Opendoor (NASDAQ:OPEN) Surprises With Strong Q1, Stock Jumps 10.9%

Kayode Omotosho /
2024/05/02 5:20 pm EDT

Technology real estate company Opendoor (NASDAQ:OPEN) announced better-than-expected results in Q1 CY2024, with revenue down 62.1% year on year to $1.18 billion. On the other hand, next quarter's revenue guidance of $1.45 billion was less impressive, coming in 3.1% below analysts' estimates. It made a GAAP loss of $0.16 per share, improving from its loss of $0.16 per share in the same quarter last year.

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Opendoor (OPEN) Q1 CY2024 Highlights:

  • Revenue: $1.18 billion vs analyst estimates of $1.09 billion (8.8% beat)
  • Adjusted EBITDA: ($50) million vs analyst estimates of ($72) million (beat)
  • EPS: -$0.16 vs analyst estimates of -$0.21 (24.4% beat)
  • Revenue Guidance for Q2 CY2024 is $1.45 billion at the midpoint, below analyst estimates of $1.50 billion
  • Adjusted EBITDA Guidance for Q2 CY2024 is ($30) million at the midpoint, better than analyst estimates of ($47) million
  • Gross Margin (GAAP): 9.7%, up from 5.4% in the same quarter last year
  • Free Cash Flow was -$186 million compared to -$551 million in the previous quarter
  • Homes Sold: 3,078
  • Market Capitalization: $1.38 billion

“Our first quarter results exceeded the high end of our guidance across revenue, Contribution Margin, and Adjusted EBITDA. Our product continues to resonate with customers, as we more than doubled our market share year-over-year and continued to deliver industry-leading seller NPS. We entered the second quarter with strong momentum, and we are meaningfully ramping acquisitions in 2024. Led by our operating principles of focus, execution, and results, we remain on track to durably rescale the business in 2024 while delivering Contribution Margin within our target annual range,” said Carrie Wheeler, CEO of Opendoor.

Founded by real estate guru Eric Wu, Opendoor (NASDAQ:OPEN) offers a technology-driven, convenient, and streamlined process to buy and sell homes.

Real Estate Services

Technology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Opendoor's annualized revenue growth rate of 14.8% over the last five years was mediocre for a consumer discretionary business. Opendoor Total RevenueWithin consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Opendoor's recent history shows a reversal from its already weak five-year trend as its revenue has shown annualized declines of 36.5% over the last two years.

We can dig even further into the company's revenue dynamics by analyzing its number of homes sold, which reached 3,078 in the latest quarter. Over the last two years, Opendoor's homes sold averaged 7.9% year-on-year declines. Because this number is higher than its revenue growth during the same period, we can see the company's monetization of its consumers has fallen. Opendoor Homes Sold

This quarter, Opendoor's revenue fell 62.1% year on year to $1.18 billion but beat Wall Street's estimates by 8.8%. The company is guiding for a 26.6% year-on-year revenue decline next quarter to $1.45 billion, an improvement from the 52.9% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 30.2% over the next 12 months, an acceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Over the last two years, Opendoor has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 6.9%, subpar for a consumer discretionary business.

Opendoor Free Cash Flow Margin

Opendoor burned through $186 million of cash in Q1, equivalent to a negative 15.7% margin. This caught our eye as the company shifted from cash flow positive in the same quarter last year to cash flow negative this quarter.

Key Takeaways from Opendoor's Q1 Results

We liked how Opendoor beat analysts' revenue and adjusted EBITDA expectations this quarter, with the latter beating by a convincing amount. While its revenue guidance for next quarter was underwhelming, adjusted EBITDA guidance for the period was well above. Overall, we think this was a really good quarter that should please shareholders. The stock is up 11.4% after reporting and currently trades at $2.25 per share.

Opendoor may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.