Opendoor Technologies ( OPEN -3.19%) has made a significant impact on the market over the past quarter. This online real estate company gained popularity as a meme stock in July, after hedge fund manager Eric Jackson suggested online that the stock, then trading near $0.50 per share, could follow in the footsteps of Carvana—the online used car retailer that skyrocketed over 100-fold after nearly collapsing in 2022.
Interest in Opendoor surged as individual investors flocked to the stock, and the buzz appeared to contribute to a shake-up in company leadership. In August, CEO Carrie Wheeler resigned, and earlier this month, Shopify COO Kaz Nejatian was appointed as the new CEO. Co-founders Eric Wu and Keith Rabois returned to the board, with Rabois taking on the role of chairman.
At its highest point, Opendoor shares had soared over 2,000%, though they have since retreated somewhat from those highs.
Now, Jackson has identified another stock he believes could deliver similar returns: Better Home & Finance ( BETR -5.27%).
What is Better Home & Finance?
Better, as it is commonly called, is a digital-first homeownership platform offering a range of services such as mortgages, insurance, and other real estate solutions to support buyers throughout the home purchasing journey.
The company interacts with clients through its AI-powered platform, Tinman, which enables users to view available mortgage rates and receive pre-approval in as little as three minutes.
Much like Opendoor, Better aims to transform the vast housing sector with its digital approach, achieving notable growth even as the housing market remains sluggish.
In the second quarter, funded loan volume increased by 25% to $1.2 billion, and total revenue climbed 37% to $44.1 million, indicating that the company is still relatively small. However, it remains unprofitable, posting a $36.3 million loss for the quarter.
Similar to Upstart, Better generates revenue by originating mortgages and selling them to investors. This business model also positions the company to potentially benefit if interest rates decline.
Founded in 2014, Better became a public company through a special purpose acquisition company (SPAC) merger.
Image source: Getty Images.
Could Better be the next Opendoor?
Currently, the parallels between Better and Opendoor appear weak, but the attention Jackson has brought has helped turn Better into another meme stock, with its price doubling over two days after he began discussing it on X. Jackson has even claimed that Better could potentially increase 350-fold within two years.
The case for both companies is not particularly strong at this stage. Opendoor has yet to post a profit, even during the real estate boom of the pandemic. Its business model remains untested, depending on the ability to sell homes for more than their purchase price and to earn service fees.
With home prices already elevated, lower interest rates may not produce the price increases that Opendoor investors are hoping for.
As for Better, the company has yet to achieve substantial scale, with projected annual revenue still under $200 million.
What should investors do?
At this time, both stocks appear to be driven mainly by meme stock momentum, so investors should be prepared for significant price swings.
Although the leadership changes at Opendoor might seem encouraging, the company’s underlying business remains fragile. Meme stocks can be volatile, dropping as quickly as they rise, and buying into a stock that has already surged can carry more risk than reward.
