Why It's Time to Get Bullish on Opendoor Stock and Palihapitiya

Online homes marketplace Opendoor (OPEN) went public through a reverse merger with Chamath Palihapitiya’s SPAC (special purpose acquisition company) Social Capital Hedosophia Holdings Corp. II (IPOB). OPEN stock has come off its 52-week highs. What’s the forecast for the stock in 2021? Will it rise to new highs or fall more from these levels?

SPACs are giving traditional IPOs a tough fight. This year, the total money raised through these blank-check companies far exceeds the money raised through traditional IPOs. Palihapitiya has earned his reputation as the “king of SPACs” and plans to launch many more SPACs.

Opendoor stock is down over 20 percent from its 52-week highs. However, the stock is looking to reverse some of its losses and is up sharply in pre-market trading on Feb. 19. Hindenburg’s allegations against Palihapitiya and Clover Health triggered a sell-off in companies that he's associated with.

These include companies like Clover Health and Opendoor that have already merged with their targets. Social Capital Hedosophia Holdings Corp. IV (IPOD) and Social Capital Hedosophia Holdings Corp. VI (IPOF) also fell. Neither of these SPACs has found a merger target yet.

Since OPEN was only recently listed, not many analysts are currently covering the stock. Among the five analysts polled by MarketBeat, three recommend a buy, while two recommend a hold. The stock’s consensus target price of $48.33 is a premium of 55 percent over its closing prices on Feb. 18. KeyCorp has initiated coverage on OPEN stock with an overweight rating and a $42 target price.

Opendoor lets users buy and sell homes on its platform. The U.S. real estate market is worth $1.6 trillion annually and is very fragmented. Currently, less than 1 percent of real estate buying and selling happens online. However, as the pace of digitization increases, more people will get comfortable with the idea of buying and selling a home online.

According to the projections provided by Palihapitiya while announcing the merger, Opendoor generated revenues of $4.7 billion in 2019, which he expects to rise to $9.8 billion by 2023. While companies aren't permitted to provide forward projections in a traditional IPO, they can do so in a SPAC merger.

Based on the forecasts provided by Palihapitiya, Opendoor’s revenues are expected to increase 108 percent between 2018 to 2023 at a CAGR of almost 17 percent. Based on the current market capitalization of $18 billion, Opendoor is valued at 1.8x its 2023 revenues. Opendoor is expanding across the U.S., which would drive its revenues. Also, the company can diversify into value-added products that can help boost its profitability.

Opendoor looks like a good stock to buy and bet on the digital future of the real estate market. While people are comfortable buying goods online, the idea of buying and selling real estate online hasn't gained a major foothold. Being a high-value transaction, many people might not be comfortable buying and selling homes online yet.

Gradually, we could see more people turn to buying and selling homes online from the current broker-driven model. This would mean more sales for online real estate companies like Opendoor. The stock looks like a good buy now, especially since it has fallen sharply from its recent peak.