Yes, thanks BofA. Does anyone else think BofA is short OPEN and touting their own book? Consensus estimate is over 3X the BofA analyst estimate. Also the Barron's writer in the article below referred to OPEN's business model as "house-flipping". I let them know what I thought of the characterization. If anyone else would like to comment, you can do it here, (may require a subscription).
Opendoor Stock Tumbles. The ‘iBuying Model Is Risky.’
Opendoor Technologies was falling on Wednesday after BofA Securities took a bearish view on the real estate platform despite growing revenue. It’s the iBuying model the analysts don’t like.
BofA analyst Curtis Nagle initiated coverage on shares of Opendoor (ticker: OPEN) at Underperform with an $8 price target. The stock fell about 3% to $10.34 on Wednesday.
iBuying — the buying and selling of homes online — is seen by Nagle as an “inherently risky and largely untested business model that carries low to negative margins and requires high debt to finance transactions,” he wrote in a research note.
Moreover, the digital platform’s inventory growth significantly has outpaced revenue growth in 2021, meaning that Opendoor has purchased more houses using large amounts of debt and sold less. The ratio of purchased to sold homes rose to nearly 3-to-1 in the third quarter even as the housing market started slowing down in late 2021.
Home prices have been falling and existing home turnover is expected to turn negative in 2022 after two strong years, said Nagle, adding to the list of factors overshadowing the company’s growing revenue and a high potential for shares gains.
Opendoor shares have declined more than 50% since rival Zillow’s (Z) exit from iBuying, signaling markets’ hesitancy in betting on the home-flipping business. That said, the exit late last year from Zillow does remove competition for Opendoor, challenging the negative outlook for the stock, Nagle said.
BofA estimates Opendoor will report a loss of 81 cents a share in 2022, wider than the loss of 45 cents expected by analysts polled by Bloomberg. BofA projects $12.19 billion in sales at Opendoor for 2022 vs. $7.42 billion in 2021.
Opendoor is rated at Overweight by analysts tracked by FactSet with an average target price of $25.57.
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