (NASDAQ:ZG) recent exit from iBuying also had a negative impact on the sector. Nevertheless, the recent sell-off presents a long-term buying opportunity for a potentially multi-bagger investment down the line with OPEN stock.
Opendoor is looking to disrupt an industry that has been relatively untapped by technology, the housing market. It’s not the easiest one to disrupt, though, considering the razor-thin margins in the sector. However, Opendoor, with its incredible scale and superior technological prowess, has the answers to many of the problems presented by the industry. Its business model is such that it can effectively perform effectively in both an up and down-market. With multiple competitive advantages over its peers, it’s the front-runner in the growing iBuying market and will continue to expand its market share over time.
Zillow’s iBuying Debacle
Zillow’s recent exit from iBuying sent shockwaves around the sector. It was the most financially flexible company in the industry, but it understood that it wasn’t ever going to be profitable. Its exit from the industry within just a few years speaks volumes about the perils of iBuying. However, many of its woes are due to the ineffectiveness of its technology and management.
Zillow had been purchasing properties on significantly higher premiums than its peers to sustain high growth rates. It makes a lot of sense for them to focus on its higher-margin businesses, such as its advertising and ancillary services divisions. These divisions have been growing at a healthy pace and will continue to do for the foreseeable future.
Opendoor’s superior algorithms have enabled it to forecast homes’ prices, unlike Zillow effectively. Hence, despite the downturn during the height of the pandemic, it could generate positive contribution margins. It didn’t have much volume going through its platform but could still generate solid margins. Perhaps the biggest knock on Zillow was that its business models didn’t allow it to generate positive contribution margins. On the flipside, Opendoor has had over 19 consecutive quarters where it generated positive contribution margins on its house sales.
The Opportunity Ahead
Opendoor has been growing its revenues rapidly and continues to position itself as a juggernaut in the sector. Its year-over-year revenue growth is at an excellent 23.9%. Moreover, it achieved record sales during the third quarter of $2.2 billion, up 550% from the prior-year period.
Moreover, it has the opportunity to leverage its iBuying business model in offering value-added services for its users. These services may include mortgage optimization, home renovations, and other related opportunities. Moreover, through cross-selling adjacent services, it can significantly improve its overall margins.
The company operates a flywheel model where it expands its robust growth engine into newer markets and lower costs. Opendoor is in pole position to capture a major chunk of the residential real estate business and launch into new markets. The vast majority of the company’s long-term growth is driven by healthy unit economics, as it continues to deliver growth at scale. Additionally, it has also been gradually expanding its inventory acquiring over 15,000 houses in the last quarter.
Bottomline On OPEN Stock
If you’re a believer in the potential of the burgeoning iBuying business, than OPEN stock is arguably the best opportunity out there. It is trading around the same price as its $10 SPAC price and has never been cheaper. Hence, it’s an ideal opportunity to scoop up the stock at a highly attractive price point.
On the date of publication, Muslim Farooque 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
