Opendoor (OPEN)

Technology real estate company Opendoor (NASDAQ:OPEN) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 2.4% year on year to $1.15 billion. Guidance for next quarter’s revenue was optimistic at $1.49 billion at the midpoint, 2.5% above analysts’ estimates. Its GAAP loss of $0.12 per share was 7.7% above analysts’ consensus estimates.

Company Overview

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

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.

Opendoor's primary competitors include Zillow (NASDAQ:ZG), Redfin (NASDAQ:RDFN), Offerpad Solutions (NYSE:OPAD), and eXp World (NASDAQ:EXPI).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Opendoor struggled to consistently increase demand as its $5.13 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Opendoor’s recent performance shows its demand remained suppressed as its revenue has declined by 38.5% annually over the last two years.

We can better understand the company’s revenue dynamics by analyzing its number of homes sold, which reached 2,946 in the latest quarter. Over the last two years, Opendoor’s homes sold averaged 27.9% year-on-year declines. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen.

This quarter, Opendoor’s revenue fell by 2.4% year on year to $1.15 billion but beat Wall Street’s estimates by 9.3%. Company management is currently guiding for a 1.6% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 9.3% over the next 12 months. While this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Opendoor’s operating margin has been trending up over the last 12 months, but it still averaged negative 6.3% over the last two years. This is due to its large expense base and inefficient cost structure.

In Q1, Opendoor generated a negative 4.9% operating margin. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although Opendoor’s full-year earnings are still negative, it reduced its losses and improved its EPS by 33.6% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q1, Opendoor reported EPS at negative $0.12, up from negative $0.16 in the same quarter last year. This print beat analysts’ estimates by 7.7%. Over the next 12 months, Wall Street is optimistic. Analysts forecast Opendoor’s full-year EPS of negative $0.52 will reach break even.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Over the last two years, Opendoor’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 7.4%, meaning it lit $7.40 of cash on fire for every $100 in revenue.

Opendoor burned through $283 million of cash in Q1, equivalent to a negative 24.5% margin. The company’s cash burn increased from $186 million of lost cash in the same quarter last year.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Opendoor burned through $717 million of cash over the last year, and its $1.57 billion of debt exceeds the $559 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Opendoor’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Opendoor until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by Opendoor’s optimistic EBITDA guidance for next quarter, which blew past analysts’ expectations. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 8% to $0.76 immediately after reporting.

Updated: May 21, 2025 at 10:23 PM EDT

Are you wondering whether to buy Opendoor or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We see the value of companies helping consumers, but in the case of Opendoor, we’re out. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its cash burn raises the question of whether it can sustainably maintain growth. On top of that, its operating margins reveal poor profitability compared to other consumer discretionary companies.

Opendoor’s forward price-to-sales ratio is 0.1x. The market typically values companies like Opendoor based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy.

Wall Street analysts have a consensus one-year price target of $1.15 on the company (compared to the current share price of $0.69).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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