Opendoor Technologies Inc (OPEN)

[santafe2]

It is, I think, more difficult to value OPEN than AMZN. Typically we would look at a young, fast growing tech company and use price to sales to help indicate future value. If we use the $1B Q2 sales estimates for OPEN we can assume $4B in sales for 2021 without any further growth this year. That gives us a market cap to sales ratio of 1.75:1 and a 1:1 MC/sales ratio in 2022. That's incredibly low.

To put this in some perspective, the MC to sales ratio for TSLA is 12:1 and that's after falling from 20:1 over the last few months. AMZN is a much more mature and slower growing company valued at 3.3:1. Also, TSLA is being valued as a pure software play, not as a car company but that's not a debate for this board.

OPEN is being valued as a real estate company with low margins but it may be more like a TSLA, a software company that buys and sells houses in a much more efficient manner while also participating in all of the other cash flows involved in real estate. Since no one has done this before, OPEN must prove that this is a viable and proprietary model.

The huge drop in sales during COVID has spooked the market and OPEN has not yet proved to the market that they're a software company. If they do, and clearly I think they will, we should value OPEN at between 3-10X MC:sales. It may take two-three years before that happens but if they execute, it will be well worth the wait.