Is OpenDoor Yesterday's News?

Opendoor Technologies (NASDAQ: OPEN) dazzled investors this summer after the stock jumped from $0.51 to more than $10 in less than three months, gaining more than 2,000%.

Several factors played into that rally. First, the stock gained interest from meme stock investors on social media platforms like X and Reddit in response to arguments that the company had enormous potential if the housing market turned around. One hedge fund manager, Eric Jackson, said the stock could be the next Carvana, referring to the online used car dealer, which jumped more than 100 times after nearly going bankrupt in 2022-23.

Once Opendoor stock started gaining speed, investors began pushing for the removal of CEO Carrie Wheeler, and she departed in August, being replaced by Kaz Nejatian, who was formerly the COO of Shopify. In a board overhaul at the same time, two co-founders, Keith Rabois and Eric Wu, came back to serve on the board with Rabois becoming Chair.

That move helped send the stock to its peak in September, but since then, Opendoor has struggled.

Image source: Opendoor.

Is it time to sell Opendoor?

Nejatian hasn't wasted time since taking on the leadership post, expanding Opendoor to all 50 states, announcing a new strategy around three clear management objectives, and he even made the odd move of rewarding shareholders with warrants, which seemed to be an attempt to pump the share price higher and punish short sellers, as he put it.

The strategic overhaul makes sense. Nejatian intends to focus on scaling acquisitions, improving unit economics and resale velocity, and building operating leverage.

However, Opendoor's business is closely tied to the housing market. The company's business model is essentially built on selling houses for more than it buys them for, and collecting related service fees from those transactions.

Even as mortgage rates have edged lower, the housing market has shown little sign of a recovery, and Opendoor's third-quarter numbers were uninspiring. Revenue tumbled as it scaled back on home purchases, and it narrowed its adjusted net loss slightly from $70 million to $61 million.

Nejatian has set break-even adjusted net income as a goal for the company by the end of 2026, but investors seem to have moved on from the stock following the earlier meme stock craze as it's now down 40% from its high in September.

At this point, Opendoor still has a lot to prove, as the company has been losing money since the pandemic. Without a significant recovery in the housing market, Opendoor seems likely to continue to struggle.

Jeremy Bowman has positions in Carvana and Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.