OPEN stock: the inflection point could make or break the door open

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The decision of Zillow Group (NASDAQ:Z) opting out of the home turnaround business and ending the Zillow offers may be a game-changer for Open door (NASDAQ:OPEN) stock, or it can be an example that something is fundamentally wrong with the iBuying business.

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In business, a decision made by one of your direct competitors can either benefit or harm your economic viability.

It can also define the future of your business model and its performance.

In this article, I will mainly focus on the risks and opportunities that open technologies have to offer.

As a digital platform for residential real estate in the United States, Open Technologies enables consumers to buy and sell a home online. And I’ll start with a very quick note on the fundamentals of the OPEN title.

OPEN stock: The most important concept

Every business has only one major goal, to be profitable and maximize profitability if possible. In the short term economy, analysis dictates that you can run a business with losses, however – in the long term this trend is not sustainable.

In addition, Opendoor Technologies has not been profitable for the past three consecutive years. In 2018-2020, on its first core business, it had a negative operating result, and on the other hand, it had net losses after taking into account other accounts in the income statement.

When the net losses are followed by a sharp drop in sales for 2020 of around 45%, concerns are fully justified as to the performance of Opendoor Technologies’ business model and the effect this could have on the OPEN stock.

Zillow’s decision

Zillow recently made a bold, but fully justified, decision to pull out of the home turnaround business and end the Zillow offerings. Why daring? He has built a business model over the past few years entirely based on the idea of ​​flipping houses, of becoming an iBuyer.

Why fully justified? Because he lost money. So it was only a matter of time to decide to end its instant buying division (iBuying) for the rest of the year.

Why do I consider this to be a huge lesion for the exterior? Simply because Opendoor uses a similar approach to Zillow, it’s an iBuyer. Therefore, my argument is, if something went wrong for one of your bigger competitors, then it may be a good idea now to assess what went wrong for your competitor.

What is iBuying?

“The iBuyer model is an instant method of buying and selling homes that is revolutionizing the real estate market.”

In a nutshell, iBuyer.com says that “iBuyer stands for Instant Buyer. In technical terms, the iBuyer model uses artificial intelligence (AI) to deliver value to the home. Using your property data and mathematical algorithms, the iBuyer generates an Automated Valuation Model (AVM) that gives you an instant cash offer. The Buyer then carries out the repairs, markets the house and resells it.

If Outdoor implements a business model that does not have any of the structural issues that lead Zillow to serious financial trouble, he can gain more market share and prosper in his business.

But what are the risks to be avoided now?

  • AI and price forecast volatility
  • Macroeconomic uncertainty
  • Labor shortage
  • Supply / demand balance
  • Strong competition from the traditional market
  • A capital and labor intensive industry

To take with

Now what Opendoor needs the most is not to make Zillow’s mistake. She needs a large inventory of homes for sale and hopes their prices will rise to turn a profit. Hope and wishful thinking are hardly the traits that make a business successful.

With the boom in the US real estate market and the strong upward trend in the average selling price of homes sold, what could threaten the health of the housing market?

With the current selling prices of homes, fears of a bubble and rising interest rates will make mortgages more expensive – a possible economic slowdown in the growth of the US economy.

But if I had to pick one specific factor that wasn’t working for Zillow and Opendoor, it would be to focus on price prediction volatility and AI data.

I’ll end this article with a quote from Steve Jobs: “I’m convinced that about half of what separates successful and unsuccessful entrepreneurs is sheer persistence. “

For now, Opendoor must seize this opportunity and achieve positive financial results when Zillow stops renting houses.

As of the publication date, Stavros Georgiadis, CFA does not have (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.

Stavros Georgiadis is a CFA Chartered Equity Research Analyst and Economist. He focuses on US stocks and has his own stock blog at thestockmarketontheinternet.com/. He has written various articles for other publications in the past and can be contacted at Twitter and on LinkedIn.


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