Opendoor Technologies Jumps on iBuying Surge. Here’s Why You Should Sell.

OPEN -4.40% OPENL -9.01% OPENW -8.53% OPENZ -7.19%

Quick Read

• Opendoor (OPEN) increased home purchases 46% to 1,706 properties but revenue dropped 32% year-over-year to $736M.

• Opendoor carries $2B in net debt and 8.2% gross margins amid the weakest U.S. housing market in history.

• Opendoor guided Q1 revenue down 10% sequentially to $662M with projected EBITDA losses of $33M to $43M.

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Opendoor Technologies (NASDAQ:OPEN) released its fourth-quarter earnings after the market closed on Thursday, and the stock jumped 7.5% the next day to close at $5.00 per share. The rally came from excitement over the company's faster iBuying program. Home purchases rose 46% from the prior quarter to 1,706 properties, showing efforts to rebuild inventory after earlier slowdowns.

However, while revenue beat expectations, it dropped 20% from the previous quarter and 32% from a year ago. Earnings also missed forecasts. Investors, though, celebrated the buying surge as a vote of confidence in a recovering market, but this enthusiasm overlooks serious challenges in housing. It's not the catalyst Opendoor truly needs and investors should consider selling before the rally turns into a rout.

iBuying Takes Center Stage

Opendoor’s fourth-quarter results painted a mixed picture. The company managed to beat revenue expectations, bringing in $736 million, well above the roughly $594 million analysts had forecast. Still, that figure represented a steep 20% drop from the previous quarter and a 32% decline from the same period a year earlier. Gross profit came in at $57 million, lifting the gross margin slightly to 7.7%, but net losses ballooned to $1.1 billion, driven mostly by a large $933 million non-cash charge related to refinancing convertible notes. Looking ahead, the company guided for about $662 million in revenue for the current quarter -- down 10% sequentially -- and projected an adjusted EBITDA loss between $33 million and $43 million.

The ongoing weakness in the housing market was clearly present in sales volume: Opendoor sold just 1,978 homes during the quarter, down from 2,568 in the third quarter and 2,822 a year ago. Inventory stood at $925 million by quarter’s end, with 2,867 homes on hand -- fewer than the 3,139 from the previous period.

Even so, investors latched onto the iBuying business. Home acquisitions surged 46% sequentially to 1,706 properties from 1,169, a clear step forward in Opendoor’s “2.0” strategy focused on faster inventory turns and stronger-performing cohorts. Progress was also visible in aging inventory: the share of homes sitting on the market for more than 120 days fell sharply from 51% to 33%. At the same time, the company trimmed fixed operating expenses to $35 million, down from $43 million a year earlier.

No Quick Housing Rebound in Sight

Despite the positive spin, Opendoor's inventory buildup arrives during one of the weakest U.S. housing markets in history. The Pending Home Sales Index hit an all-time low of 70.9 in January, down 0.8% month-over-month after a 7.4% drop in December. It's now 43.3% below its October 2021 peak. The South saw pending sales fall 4.5% to a yearly low, and the Northeast weakened too. January closings dropped over 8%.

Other signs point to a slowdown: year-over-year home price growth slowed to 0.9% in December, with median list prices down 2%. New listings rose 3.2%, but inventory stayed tight. Home values are expected to remain mostly flat through 2026, with existing sales rising only modestly. Builder confidence, though, dipped in February, with current sales flat but weaker forecasts for future sales and traffic.

Many hope Fed rate cuts will spark demand, but the Fed showed caution in January and is split on additional cuts, likely only possible if inflation falls as projected. Without bigger reductions, conditions may not improve soon.

With annual existing home sales around 4 million  -- down from 6 million in 2021 -- and buyer demand at 2009 levels, ramping up could strain the balance sheet.

Opendoor holds $2 billion in net debt and thin 8.2% gross margins, offering little cushion. If buyers remain on the sidelines -- especially with 55% of homeowners locked into sub-4% mortgages -- unsold homes could drive major losses.

Key Takeaways

Opendoor's iBuying approach has always been risky, with potential for mispriced buys and market slumps. Boosting purchases now could hurt finances if homes linger or sell at little to no profit amid flat or falling values.

After last year's hype, the market is more focused on fundamentals than excitement. Investors should sell to secure gains and avoid suffering from buyer's remorse.

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