Why This Analyst Is Worried About Opendoor's iBuying Model In 2022

While Opendoor Technologies Inc OPEN had strong revenues and increasing potential to gain market share, the iBuying model is “inherently risky, low margin, and capital intensive,” according to BofA Securities.

The Opendoor Technologies Analyst: Curtis Nagle initiated coverage of Opendoor Technologies with an Underperform rating and a price target of $8.

The Opendoor Technologies Thesis: The company and other iBuyers use centralized models and algorithms to price and sell homes, which may fail to capture “all the idiosyncratic factors that determine a home’s value,”

“Given that gross margin is gated by the spread by which a home can be bought and sold (plus additional home services) and the model requires “expeditious” inventory turnover, we see little margin for error particularly in downturn,” the analyst wrote.

“OPEN inventory growth has significantly outpaced revenue growth in 2021” and the company’s “existing home turnover is expected to turn negative in 2022 after two strong years and home price is slowing,” he added.

OPEN Price Action: Shares of Opendoor Technologies had declined by 3.31% to $10.30 at the time of publication Wednesday.