When Zillow (NASDAQ:Z) announced its decision to exit the iBuying business, investors who’d been hopeful this vertical would be a major money-spinner down the road for the company were disappointed. The move also raised questions for Zillow’s direct competitors like Opendoor Technologies (NASDAQ:OPEN), which is vying for similar opportunities in the iBuying space. However, OPEN stock offers a much more compelling risk/reward scenario.
In a nutshell, Opendoor streamlines the process of buying and selling houses to a point unfathomable in the past. OPEN stock went public via a reverse merger with a special purchase acquisition company one year ago. Shares peaked above $39 in February but have been under immense pressure since then, losing nearly two-thirds of their value.
Moreover, since Zillow announced it was closing its iBuying operation in early November, OPEN stock is down more than 40%. Consequently, shares trade at just 2 times sales, making them an attractive prospect.
Opendoor’s Edge
Opendoor is unlikely to suffer the same fate as Zillow with its iBuying business, as the company is an innovator in the space.
For those who are not familiar with iBuying, it is essentially a business model where a company like Opendoor directly transacts with the real estate customer while charging service fees along the way.
Zillow started as a consumer internet company and added real-estate services and the iBuying vertical in recent years. It was clear from the get-go that Zillow lacked the innovative gene that could help it stave off any potential crises that come its way. Thus, the recent headwinds in the housing market ultimately led to Zillow’s exit from the iBuying business.
Opendoor, on the other hand, has robust risk management abilities developed using superior technologies. Margins are razor-thin in the iBuying business, yet Opendoor’s gross margins were around 13% in the first two quarters of the year.
As housing trends reverse, gross margins dip significantly. Yet, for the third quarter, Opendoor still posted gross margins of 8.9%, while Zillow’s gross margins were deeply negative.
Opendoor’s Outlook is Strong
Naturally, with Zillow’s iBuying debacle, investors are justified in questioning Opendoor’s long-term abilities. So, let’s look at the fundamentals.
If we look at the company’s recent results, we can see that not only is it not winding up its operations, but it continues to grow at a strong pace.
The number of purchased homes rose to nearly 15,200 in the third quarter, up 79% from Q2. And revenue surged 91% from the second quarter and nearly 570% year over year to $3.2 billion, comfortably beating estimates.
Looking ahead, analysts expect full-year revenue growth of 184% in 2021 and 104% in 2022.
The Bottom Line on OPEN Stock
Opendoor won’t be facing the same fate as Zillow. Opendoor boasts cutting-edge technology that has helped it navigate risky situations and come out unscathed. Moreover, it is led by an able management team with a long history in big data.
The company now has one less competitor to deal with and OPEN stock is likely to outperform in the future.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.