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Sales of existing homes in the US fell to a 16-year low last month. Potential buyers are staying on the sidelines because mortgage rates remain high and home prices have not dropped enough to make monthly payments affordable.
This is a direct challenge for Opendoor because its business depends on a healthy volume of home sales. When the housing market freezes, it is harder for the company to flip the homes it owns and harder to sell extra services like mortgages and title insurance. Until borrowing costs drop or prices reset, the company will likely struggle to grow its transaction numbers.
Source: Reuters
Goldman Sachs set a new price target of $1 for the home-buying platform. This target is lower than where the stock currently trades, suggesting the firm sees more room for the price to fall as the company manages a difficult housing market. While the average target across all analysts remains higher at about $3, this move reflects the pressure on Opendoor's business model. High interest rates have made it harder to buy and sell homes quickly, which is the core of how the company makes money.
Source: Goldman Sachs
Opendoor lost 23 cents per share last quarter, which was more than the 16 cents analysts had expected. Revenue of about 1.02 billion dollars also came in slightly below targets. The stock fell 17 percent as the company continues to struggle with the high costs of holding houses while interest rates remain elevated.
There were signs of progress in the company's plan to buy and sell homes more efficiently. It purchased over 4,800 homes, more than four times what it bought a year ago, and it is selling them faster. Only 18 percent of its houses have been on the market for more than 120 days, down from 51 percent last year. This speed is vital because the longer a house sits, the more Opendoor pays in interest and maintenance, which eats into its thin profits.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
After Opendoor Technologies reported its November results, we updated our fair value and raised our quality score to 2.6. We added the shift toward capital-light products and the high levels of stock-based compensation to what we track. We also adjusted our expectations for how quickly the company can reach its targets for profit margins and quarterly home purchases. Finally, we added the growth in mortgage originations to our assessment of the company's performance.
Opendoor is scheduled to report its quarterly results later today. Analysts expect the company to report a loss of about 16 cents per share on revenue of roughly 1.05 billion dollars. For a company trying to prove its new, leaner model works, the most important numbers to watch will be its profit margin on each home sold and whether it is successfully selling its inventory within four months. These metrics show whether its AI pricing tools are accurately valuing homes in a market still strained by high interest rates.
Management has missed expectations for three quarters in a row as they struggle to predict how fast they can sell homes in a frozen housing market. This makes their future forecasts hard to trust until they prove they can accurately price inventory again.
| Expectation | |
|---|---|
| EPS | $-0.20 |
| Revenue | $1.05B |
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