What Happened:
Shares of technology real estate company Offerpad (NYSE:OPAD) jumped 9.7% in the afternoon session as stocks rallied after the Fed slashed its policy rate by 50bps (0.5%) to 4.75%-5.00%. This marks the first rate cut since 2021, when the Federal Open Market Committee, led by Fed Chair Jerome Powell, began raising rates to tackle inflation. On delivering the outsized cut, the Fed acknowledged the improved conviction that inflation is moving sustainably toward its 2% target. To round out its focus on fulfilling its mandate, the committee highlighted the commitment to supporting maximum employment amid slowing job gains.
Markets reacted with optimism following the announcement. The Russell 2000 index rose by 2%, suggesting the rebound is broader than just large tech and more pronounced in small-cap stocks. The major indices (Dow Jones, S&P 500) also touched new records, though there's been a slight pullback. This could be some combination of the markets having already priced in the rate cut and also some emerging concerns that the large cut is a sign that the Fed thinks the economy may be teetering. Overall, the announcement has provided a breath of fresh air and a clearer view of the Fed's monetary policy stance, which the market has been waiting for with bated breath.
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What is the market telling us:
Offerpad’s shares are very volatile and over the last year have had 62 moves greater than 5%. In context of that, today’s move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 4 months ago, when the stock dropped 10.9% on the news that the company reported first-quarter results with operating margin and EPS falling below Wall Street's expectations. In addition, its revenue guidance for the next quarter fell significantly short of Wall Street's estimates, with management citing a volatile macro.
On the other hand, Offerpad exceeded analysts' revenue expectations this quarter as it sold more homes than anticipated (847 vs estimates of 800). The company observed improved request volume and acquisition pace following the market slowdown in Q4'2023 amid rising mortgage rates. However, it expects the rising rates to impact home acquisitions in the current quarter. As a result, it expects acquisitions to be flat to slightly up compared to Q1. Overall, the results could have been better.
Offerpad is down 54.3% since the beginning of the year, and at $4.50 per share it is trading 57.6% below its 52-week high of $10.62 from September 2023. Investors who bought $1,000 worth of Offerpad’s shares at the IPO in December 2020 would now be looking at an investment worth $29.47.
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