Key Takeaways
- Opendoor’s stock surged 1,400% in three months, driven by media hype and management changes, including a new CEO.
- Despite its meteoric rise, Opendoor’s underlying business remains unprofitable and is projected to shrink due to market conditions.
- Upstart Holdings is positioned as a stronger investment, showing profitability and growth in the lending sector, notably in home loans.
Opendoor’s Stock Surge
Opendoor Technologies has seen a remarkable 1,400% increase in stock price over the past three months, climbing from just over $0.50 to more than $10 at its peak. The rally gained momentum when hedge-fund manager Eric Jackson compared Opendoor to Carvana, which saw a dramatic price surge after overcoming financial difficulties in 2022. Initial excitement turned Opendoor into a meme stock, significantly boosting trading volumes without substantial news.
The stock’s value continued to rise following the Federal Reserve’s indications of potential interest rate cuts and a management overhaul within the company. CEO Carrie Wheeler’s departure and the appointment of Shopify’s Kaz Nejatian as the new CEO led to an 80% price increase shortly after the announcement. Additionally, co-founders Keith Rabois and Eric Wu are returning to the board, with their ventures investing $40 million into the company. However, despite these developments, Opendoor has not demonstrated profitability, and analysts expect a decline in its business amid a weak housing market.
The Case for Upstart Holdings
In contrast, Upstart Holdings offers a more promising investment opportunity. As a loan originator leveraging AI technology for applicant screening, Upstart is differentiating itself from traditional lending practices. Although Upstart previously faced challenges, its recent strategy adjustments have led to a 102% revenue growth to $257 million in the second quarter, with a GAAP net income of $5.6 million. The company anticipates a total profit of $35 million for the full year.
While primarily focused on consumer loans, Upstart is expanding its presence in the auto and home loan markets. In the second quarter, home lending originations surged by nearly 800% year-over-year, highlighting its growth potential in this sector.
Investment Comparison
Both Upstart and Opendoor have similar market capitalizations, valued at $6.1 billion and $6.7 billion, respectively. Although both can benefit from lower interest rates, Upstart has demonstrated its capability to thrive in challenging economic conditions, positioning it for reliable profitability. In contrast, doubts remain about Opendoor’s home-flipping model’s sustainability, especially as competitors like Zillow Group and Redfin exited this space due to its inherent risks.
Overall, while Opendoor garners attention, Upstart appears to be the superior investment choice moving forward, particularly over the next three years.
The content above is a summary. For more details, see the source article.
