Opendoor (NASDAQ:OPEN) stock has fallen out of favor with investors even though it had a relatively impressive showing last year. Despite the year-over-year top-line expansion of over 210%, OPEN stock is down around 64% in the past 12 months.
Moreover, with Zillow’s (NASDAQ:Z) exit, it now thunderously commands the burgeoning iBuying sector. Profitability is a concern, but the business may break even within the next couple of years with rapid acceleration in transaction volumes.
Zillow’s exit from the iBuying sector spooked many investors. However, a glance through its financials before its departure was enough to back up the decision. Zillow was buying properties at significantly higher premiums than its peers with paltry margins.
Conversely, Opendoor has found a way to make iBuying work with its incredible technology and scale. With Zillow gone and its competitors playing catch up, the company has all the makings of becoming a monopoly.
Remarkable Operating Results
Opendoor recently released its first full year of earnings, outperforming estimates across both lines. Its revenues of $8 billion surpassed estimates by over 100%, while its contribution profits were three times higher than the consensus. Moreover, it sold more homes than it added to its inventory, with $6.1 billion in closing stock. Additionally, it expanded its footprint into 44 lucrative markets across the U.S., intending to add several more this year.
Net loss came in higher than expected at $191 million due to higher stock compensation and selling costs. Nevertheless, its margins have been recovering with every passing year, achieving earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability during the fourth quarter.
Opendoor issued a highly encouraging first-quarter guidance that blows past analyst estimates. It expects to generate $4.1 billion to $4.3 billion in revenue, well over the $3.32 billion consensus. Similarly, its adjusted EBITDA for the first quarter of $30 million to $40 million comes far ahead of the $10.1 million consensus. With an improvement in macroeconomic conditions, the U.S. real estate market will be on fire this year and will continue growing briskly for the foreseeable future.
Incredible Upside Potential
The pandemic has accelerated the digitization trend across multiple industries. Perhaps the real estate business was one of the few businesses which were long overdue for disruption. iBuying has meaningfully reduced the effort, time, and costs of home-sale transactions by streamlining the process through one-stop-shop platforms.
Opendoor has established itself as a leader in the space, reflective of its investment strategy and performance. The company is investing heavily in improving its automation, network, and internal operations. These efforts have laid the foundation for a tremendous showing this year and beyond.
Existing home sales in The U.S. were at 6.2 million in 2021. Opendoor sold 21,725 homes, equating to less than 0.5% of the market. If it can innovate and acquire just 1% of the market share, it could be looking at billions in revenue. Layer that up with a “culture of frugality” in its organizational DNA and we could be looking at a potential real estate juggernaut.
Should You Buy OPEN Stock?
Opendoor’s first trading year is in the books and was a forgettable one. It has shed a lot of its value of late as investors aren’t buying into its growth story.
It is still the early days with Opendoor, but it has proven to be a robust business with massive potential to grow in the iBuying sector. Its astounding revenue growth suggests that it boasts multiple competitive advantages and is working its way to being a monopoly. Hence, OPEN Stock is an excellent investment at current levels with healthy upside potential.
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
