OpenDoor Technologies (NASDAQ:OPEN) is a housing company focused on the iBuying market. OPEN stock had gotten hammered this year thanks to the selloff in speculative companies plus the sharp rise in interest rates.
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However, OpenDoor has enjoyed something of a comeback in recent weeks, with the stock rallying off the lows. Part of that is due to a bounce back in the broader sector.
But there is seemingly some excitement around the idea that the housing market is in better shape than feared as well. However, a closer dive into the situation shows several reasons for caution with OPEN stock.
Zillow’s Exit From Home Buying
Both Zillow (NASDAQ:ZG) and OpenDoor historically put a lot of energy into the iBuying market. However, Zillow shocked the industry last year when it announced it was exiting the arena.
The company simply couldn’t make the math work, saying it would take a write-down of at least $304 million and potentially more as it sought to close down its operations.
iBuying is where companies like Zillow and OpenDoor offer to buy a house from a seller for cash immediately. These offers tend to be a little low compared to the market, say 10% under the average price, but give the seller an immediate exit. Compared to waiting for a regular buyer to appear through a real estate agent, the instant liquidity can seem appealing.
In theory, Zillow, with its huge real estate database, should have had some top-notch info. Who would be better equipped to profit from pricing discrepancies across different neighborhoods in a city? And yet, in practice, Zillow’s iBuying effort flamed out horribly. This doesn’t bode well for OPEN stock.
Is OPEN Stock an Opportunity or a Risk?
What went wrong for Zillow? Here, OpenDoor analysts can paint a picture in either direction. On the one hand, analysts believe Zillow was a bit too aggressive. Perhaps it put too much faith in its algorithm. Scaling up its home buying operations so quickly while relying on an artificial-intelligence (AI) driven model may have been too much, too fast.
By contrast, OpenDoor is perceived to use a more conservative model to carry out its operations. It seems to try to get a higher profit margin on each home it sells. Plus, it wasn’t as aggressive in terms of marketing its AI system as a magic bullet.
Zillow’s home estimate pricing tool delivers good data in many cases. However, in some specific cities and areas, …….