Insights

Why Opendoor Technologies Stock Is Soaring Today

What happened

Opendoor Technologies (NASDAQ: OPEN) reported quarterly results that fell short of expectations, but investors were more focused on the potential benefit of a new partnership, sending shares up as much as 25% on Friday. As of 12:36 p.m. ET, the stock had settled to a 21% gain.

So what

Opendoor reported a loss of $0.09 per share in the second quarter on revenue of $4.2 billion. The revenue was slightly ahead of the consensus estimate, but analysts had been expecting the iBuying housing company to post a profit.

The issue, as it has been for all housing stocks, was the Federal Reserve’s aggressive moves to curb inflation. The Fed’s actions led to a spike in mortgage rates that at least temporarily stunned the housing market, causing a drop in the number of transactions and lower levels of home-price appreciation.

In a post-earnings letter to investors, Opendoor CEO Eric Wu said the company is taking steps to adapt to current market conditions, including adjusting its pricing to account for shifts in the market and “prioritizing inventory health by reducing the price of our existing inventory in line with the market.”

The cautious tone was overshadowed by Opendoor’s announcement it has formed a partnership with Zillow (NASDAQ: Z) (NASDAQ: ZG) that will allow sellers on Zillow’s platform to seamlessly request a quote from Opendoor to quickly sell their home.

Now what

The Zillow/Opendoor partnership has been discussed since Zillow’s decision to retreat from the iBuying business, and on paper, it makes a lot of sense for both companies. Opendoor gets access to Zillow’s massive audience, while Zillow gets to keep a toehold in iBuying instead of abandoning it completely.

As Wu said, in this environment, the goal is surviving, not thriving. Opendoor is trying to take the steps needed to make sure when the housing market is healthy again, it is well positioned to make the most of the opportunity.

This is an investment based on the long-term potential, and not the current results. It is no wonder investors are brushing off what happened last quarter in favor of how Opendoor is setting itself up for the future.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Opendoor Technologies Inc., Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.

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