Wall Street is amped about OpenDoor Technologies (OPEN), a San Francisco-based digital house-flipping company that just decapitated its board and executive team. The company’s stock soared 75% after announcing that it had hired Kaz Nejatian, the former COO of Shopify (SHOP), as its new CEO. Christy Shwartz also replaced outgoing CFO Selim Freiha, completing the C-suite shakeup.
In the wake of those moves, hedge funds began piling in. Jane Street Capital disclosed a 5.9% passive stake in Opendoor, sending shares up 8.7% on Thursday, September 25. The proprietary trading firm, which accounted for roughly 10% of all North American equity trades in 2023, is now being interpreted by retail investors as offering a vote of confidence in the company’s future.
Still, Opendoor’s fundamentals tell a different story. The company’s current earnings stand at -305 million USD, and analysts expect revenue to decrease by 2.9% annually over the next three years. Opendoor’s forecast of reaching $239.7 million in profit by 2028 would require an improbable swing from a –12.4x PE ratio to 5.1x.
The numbers don’t add up, meaning these hedge funds must be betting on something other than fundamentals. Maybe, they’re hoping it becomes the next GameStop.
Opendoor’s Cult Stock Surge: The Next GameStop?
The company has a powerful advocate in Eric Jackson, founder of Toronto-based hedge fund EMJ Capital, and the man most responsible for Opendoor’s viral rise. Jackson, who holds a PhD from Columbia, has become the ultimate cheerleader for Opendoor.
Bloomberg recently ridiculed Jackson: “Hedge-Fund Guy lurks around Drake’s house trying to pump a stock,” a headline for the ages.
Jackson planted himself by Drake’s mansion, standing around and creating content, apparently against the protests of family and friends, in a hamfisted effort to coax the Grammy award-winner to invest in Opendoor.
When asked by Bloomberg radio how a hedge fund manager with a PhD from Columbia finds himself with a whiteboard outside of Drake’s house asking him to buy Opendoor stock, Jackson replied dryly, “ain’t too proud to beg.” Jackson then openly admitted that the idea came to him from his 16-year-old son, whom he jokingly referred to as his free marketing manager.
That doesn’t seem to have worked for its stated purpose, but it did change the conversation. There is no way to hide that Opendoor Technologies’ current earnings are -305.0 million USD.
Just don’t call OPEN a meme stock. Jackson prefers the term “cult stock,” citing Palantir and Tesla as former cult stocks that have since graduated from the classification because they’re just too big.
The stock price has risen 1,600%, despite the fact that the company has reported annual losses every year of its existence.
How Opendoor’s Stock Soared 1,600% Without Profits
Just how does a Nasdaq stock go from a June low of $.51 to over $8 a share without presenting investors with huge changes to its financials? Clearly, social media has reared its ugly head.
OPEN found its way onto Nasdaq in 2020 via a SPAC merger with a blank-check company led by venture capitalist Chamath Palihapitiya. Since then, its value has fluctuated heavily while the company has consistently lost money.
Nevertheless, Jackson maintains a $82 price forecast for Opendoor, which represents roughly an 800% increase from where the stock is currently priced. But he’s not alone. The “Open Army,” a loose worldwide collective of retail investors, are actively pumping the stock.
Lately, they’ve had reason to celebrate.
In September, two of the company’s founders, Keith Rabois and Eric Wu, were re-appointed to the board. Concurrent with this news, Kaz Nejatian, most recently the COO of Shopify, was named the new CEO. The news sent the stock 80% higher. Additionally, Jane Street Capital has disclosed a 5.9% passive stake in Opendoor.
Wall Street vs. Opendoor: Skeptics Doubt Fintech Turnaround
However, Wall Street mainstays are mostly unimpressed with Opendoor’s financials or prospects for a turnaround in the current housing market.
On October 3rd, the Wall Street Journal published an article laying bare the consistently poor numbers of Opendoor. The WSJ’s main contention is that Opendoor’s business model is not scalable, and thus revenue is unlikely to rise faster than costs. The smart money agrees, analysts from Goldman Sachs, Bank of America, and UBS have set forecasts in the $1 range.
Responding to the Journal’s article, new CEO Kaz Nejatian posted on X that the WSJ article would be framed and on the wall Monday morning at Opendoors’s headquarters.
Whether Nejatian’s swagger translates to a healthier balance sheet remains to be seen. In the meantime, he has spoken of integrating AI into Opendoor. While anything remotely related to AI seems to be buzzworthy these days, the actual benefits of an AI pivot are murky.
What is clear is the fact that Kaz Nejatian is a far more active communicator than his predecessor, outgoing CEO Carrie Wheeler. Facing increasing pressure from activist investors, Wheeler resigned from her post in August. She had been heavily criticized for a lack of engagement with media and stockholders.
Nejatian, on the other hand, seems to know how to work a crowd. Given that he now has a standing retail army ready to proselytize Opendoor’s turnaround story, it should be interesting.
Opendoor’s Meme Stock Future: Hype or Value Play?
In a few short months, Opendoor went from toying with a reverse-split to avoid getting delisted from Nasdaq to becoming a bona fide meme stock. While Eric Jackson talks of Opendoor’s underlying fundamentals, he also stood for days outside a rapper’s house to get attention, which doesn’t exactly scream seriousness.
The question is how long the OPEN stock price and the company Opendoor Technologies exist on separate planes. While there’s been plenty of noise the last few months, nothing materially has changed besides a personnel change in the C-suite.
However, does that matter with a meme stock, or cult stock, or underappreciated value play? The short interest stood at 27% on September 15th, a far cry from the extreme numbers that preempted the GameStop short squeeze.
Then again, the Open Army is said to be worldwide. And there are plenty of other rappers for Eric Jackson to visit. That is, unless his son has any better ideas.
Author: Tim Tolka, Senior Reporter
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
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