Retail traders have discovered a brand new meme inventory.
Opendoor Applied sciences (OPEN 0.42%) runs one of many greatest actual property direct shopping for operations within the U.S., which entails buying properties from prepared sellers and trying to flip them for a revenue. This enterprise mannequin works nice when the housing market is robust, however elevated rates of interest have made the previous few years extraordinarily troublesome for the corporate.
However, retail traders have used social media platforms like X (previously Twitter) and Reddit to efficiently promote shares like GameStop and AMC prior to now, and Opendoor is their newest goal. The inventory has surged by an eye-popping 1,300% from its 52-week low of $0.51 in June, and now trades at over $7.
On Nov. 6, Opendoor will launch its working outcomes for the third quarter of 2025 (ended Sept. 30), which may affect the course of its inventory. Ought to traders take a place forward of the report?
Picture supply: Getty Photos.
Direct shopping for is not an incredible enterprise mannequin
When an individual needs to promote their home, they usually rent an actual property dealer to handle the method. However relying on the desirability of the property, it could actually take anyplace from every week to a number of months to discover a appropriate purchaser, and that uncertainty is commonly a ache level for sellers.
Opendoor created a a lot easier resolution. The corporate will purchase virtually any dwelling for money, with a predictable settlement interval that’s agreed upon upfront. All the vendor must do is go to Opendoor’s web site, enter just a few particulars about their dwelling, and determine whether or not to just accept the corporate’s provide — no advertising, no open homes, and no annoying negotiations required.
After buying the home, Opendoor will typically carry out renovations to extend its worth, after which it should attempt to promote it as shortly as doable for a revenue. This enterprise mannequin labored spectacularly effectively over the past housing growth in 2020 and 2021, as a result of actual property costs have been rising persistently. However the tables turned when rates of interest soared throughout 2022 and 2023, as a result of it positioned mortgages out of attain for a lot of would-be consumers.
In response to Redfin, there are 500,000 extra sellers than consumers within the U.S. actual property market proper now, which is a file excessive. Opendoor can have 1000’s of properties in its stock at anyone time, so it struggles to make cash at scale when consumers are calling the pictures.
Wall Road is forecasting a pointy decline in third-quarter income
Opendoor generated $1.6 billion in income in the course of the second quarter of 2025 (ended June 30), which was up 5% 12 months over 12 months. The corporate bought 4,299 properties in the course of the interval, nevertheless it solely bought 1,757 extra as a result of administration is taking a cautious strategy to the housing market. In reality, in a sequence of feedback to traders in August, CEO Carrie Wheeler stated she would not anticipate a restoration any time quickly.
Shopping for fewer properties may have downstream penalties for Opendoor’s enterprise, notably within the type of decrease income. In response to Wall Road’s consensus estimate (offered by Yahoo! Finance), the corporate seemingly generated simply $882 million in income in the course of the third quarter, which might be down 36% 12 months over 12 months.
The sharp drop in income may additionally considerably have an effect on Opendoor’s backside line. The corporate misplaced $114 million in the course of the first half of 2025, which adopted a $392 million web loss for the entire of 2024. Because the firm’s working prices are fairly modest, it will not have the ability to minimize its approach to profitability. The true concern is the razor-thin gross margin it makes on each dwelling it sells, which was round 8.3% within the first six months of the 12 months.
Opendoor had $789 million in money available as of June 30, which ought to present sufficient runway for the following couple of years except its losses enhance materially. Due to this fact, the corporate’s backside line warrants shut consideration when the third-quarter outcomes are launched on Nov. 6.
Do you have to purchase Opendoor inventory forward of Nov. 6?
The U.S. Federal Reserve minimize rates of interest in September for the primary time this 12 months, and it is anticipated to ship one other minimize on the finish of October. It takes time for the advantages of falling charges to work their manner via the financial system, however they have a tendency to spice up home costs in the long term by growing shoppers’ borrowing energy, which brings extra consumers into the market.
With that stated, traders sometimes keep away from shrinking companies as a result of they destroy shareholder worth over time, so Opendoor may lose some assist within the quick time period if its third-quarter income actually did decline as a lot as Wall Road expects. However I’d even be involved in regards to the viability of the direct shopping for enterprise mannequin over the long term. The business misplaced two of its greatest gamers — Zillow and Redfin — just a few years in the past, as the businesses deemed it too dangerous.
Zillow’s direct shopping for enterprise was shedding a lot cash in 2021 that it threatened the steadiness of your complete firm. Merely put, speculating on actual property costs by buying 1000’s of properties can shortly lead to billions of {dollars} in losses when the market turns south.
Due to this fact, I do not assume Opendoor inventory is an effective purchase forward of Nov. 6, and it in all probability will not be a purchase after that date both. It was buying and selling at a 52-week low of $0.51 only a few months in the past for a motive, and the speculative rally engineered by retail traders hasn’t solved the corporate’s core points.
