The term ‘iBuyers’ refers to companies that make cash offers to sellers for their homes at a fair price determined algorithmically. It also helps the seller find and buy a new home seamlessly. ‘iBuying’ has been able to upstage the traditional practices involved in the real estate industry. The cost of ‘iBuying’ is significantly lower than conventional real estate transactions due to low agent commissions and reduced third-party involvements.
Despite the various advantages ‘iBuying’ offers, a black swan event could leave ‘iBuying’ companies stranded with a huge inventory of houses with no buyers. This was evident during the shutting down of Zillow Group, Inc.’s (Z) Zillow Offers division announced last November. The company was left stranded with a large inventory in a cooling housing market.
Amid the Fed’s hawkish tilt and rising mortgage rates, the housing market is expected to cool down in the coming months. Given this backdrop, we think it could be wise to avoid ‘iBuying’ stocks Opendoor Technologies Inc. (OPEN) and Offerpad Solutions Inc. (OPAD).
Opendoor Technologies Inc. (OPEN)
San Francisco-based OPEN operates a digital platform that enables consumers to buy and sell homes online. The company’s services include Buy with Opendoor, List with Opendoor, Opendoor Home Loans, and title and escrow.
OPEN’s cost of revenue increased 581.5% year-over-year to $2.06 billion. The company’s total operating expenses increased 235.7% year-over-year to $270.89 million. Also, its loss from operations widened 52.4% year-over-year to $68.40 million.
Analysts expect OPEN’s EPS to remain negative this year and next year. Over the past year, the stock has declined 65.6% in price to close the last trading session at $10.71.
OPEN’s weak prospects are apparent in its POWR ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
OPEN has an F grade for Stability and Quality and a D grade for Value and Sentiment. It is ranked #43 out of 44 stocks in the Real Estate Services industry. Click here to see the other ratings of OPEN for Growth and Momentum.
Offerpad Solutions Inc. (OPAD)
OPAD in Chandler, Ariz., is a real estate solutions provider that engages in buying, selling, renting, and renovating properties for homeowners. The company offers data-driven iBuying and real estate solutions for the customer. It also offers ancillary services, including title and escrow services and mortgage solutions. OPAD intends to provide additional value-added services, including in-house mortgage solutions.
For its fiscal third quarter, ended Sept.30, 2021, OPAD’s cost of revenue increased 192.4% year-over-year to $487.16 million. The company’s operating expenses increased 129% year-over-year to $49.66 million. Also, its net loss widened 419.8% year-over-year to $15.30 million.
Analysts expect OPAD’s EPS to remain negative until at least next year. Over the past year, the stock declined 66.1% in price to close the last trading session at $4.05.
It is no surprise that OPAD has an overall D rating, which equates to Sell in our POWR Rating system.
It has an F grade for Quality. Within the Real Estate Services industry, it is ranked #38. To see the additional ratings of OPAD for Growth, Value, Momentum, Stability, and Sentiment, click here.
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OPEN shares were trading at $10.72 per share on Tuesday morning, up $0.01 (+0.09%). Year-to-date, OPEN has declined -26.63%, versus a -9.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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