Meme Stock Favorite Opendoor Is Surging Once Again. Look Out Below?

A Meme Stock Rollercoaster

Opendoor Technologies (NASDAQ:OPEN) is surging 25% in morning trading today, reigniting excitement among retail investors who have crowned it a meme stock darling. Fueled by social media hype on platforms like Reddit’s WallStreetBets and X, Opendoor’s stock has seen wild swings, with a 188% weekly gain last week followed by a sharp 42% drop from its peak just days ago. 

This volatility, driven by speculative trading rather than fundamentals, echoes the 2021 meme stock frenzy of GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). Today’s spike seems tied to Opendoor’s newly announced Cash Plus program, which promises sellers immediate cash and potential additional proceeds. 

However, this offering, while innovative, raises red flags in a rapidly cooling housing market. Investors’ exuberance may be misplaced, as Opendoor’s risky business model and market headwinds suggest trouble ahead, making this surge a precarious moment for the stock.

Opendoor’s New Twist on iBuying

Opendoor’s Cash Plus program, launched today, aims to blend the speed and certainty of its flagship Cash Offer with the potential for higher returns through traditional market listings. Sellers receive a significant portion of their home’s equity upfront, typically within 14 days, bypassing the hassles of showings, repairs, and negotiations. Opendoor then renovates the home to make it ready for listing and partners with local agents to sell it on the open market. If the home sells for a higher price, sellers may receive additional proceeds after fees and expenses.

The program, initially rolled out in Dallas, Nashville, and Raleigh, leverages Opendoor’s AI-driven valuation tools and repair capabilities, aiming to offer flexibility and maximize sale prices. According to Opendoor’s CEO, Carrie Wheeler, Cash Plus reflects the company’s mission to “reinvent real estate” by providing choice and certainty.

Troubling Signs in a Slowing Housing Market

While Cash Plus sounds appealing, it amplifies Opendoor’s risks in a housing market showing clear signs of distress. The National Association of Realtors reported that existing home sales fell 2.7% year-over-year in June — it lowest point in 30 years — dropping to an annualized rate of 3.93 million units. 

Median home prices are still rising with the median hitting a record $441,500  in June, even as inventory rose 15.9% year-over-year, signaling weaker demand. Unsold inventory is also piling up, rising to a 4.7-month supply in June from 4.6 months in May and just 4 months a year ago. 

High mortgage rates, hovering near 7%, and increased delistings — sellers pulling homes off the market — further complicate Opendoor’s ability to flip homes profitably. 

Cash Plus requires Opendoor to make upfront cash payments and cover renovation costs. In a sluggish market, however, homes may sit unsold for longer periods, eroding the company’s margins. Opendoor’s first-quarter earnings showed a $85 million loss and a 4.7% contribution margin, underscoring its thin profitability. 

If homes fail to sell quickly or at expected prices, Opendoor could face significant losses, especially given its total debt of approximately $2.5 billion.

Key Takeaway

The recent surge in Opendoor’s stock price as a meme stock masks deeper vulnerabilities. The Cash Plus program, while innovative, ties the company to a high-risk strategy of fronting cash in a market where home sales are slowing and inventory is piling up. 

Opendoor’s history of unprofitability, heavy debt, and reliance on a low-margin iBuying model amplifies these concerns. Even with improved EBITDA and cost reductions, the company’s exposure to housing market volatility and its speculative stock price — detached from fundamentals — make it a precarious investment. 

Investors chasing the meme stock wave may find themselves underwater if market conditions worsen or if Opendoor fails to execute its ambitious new program. Caution, not exhilaration, should guide investment decisions in this volatile stock.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.