TOP STORY
🤯 Opendoor Surges Another 80% After Founders Return

⭐️ It was another strong week in the market, with the S&P and Nasdaq-100 both setting new records:

• The S&P 500 climbed another +1.3% this week, now up 12.2% Year-to-date

• The Nasdaq-100 climbed +1.4% this week, now up 14.9% YTD

• The Canadian TSX index climbed +0.7% this week, now up 17.6% YTD

💡 Two main reasons for the gains this week were inflation data showing prices ticked up in August, and jobless claims rose to their highest level in nearly four years, adding strong ammunition for the Fed to defend the long-awaited interest rate cut next week.

🗞️ Outside of interest rate speculations, there were a few major headlines that caught my eye:

• ☁️ Oracle ($ORCL) jumped 22% on strong cloud-driven earnings, with a ‘tectonic shift in the business model towards a Data Center Operator’. Some analysts are even calling Oracle ‘Nvidia’s new rival’ after the company announced signing four multi-billion dollar contracts.

• 📱 Apple ($AAPL) dipped 2% after its iPhone 17 launch underwhelmed with modest updates and no ‘awe-inspiring’ moments other than AirPods Pro 3’s live translation capabilities.

• 🏥 UnitedHealth ($UNH) jumped 11% after reaffirming 2025 guidance and highlighting that 78% of members are in top-rated Medicare Advantage plans, meaning it will receive more bonus revenue and rebates from the government.

• 🤖 Nebius Group ($NBIS) rocketed 40% after announcing a $19.4B AI infrastructure deal with Microsoft. The partnership positions Nebius as a major cloud player to keep an eye on.

• 💳 Klarna ($KLAR) jumped 17% in its NYSE debut, opening at $52 vs. a $40 IPO price, raising $1.38B. Despite the initial hype, the stock has since fallen -13% to $43.

👀 But across the stories, there was one stock in particular that’s been in the headlines week after week that we haven’t had a chance to talk about yet on the Buzz: Opendoor ($OPEN).

🚀 Over the past two months, $OPEN has surged a massive 908%, with many calling it the ‘next memestock’ similar to the GameStop craze in 2021.

🏆 This week, the stock posted its biggest one-day gain yet, jumping 80% on Thursday after announcing the return of its co-founders to its board and the appointment of the former COO of Shopify as its CEO.

🔍 So let’s dive into what’s been going on with Opendoor, and whether the stock is something to pay attention to, or another meme to come and go.

🤔 What is Opendoor?

🤑 So first off, what is Opendoor, and how do they make money?

🏡 Opendoor pioneered the iBuyer model, essentially providing homeowners with instant cash offers for their houses, disrupting the traditional real-estate process with hassle-free sales.

📝 Homeowners can receive an online offer within minutes, with Opendoor using video calls and inspections to assess the properties, and deducting service fees of around 5%. Opendoor then owns the properties and sells them on the open market.

💰 In its most recent quarter, Opendoor earned $1.6B in revenue, with 4,299 homes sold, posting a gross profit of $128M.

😰 Opendoor’s Struggles

Until July, Opendoor was in rough shape, plummeting -95% from its IPO price in June 2020 and -99% from its peak price in Feb 2021.

❌ The reason? iBuying as a business didn’t seem to be working.

💸 The iBuyer business has thin margins, with Opendoor posting a contribution margin of between 3-5% in the most recent quarters.

😥 In the zero-interest-rate environments that we’ve had for nearly a decade pre-2021, this model could work at high volume, but with interest rates at the levels they are now, the cost for Opendoor to finance these houses is high, meaning the thin margin gets eaten away by interest expense and the cost of the debt needed to finance it’s billion-dollar property inventory has risen dramattically.

🧊 A largely frozen housing market has also led to properties sitting on the market longer, putting Opendoor on the hook for maintenance, utilities, and taxes, and creating the danger of Opendoor having to sell homes for less than their purchase price.

👋 All these challenges have led other iBuyers like Zillow and Redfin to abandon the iBuyer market after hundreds of millions in losses, highlighting that the challenges are with the sector overall and not just Opendoor.

🔍 Now that we understand the challenges, let’s turn to the positives and talk about the ‘bull case’ or the reasons why investors are optimistic. But first, a quick word from this week’s sponsor, Guardian Capital!

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TOP STORY CONT.
🚀 The Bull Case for Opendoor

👀 My analysis above presented a pretty negative picture of the stock, so let’s take a look at the other side and see why some investors are saying Opendoor is NOT just another meme stock.

🙏 The turnaround for Opendoor started with one man: Eric Jackson, the founder of a small Toronto Hedge Fund, EMJ Capital, who took to X to share why he believed Opendoor, which was trading for less than $1, could grow to $82, making the stock his largest holding.

📈 The stock caught the attention of retail investors, who have since propelled the stock to $9 a share.

⭐️ Eric and others have broken down a few key reasons for their optimism:

• ✅ While some see Zillow and Redfin leaving the market as a bad sign, Opendoor bulls see it as an opportunity, with Opendoor cementing a monopoly on the sector

• ✅ The high-interest rate environment and housing slump create a high barrier to entry for new competitors

• ✅ Opendoor's contribution margin has flipped from -3.7% in 2023 to 4.4% in the most recent quarter, signalling a strong improvement in the company’s unit economics and showing that the company can be profitable even in one of the most challenging housing markets in recent history.

• ✅ Opendoor’s biggest asset is its proprietary valuation algorithm, which continues to refine the data to make buying and selling smarter and faster. Some draw comparisons to valuing Amazon in its early days solely based on its profit from selling books.

👀 Ironically, many have also called out that the meme-fuelled also saves Opendoor from its one key risk: survival.

💰 Many institutional investors left Opendoor for dead, thinking that it would be unable to weather the storm of a high period of high interest rates and cash burn, but with the inflated stock price, management can sell shares directly into the open market to raise capital. In the words of one commentator:

🏆 A Recent Win for the ‘Opendoor Army’

All this culminates in the reason we’re talking about Opendoor this week - Opendoor’s biggest single-day gain.

The reason? Opendoors co-founders Keith Rabois and Eric Wu have announced they will rejoin the board and have named Shopify’s former COO, Kaz Nejatian, as the new CEO.

Eric Jackson, the voice of the bull case for Opendoor, was deeply critical of the old CEO Carrie Wheeler, calling her ‘utterly incompetent,' and rejoiced this week along with the Opendoor army, calling it the ‘dream team.'

Next up on the dream team, Eric has his eyes set on Drake - posting up outside Drake’s house for 22 days straight to try to convince the rapper to buy a share of the stock - for more on that story, check out the awesome interview Jon Erlichman did with Eric in front of Drake’s house.

⚠️ A Word of Caution

Say what you will about Opendoor, the story is certainly entertaining.

It seems the general opinion among experts is that the company is making the right moves, but that the stock has been inflated to levels completely detached from current fundamentals.

Overall, I think finance professor Derek Horstmeye from George Mason University puts it best:

🤞 If that’s your style, then good luck, but as a fundamental long-term investor who prefers a bit less volatility, I will be watching from the sidelines with my fingers crossed for you all! 😅

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FROM THE BLOSSOM COMMUNITY
⭐️ Featured Discussions this Week

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