Can Artificial Intelligence (AI) Actually Save Opendoor’s Struggling Business Model?
AI-driven disruption hits real estate—Opendoor bets the farm on algorithmic revival.
Machine Learning Overhaul
Forget human intuition. Opendoor's new AI platform crunches market data at lightspeed—predicting pricing shifts before traditional analysts finish their morning coffee. The system automates valuations, streamlines transactions, and supposedly eliminates emotional decision-making from home sales.
Wall Street's Skeptical Glance
Because nothing says 'stable investment' like a company pinning its turnaround on the same technology that can't decide if a hotdog is a sandwich. The algorithms better work—Opendoor's bleeding cash like a fintech startup at a regulatory convention.
Bottom line: If AI can't fix this, maybe they should try accepting cryptocurrency payments instead.
Image source: Getty Images.
Can AI fix the company's biggest struggles?
Opendoor's new president and interim leader, Shrisha Radhakrishna, who took over last month after Carrie Wheeler stepped down, is eyeing AI as a way to improve the company's operations. Radhakrishna sees many ways that AI can be a key part of the company's future growth, helping the business with marketing, pricing, and in-home assessments.
Turning to AI can be a way to improve efficiency, but it'll take time and money to do so. And even then, it's questionable how much generative AI can do for Opendoor's business. Consider that the company's gross margin is typically in just single digits. The iBuying business involves flipping houses and if there's not enough of a spread there to make enough of a margin, it's going to be incredibly difficult for the business to cover its other operating expenses and stay out of the red.
AI may help with pricing, but unless it results in significant margin expansion, it may not necessarily lead to a big payoff for the business and its shareholders.
Many AI projects are falling short of expectations
Excitement around AI has captivated investors, but that doesn't mean that simply throwing money at AI is going to solve problems. In fact, it may create new ones as Opendoor spends excessively without having much to show for it.
According to a recent report from the Massachusetts Institute of Technology, a staggering 95% of companies haven't been generating any meaningful revenue or payoff from their investments into AI. While the hyperscalers and big tech companies with massive budgets have undoubtedly grown their businesses due to AI, the study underscores the importance of keeping expectations in check.
As tempting as it may be to assume that AI will improve a company's operations, that's by no means a sure thing. And that can be particularly concerning for a business such as Opendoor, which has routinely posted losses and which already has more than $2 billion in debt on its books. Last quarter (which ended June 30), its interest expense totaled $36 million -- nearly 3 times the size of its operating loss of $13 million.
Investing into AI likely won't make Opendoor a better stock
Opendoor's business needs a lot of work before it can have a realistic path to profitability and be a good investment option. There's a TON of risk for investors to take on and although the stock has surged more than 300% this year (as of Monday), that doesn't mean the rally is sustainable or that it will continue.
The volatility that comes with Opendoor's stock makes it an unsuitable option for the vast majority of investors to consider for their portfolios. With challenging market conditions, poor financials, and many question marks surrounding the long-term viability of Opendoor's business, this is a stock I'd steer clear of for the foreseeable future. At the very least, you may want to wait until the company actually shows some tangible improvement and payoff from its efforts and AI investments. Otherwise, you could be taking on significant risk. This is a stock that could have a long way to fall given its sharp rally this year and the volatility that comes with it.
