$OPEN Macroeconomic Stability Is Key
The United States may be experiencing a faster-than-expected economic recovery as inflation numbers have cooled faster than the Fed’s expectations. This could explain why Opendoor Technologies Inc. (NASDAQ: OPEN) spiked nearly 10% since the announcement. The reason the stock could maintain its momentum is the decline in US treasury bond yields which are strongly correlated with mortgage rates. In this way, mortgage rates may be set to decline soon which would boost demand for homes. As a result, OPEN stock could be a prime candidate to run in 2024 once the Fed starts cutting rates.
OPEN Fundamentals
Macroeconomics
The housing market is yet to recover from the interest rate hike spree the Fed has been on since the start of 2022, but with the core CPI declining to 4.8%, more than the 5% the Fed was anticipating, it seems like the real estate market is nearing the end of the tunnel.
With inflation cooling faster than expected, the Fed may begin holding rate hikes sooner than expected, encouraging more Americans to buy houses and apply for mortgages. This has already begun with mortgage applications increasing by 0.9% in the week ended July 7. Furthermore, the 10-year treasury yield fell to 3.84% which has a strong correlation with mortgage rates since when treasury yield moves mortgage rates follow suit closely after which can help increase mortgage applications moving forward.
OPEN Increasing Its Efforts
Another factor contributing to the slow recovery of the real estate market is the lack of new housing supply, as there is a strong correlation between new building permits and home sales in the United States, with house sales following dips in building permits in 2020 and early 2023. The lack of new houses may put off existing homeowners from listing their homes for the lack of an alternative.
To try and mitigate that, OPEN has expanded its trade-in program and partnered with over 90 homebuilders to help homeowners sell their current homes and buy newly built homes which will increase the supply of houses in the market.
Furthermore, OPEN is currently partnered with the top 3 online real estate platforms by visitor traffic in the US which are Redfin (NASDAQ: RDFN), Zillow (NASDAQ: Z), and Realtor.com. These three sites saw more than 607 million visits combined in June which will help OPEN increase its reach exponentially.
According to its Q1 2023 earnings call, OPEN also expects to reach profitability this year in Q3, given that its net profit margin in Q1 2023 was -3%, a sequential improvement from the -14% it recorded in Q4 2022, indicating that OPEN is getting closer to profitability.
Risks
OPEN currently has almost $3 billion in debt, according to its Q1 2023 earnings, and has $1.1 billion in cash, which won’t be enough to tackle the debt. That said, only $355 million of the $3 billion debt will mature in 2023 and 2024. The real problem will start in 2025 when OPEN will have two term debts maturing in April and September valued at $400 million and $500 million respectively.
While OPEN can use its current cash to pay off the first debt maturing in 2025, it will not be enough to pay off the $500 million debt maturing in September, which means that OPEN needs to start generating cash to pay it off and other debt maturities in 2026 and 2027. If OPEN fails to generate enough cash throughout 2023 and 2024 to pay its debt, bankruptcy may be a strong possibility.
Another risk OPEN may face is if the Fed does not start rate cuts in 2024 which will keep mortgage rates at their current highs – delaying the recovery of the real estate market further. Nevertheless, it might be unlikely for this to happen since inflation is cooling down faster than the Fed’s expectations.
OPEN Financials
In its Q1 2023 report, OPEN’s assets decreased 23% QoQ from $6.6 billion to $5.1 billion, mainly due to its inventory decreasing by more than 50% QoQ from $4.4 billion to $2.1 billion. Meanwhile, its cash and cash equivalents slightly increased QoQ from $1.137 billion to $1.143 billion. OPEN’s total liabilities decreased by 27% QoQ from $5.5 billion to $4 billion due to a decline in current debt and OPEN buying back $186 million of its 0.25% senior notes, which means that OPEN’s current debt ratio is around 0.78. While it is above the recommended 0.6, OPEN’s debt maturity dates may enable it to navigate its liabilities in case it starts generating cash.
Revenue also decreased 40% YoY from $5.1 billion to $3.1 billion, which can be attributed to the low house sales in the US. Operating costs decreased almost 30% from $417 million to $294 million, which contributed to the operating loss increase of 205% YoY from $118 million in operating income to $124 million in operating loss due to the decline in gross margin YoY from 10% to 5%. All of this amounted to a net loss of $101 million – a 460% increase YoY.
Technical Analysis
OPEN stock’s trend is bullish with the stock trading in an upwards channel. Looking at the indicators, the stock is trading above the 200, 50, and 21 MAs which is a bullish indication. Meanwhile, the RSI is overbought at 80 and the MACD is approaching a bearish crossover.
As for the fundamentals, OPEN stock just witnessed a catalyst after core CPI cooled down and increased only 4.8% less than the expected 5%. Future catalysts for OPEN include its Q2 earnings on August 3, which are important to witness whether OPEN returns to profitability or not. Considering that the stock recently broke resistance, investors could wait for a confirmation of breaking the resistance with a retest of $4.58 ahead of the company’s Q2 earnings.
OPEN Forecast
With inflation declining at a faster rate than the Fed expected, the real estate market could see itself recovering faster, especially since treasury bond yields have declined, which could mean that mortgage rates could follow suit due to the strong correlation between the two. Furthermore, OPEN is increasing its reach by partnering with Realtor.com, Redfin, and Zillow, the top 3 real estate platforms in the US, and is currently expanding its trade-in program to increase supply in the housing market. All of that makes OPEN stock an exciting real estate stock to keep an eye on for a rebound in 2024.
OPEN Fundamentals
Macroeconomics
The housing market is yet to recover from the interest rate hike spree the Fed has been on since the start of 2022, but with the core CPI declining to 4.8%, more than the 5% the Fed was anticipating, it seems like the real estate market is nearing the end of the tunnel.
With inflation cooling faster than expected, the Fed may begin holding rate hikes sooner than expected, encouraging more Americans to buy houses and apply for mortgages. This has already begun with mortgage applications increasing by 0.9% in the week ended July 7. Furthermore, the 10-year treasury yield fell to 3.84% which has a strong correlation with mortgage rates since when treasury yield moves mortgage rates follow suit closely after which can help increase mortgage applications moving forward.
OPEN Increasing Its Efforts
Another factor contributing to the slow recovery of the real estate market is the lack of new housing supply, as there is a strong correlation between new building permits and home sales in the United States, with house sales following dips in building permits in 2020 and early 2023. The lack of new houses may put off existing homeowners from listing their homes for the lack of an alternative.
To try and mitigate that, OPEN has expanded its trade-in program and partnered with over 90 homebuilders to help homeowners sell their current homes and buy newly built homes which will increase the supply of houses in the market.
Furthermore, OPEN is currently partnered with the top 3 online real estate platforms by visitor traffic in the US which are Redfin (NASDAQ: RDFN), Zillow (NASDAQ: Z), and Realtor.com. These three sites saw more than 607 million visits combined in June which will help OPEN increase its reach exponentially.
According to its Q1 2023 earnings call, OPEN also expects to reach profitability this year in Q3, given that its net profit margin in Q1 2023 was -3%, a sequential improvement from the -14% it recorded in Q4 2022, indicating that OPEN is getting closer to profitability.
Risks
OPEN currently has almost $3 billion in debt, according to its Q1 2023 earnings, and has $1.1 billion in cash, which won’t be enough to tackle the debt. That said, only $355 million of the $3 billion debt will mature in 2023 and 2024. The real problem will start in 2025 when OPEN will have two term debts maturing in April and September valued at $400 million and $500 million respectively.
While OPEN can use its current cash to pay off the first debt maturing in 2025, it will not be enough to pay off the $500 million debt maturing in September, which means that OPEN needs to start generating cash to pay it off and other debt maturities in 2026 and 2027. If OPEN fails to generate enough cash throughout 2023 and 2024 to pay its debt, bankruptcy may be a strong possibility.
Another risk OPEN may face is if the Fed does not start rate cuts in 2024 which will keep mortgage rates at their current highs – delaying the recovery of the real estate market further. Nevertheless, it might be unlikely for this to happen since inflation is cooling down faster than the Fed’s expectations.
OPEN Financials
In its Q1 2023 report, OPEN’s assets decreased 23% QoQ from $6.6 billion to $5.1 billion, mainly due to its inventory decreasing by more than 50% QoQ from $4.4 billion to $2.1 billion. Meanwhile, its cash and cash equivalents slightly increased QoQ from $1.137 billion to $1.143 billion. OPEN’s total liabilities decreased by 27% QoQ from $5.5 billion to $4 billion due to a decline in current debt and OPEN buying back $186 million of its 0.25% senior notes, which means that OPEN’s current debt ratio is around 0.78. While it is above the recommended 0.6, OPEN’s debt maturity dates may enable it to navigate its liabilities in case it starts generating cash.
Revenue also decreased 40% YoY from $5.1 billion to $3.1 billion, which can be attributed to the low house sales in the US. Operating costs decreased almost 30% from $417 million to $294 million, which contributed to the operating loss increase of 205% YoY from $118 million in operating income to $124 million in operating loss due to the decline in gross margin YoY from 10% to 5%. All of this amounted to a net loss of $101 million – a 460% increase YoY.
Technical Analysis
OPEN stock’s trend is bullish with the stock trading in an upwards channel. Looking at the indicators, the stock is trading above the 200, 50, and 21 MAs which is a bullish indication. Meanwhile, the RSI is overbought at 80 and the MACD is approaching a bearish crossover.
As for the fundamentals, OPEN stock just witnessed a catalyst after core CPI cooled down and increased only 4.8% less than the expected 5%. Future catalysts for OPEN include its Q2 earnings on August 3, which are important to witness whether OPEN returns to profitability or not. Considering that the stock recently broke resistance, investors could wait for a confirmation of breaking the resistance with a retest of $4.58 ahead of the company’s Q2 earnings.
OPEN Forecast
With inflation declining at a faster rate than the Fed expected, the real estate market could see itself recovering faster, especially since treasury bond yields have declined, which could mean that mortgage rates could follow suit due to the strong correlation between the two. Furthermore, OPEN is increasing its reach by partnering with Realtor.com, Redfin, and Zillow, the top 3 real estate platforms in the US, and is currently expanding its trade-in program to increase supply in the housing market. All of that makes OPEN stock an exciting real estate stock to keep an eye on for a rebound in 2024.