Why Opendoor Technologies Stock Slipped 12.5% In October

Shares of Opendoor Technologies (OPEN -7.29%) slipped 12.5% in October, according to data from S&P Global Market Intelligence. The online home-buying platform trades in line with mortgage rates on residential real estate loans, which rose in October back to 7%. After going public with much fanfare in 2020, Opendoor’s stock has tanked because of its declining revenue and lack of profitability.

Here’s why Opendoor’s stock sank once again in October.

Trending with mortgage rates

Opendoor’s business proposition is to buy a home from people looking to sell and then put the home back on the market to sell to a willing buyer. It wants to take out all the hassle of buying an existing home, which can be a slog using the traditional process. The company needs homeowners looking to sell homes to make this business model work, though.

This has been a problem in the past few years. When mortgage rates started to rise along with the Federal Reserve’s interes- rate increases, home-selling activity for existing homes on the market froze up. Nobody wanted to give up a cheap 3% fixed-rate mortgage. Well, that affected Opendoor’s ability to buy homes, which is essentially its entire business model. Revenue for the company went from a peak of $15 billion to $4.5 billion over the past 12 months.

As mortgage rates moved higher in October back to 7%, investors are probably betting that Opendoor will feel more pain as the housing market stays frozen.

Watch for improving profitability

If Opendoor’s revenue growth is ugly, its profitability is just as bad. It posted a net income of negative-$92 million last quarter, and negative-$398 million over the past 12 months. The company needs scale to succeed, and that hasn’t happened over the past few years. Its numbers are moving in the wrong direction.

Watch for any improvements to these figures when the company reports earnings on Nov. 7. The company is burning through its cash pile, which recently fell below $1 billion. Within a few years, it will run out of money at its current burn rate. If profitability doesn’t improve soon, Opendoor’s stock is going to head even lower in the years to come.

No wonder investors keep selling Opendoor stock. This is a business facing a huge sector headwind with a terrible income statement. There’s not much to like about Opendoor stock.