What Happened:

Shares of technology real estate company Opendoor (NASDAQ:OPEN) fell 8.1% in the morning session after the company provided worrisome updates about its business and the real estate market during a recent bank conference. CEO Carrie Wheeler highlighted that the clearance rate of homes (the rate at which homes go into contract) has slowed by 30% compared to the previous year. This slower transaction rate indicates fewer sales being completed, which could negatively impact Opendoor's revenue and growth prospects in the near term.

In addition, Opendoor observed an increase in the number of homes being delisted, with 1 in 4 or 1 in 5 sellers removing their listings from the market (the highest rate of delistings observed in a decade). This shows that sellers are struggling to find buyers. In response to the slower demand, Opendoor widened its pricing spreads to be more conservative.

While interest rate cuts should be a tailwind to the business, this development is not yet a sure thing. What is certain is the weakness that management spoke of at the conference.

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What is the market telling us:

Opendoor’s shares are very volatile and over the last year have had 82 moves greater than 5%. In context of that, today’s move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 4 months ago, when the stock gained 25.2% on the news that the company reported first-quarter results that beat analysts' revenue and adjusted EBITDA expectations, with the latter beating by a convincing amount. The top line benefited from strong acquisition volumes as Opendoor acquired 3,458 homes in Q1 (up 98% versus Q1'2023). The momentum is expected to extend to Q2, given seasonality tailwinds, which should result in home purchases of over 4,500 homes.

While its revenue guidance for the next quarter was underwhelming, adjusted EBITDA guidance for the period was well above. Overall, we think this was a really good quarter that should please shareholders.

Opendoor is down 57.2% since the beginning of the year, and at $1.83 per share it is trading 61.3% below its 52-week high of $4.72 from December 2023. Investors who bought $1,000 worth of Opendoor’s shares at the IPO in June 2020 would now be looking at an investment worth $169.38.

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