At first glance, Opendoor Technologies (NASDAQ:OPEN) seems a viable investment to trade off the artificial intelligence (AI) craze. However, it also demonstrates why everything should be in moderation. Though initially promising, Opendoor suffered from too much AI dependency, leading to the entire business going wrong. Long term, I am bearish on OPEN stock.
Prior to the catastrophic economic and geopolitical headwinds of 2022, circumstances appeared auspicious for the iBuyer specialist. Fundamentally, Opendoor leverages AI and machine learning (ML) to streamline the often lengthy and convoluted real estate transactional process. In other words, the computers perform the busy work, and the human sellers collect a quick paycheck.
As ZDNet pointed out in October 2021, “The company will give you cash money, after answering a few questions in the app, so you can be on your way to unloading your home without the tedium of weeks or months of dealing with brokers and buyers. It’s all about increasing the liquidity of homes and bringing the residential real estate market online.”
However, the publication mentioned that the market is only 1% “penetrated” in terms of online sales. Therefore, the narrative seemingly boded very well for OPEN stock. Unfortunately, machines are only as smart as their underlying protocols allow them to be, and when an outside variable – namely the Federal Reserve – entered the picture, Opendoor’s computers went silent.
Bolstering the bear case, on TipRanks, OPEN stock has a 1 out of 10 Smart Score rating. This indicates strong potential for the stock to underperform the broader market.
The Computers Failed to Notice the Obvious
Actually, it wasn’t that Opendoor’s computers went silent literally. Rather, they simply failed to respond to brewing pressures that would eventually force the Fed to take action, an action which would invariably impede the runaway bullishness of the real estate market. In this manner, OPEN stock provided a brutal lesson about the holistic utility of AI.
Throughout 2022, the Fed aggressively raised the benchmark interest rate, which in turn increased borrowing costs. Any intelligent entity – artificial or otherwise – should be able to view federal government data indicating an unprecedented expansion of the real M2 money stock. Therefore, iBuyers couldn’t continue doing business as usual: an adjustment had to be made.
However, Opendoor kept charging ahead, which eventually upset stakeholders. For example, in the trailing year, OPEN stock tumbled nearly 81%. Further, while shares gained over 45% since this year’s January opener, the equities market tumbled significantly last week. On Friday, a hotter-than-expected inflation report had folks on edge about more aggressive rate hikes.
If Opendoor had responded better to these events, OPEN stock might not have imploded as it did. To be fair, several real-estate-related investments crumbled since 2022. Therefore, it’s not accurate to pin all the blame on Opendoor’s AI. However, it’s also clear that AI and ML did not provide a discernible advantage.
Humans may have been unwise or perhaps greedy and therefore didn’t take mitigatory action. On the other hand, AI apparently didn’t care at all. Instead, it continued to run the algorithms as programmed. Frankly, it’s difficult to say what’s worse. Still, if AI doesn’t provide advantages, the return on investment would be zero (break-even) at best.
Brutal Numbers Cloud OPEN Stock
Compounding matters, the financials underlining OPEN stock present an ugly scenario. True, the other real-estate enterprises don’t offer blisteringly strong figures either. However, not everyone jumped on board the AI and ML train, thus sparing themselves the associated expenses.
Immediately, investors recognize that OPEN stock doesn’t enjoy the greatest fiscal stability. For instance, its equity-to-asset ratio sits at 0.16 times, worse than 88.1% of the real estate industry. As well, its debt-to-equity ratio stands unfavorably high at 4.97, worse than 96.3% of the competition.
Operationally, its three-year revenue growth rate pings at 41.8%, above over 90% of its peers. While positive, it may only be a temporary affair. In its fourth quarter of 2022, Opendoor posted $2.86 billion in revenue, down over 25% on a year-over-year basis.
Plus, both its operating and net margins sit in negative territory on a trailing-year basis. Again, other real-estate competitors can’t brag about vastly superior results. However, AI or no AI, the results largely came out the same. Over time, that’s a huge wall for OPEN stock to overcome.
Is OPEN Stock a Buy, According to Analysts?
Turning to Wall Street, OPEN stock has a Hold consensus rating based on two Buys, three Holds, and three Sell ratings. The average OPEN stock price target is $2.47, implying 71.5% upside potential.
The Takeaway: OPEN Stock Carried No Advantages
If all the above could be summarized into one question, it would be, what’s the point? If AI and ML protocols actually delivered superior results, OPEN stock should presumably perform better. Instead, it’s down in the dumps like other housing-related enterprises. Not only that, Opendoor is performing worse than some of its peers. Put another way, AI isn’t quite the end-all, be-all for tech enterprises.
