After a surge driven by retail investors (which cooled down this Tuesday), this Technology-driven Property/A-REIT Trade platform is seen as a symbol of the new wave of Meme stock frenzy.
In 2020, listed with the support of "the King" Chamath Palihapitiya.SPACIt was once.$Opendoor Technologies (OPEN.US)$Special Purpose Acquisition Company.(SPAC) is a typical representative of the bubble. Now, after the retail-driven surge (which cooled down this Tuesday), this technology-driven property trading platform is seen as a symbol of the new wave of Meme stocks frenzy.
It is important to clarify that there has not been a significant bullish change in Opendoor's core business (i.e., the 'instant buying' iBuying model) in the real estate market. Current mortgage rates and housing prices remain high, and both buyers and sellers are stuck in a wait-and-see situation under ongoing affordability challenges.
Not long ago, the company's stock price was below $1 for a long time, facing delisting risks.
However, since touching a low of 51 cents on June 25, despite the sluggish housing market, the power of retail investors gathered on social media has driven the stock price up by over 460%. On Tuesday, the stock rose as much as 24% during the day, ultimately closing at $2.88, down more than 10% from the previous day.
Market observers are surprised by this sudden surge, as many of its characteristics are similar to the surges seen with GameStop (GME.US) and AMC (AMC.US) in 2021. Earlier this month, Eric Jackson, founder of Toronto hedge fund EMJ Capital, began promoting the stock online, becoming one of the catalysts for this market trend.
Analysis of the business model.
As of the end of March, Opendoor held over 7,000 Residences, with an inventory value of approximately 2.4 billion USD. By the end of last year, its Business covered 50 markets, including hot areas in the Sun Belt like Phoenix and Atlanta.
When the company was founded in 2014, it targeted a core pain point in the U.S. Property market: most homebuyers need to sell their existing Property before they can buy a new one, creating a chain trading dilemma. Its solution was to provide quick Cash Quotes through algorithms to help sellers break free from the trading chain. After simple repairs, the company would list the houses for sale, profiting by charging service fees and making profits from the buying and selling price difference.
During the pandemic in 2020, low interest rates and soaring home prices drove its stock price to a historic closing high of $35.88 in February 2021. This wave of profits attracted established players like Zillow (Z.US) and Redfin to follow suit, while peers Offerpad Solutions Inc. (OPAD.US) also went public through a SPAC merger.
However, industry risks soon became apparent. At the end of 2021, Zillow was forced to stop losses due to misjudging the speed of home price increases, resulting in high-priced acquisitions of properties, ultimately shutting down its iBuying business. This painful lesson foreshadowed the difficulties faced by the entire Technology-driven speculative real estate sector.
With the Federal Reserve raising interest rates in 2022, falling home prices forced iBuyers to sell off properties at a loss. Reports at that time indicated that 42% of Opendoor's trades in August were at a loss. Subsequently, the company adopted a more conservative quote strategy, leading to a sharp decline in acquisition volume and revenue - in the first quarter of this year, only about 3,600 homes were purchased, a significant decrease from the peak of 15,000 units in Q3 2021.
Recent Trading Dynamics
With the S&P 500 Index reaching a new high, Meme stocks have seen renewed activity recently. $Kohl's Corp (KSS.US)$On Tuesday, under the influence of retail investors, stock prices doubled. $QuantumScape (QS.US)$In the past month, they have risen over 200%. $BIT Mining (BTCM.US)$An increase of 82% during the same period.
Opendoor also benefited from this wave of enthusiasm, with a surge in Volume leading to a spike in its stock price. On Tuesday, approximately 1 billion shares were traded, reaching over 780% of the three-month average, far exceeding NVIDIA's (NVDA.US) Volume of 0.184 billion shares on that day.
Historical experience shows that $GameStop (GME.US)$Meme stocks like these once financed through an "At-The-Market" (ATM) stock issuance plan during a retail investor frenzy. Regulatory filings show Opendoor can issue up to $0.2 billion in stocks through the ATM. The company's representatives did not respond to requests for comments.
Regarding the market outlook, some observers question whether traders truly understand the company or are driven by 'fear of missing out' (FOMO). Franklin Templeton Investment Solutions Deputy Chief Investment Officer Max Gokhm noted that 'investing in Meme stocks is more like a herd behavior following social media opinion leaders, essentially akin to buying roller coaster lottery tickets.'
Editor/melody