Macroeconomic headwinds, including rising mortgage rates and concerns around the affordability of homes, remain a drag on internet-based real estate marketplaces, including Opendoor Technologies (NASDAQ:OPEN).
Due to the macro headwinds, OPEN stock has declined about 54% so far in 2022. Further, it is down about 65% over the past year.
Now What?
OPEN stock has corrected significantly. However, it continues to deliver impressive financial numbers. The company recently delivered exceptional Q1 results, while management remains confident that growth will likely sustain throughout the year.
For context, Opendoor’s Q1 top line surged 590% year-over-year, driven by an increase in the number of homes sold. Further, it delivered positive net income, which is encouraging, and its contribution margin showed an improvement on a sequential basis (6.4% in Q1 compared to 4% in Q4).
Opendoor’s management expects Q2 revenues to be in the range of $4.1-$4.3 billion, with the midpoint representing year-over-year growth of 254%. Moreover, adjusted EBITDA is forecast to grow at a breakneck pace (the midpoint of the guidance range of $170-$190 million implies 604% year-over-year growth).
BTIG analyst Jake Fuller reiterated his Buy recommendation on Opendoor stock following the Q1 financial results. Fuller expects OPEN to benefit from the growing addressable market and sees a further expansion in market share as Zillow (NASDAQ:ZG) exits the iBuyer market. Further, OPEN’s transition towards profits supports his bullish view.
Fuller sees more than 100% upside (price target of $15 implies 123% upside from current levels) in OPEN stock. However, he is concerned about the durability of margins in a weaker housing market environment.
Bottom Line
While rising interest rates and affordability pose challenges, Opendoor’s solid outlook instills confidence. Further, management remains upbeat and expects the momentum in its business to sustain through the rest of 2022. Additionally, its focus on structural price and cost improvements, and short duration sale-ready inventory, position it well to defend margins and remain afloat amid challenges.
OPEN stock has received four Buy, two Hold, and one Sell recommendations for a Moderate Buy consensus rating. The average Opendoor price target of $13.86 implies 106.6% upside potential from current levels.
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