Stock Story -
Technology real estate company Opendoor (NASDAQ:OPEN) reported Q2 CY2024 results topping analysts' expectations, with revenue down 23.5% year on year to $1.51 billion. On the other hand, next quarter's revenue guidance of $1.25 billion was less impressive, coming in 21.4% below analysts' estimates. It made a GAAP loss of $0.13 per share, down from its profit of $0.03 per share in the same quarter last year.
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Opendoor (OPEN) Q2 CY2024 Highlights:
- Revenue: $1.51 billion vs analyst estimates of $1.47 billion (2.9% beat)
- EPS: -$0.13 vs analyst estimates of -$0.15 (12.8% beat)
- Revenue Guidance for Q3 CY2024 is $1.25 billion at the midpoint, below analyst estimates of $1.59 billion
- Gross Margin (GAAP): 8.5%, up from 7.5% in the same quarter last year
- Free Cash Flow was -$407 million compared to -$186 million in the previous quarter
- Homes Sold: 4,078, down 1,305 year on year
- Market Capitalization: $1.60 billion
Founded by real estate guru Eric Wu, Opendoor (NASDAQ:OPEN) offers a technology-driven, convenient, and streamlined process to buy and sell homes.
Real Estate ServicesTechnology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, Opendoor grew its sales at a weak 7.1% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Opendoor's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 45.8% annually.
We can dig further into the company's revenue dynamics by analyzing its number of homes sold, which reached 4,078 in the latest quarter. Over the last two years, Opendoor's homes sold averaged 36% year-on-year declines. Because this number is higher than its revenue growth during the same period, we can see the company's monetization has fallen.
This quarter, Opendoor's revenue fell 23.5% year on year to $1.51 billion but beat Wall Street's estimates by 2.9%. The company is guiding for revenue to rise 27.6% year on year to $1.25 billion next quarter, improving from the 70.8% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 54.5% over the next 12 months, an acceleration from this quarter.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Opendoor has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company's free cash flow margin averaged 17.5% over the last two years, quite impressive for a consumer discretionary business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.
Opendoor burned through $407 million of cash in Q2, equivalent to a negative 26.9% margin. The company's quarterly cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren't a big deal because investment needs can be seasonal, but we'll be watching to see if the trend extrapolates into future quarters.
Over the next year, analysts predict Opendoor will continue burning cash, albeit to a lesser extent. Their consensus estimates imply its free cash flow margin of negative 30.2% for the last 12 months will increase to negative 4.9%.
Key Takeaways from Opendoor's Q2 Results We were glad Opendoor beat analysts' revenue and EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed, and management noted it was seeing "additional slowing in the housing market". Overall, this was a mediocre quarter for Opendoor. The stock traded down 7.9% to $1.96 immediately following the results.
