For nearly every day in August, the hedge fund manager and former PayPal mafia member Eric Jackson stood outside Canadian rapper Drake’s house in Toronto with a message: buy $OPEN.
Though Jackson hasn’t won Drake over yet, his “$OPEN army” of activist real estate investors have successfully boosted the stock of Opendoor Technologies — a real estate technology company — 1,500% in the past three months. It closed down at $8.38 on Monday.
$OPEN’s rise shows memestocks and online activist investors aren’t going anywhere — they’re becoming more coordinated and emboldened. GameStop’s 2021 frenzy took months to force a CEO change. Opendoor’s rally reshaped the C-suite in weeks.
In 2021, retail traders were armed with stimulus checks, (relatively new) commission-free trading apps, and pandemic boredom. Today’s rallies are narrower, influencer-driven, and speed-run with crypto-style hype. With hindsight, institutional investors can no longer dismiss memestocks as a passing fad.
“At the time, people thought everyone has stimulus checks as soon as that goes away, this whole Reddit Wall Street Bets crowd is also going to go away,” said Julia Sloniewsky, an analyst at Parsifal Capital Management who specializes in shorts. “That really wasn’t the case and those people are now active participants in the market.”
From the start of the summer, Jackson and others framed their efforts as a mission-driven crusade to change the company. They succeeded: ousting the CEO and implementing a new leadership team including Shopify’s former COO Kaz Nejatian as chief executive and Keith Rabois as chairman.
“We’re all capable of change, and now they have some of the smartest people in tech running the company,” said Eric Jackson. “I’d like to bet on that any day of the week.”
For Jackson and his fellow investors, the bet is on a company with shaky fundamentals. Opendoor Technologies is a house-flipping meets tech platform, where the company buys homes directly from owners, does repairs, and relists the property. The business was founded in 2014 and has never reported a profitable year on the bottom line and, until recently, traded below $1 and was nearly delisted from the stock market earlier this year.
Memestocks of companies that are household names have also surged this summer, but they resemble crypto-style pump and dumps rather than corporate shake-ups. Krispy Kreme ($DNUT) jumped 37 percent in July but is down 65 percent this year. Kohl’s ($KSS) jumped 40 percent and has continued climbing.
But Jackson insists Opendoor isn’t a joke or a meme, it’s an effort to change the real estate industry. “Cult stocks are where retail gets it right before others do — Palantir and Tesla would be examples of that,” he said, he considers $OPEN to be a cult stock. “Meme stocks are more like shooting stars. Krispy Kreme or GoPro? You couldn’t pay me to buy their shares.” Keith Rabois also seems eager to reject the memestock label.
But most analysts disagree. Bank of America, Goldman Sachs, and Citi all rate $OPEN a sell. JPMorgan’s Dae Lee is one of the few bulls. “Housing market challenges — high rates and affordability — persist,” he wrote. “But we continue to think OPEN is well positioned to benefit from the eventual housing market recovery.”
Others warn against the risks of memestocks overall. “If you could know exactly where the bottom and the top were, you would probably want to get involved in these,” said David Swartz, a senior analyst at Morningstar covering retail, including Kohl’s. “But realistically you can’t — it’s very risky. And eventually the company will get a more rational valuation based on its finances.”
Phillip Gilliver, who bought GameStop in 2021, doesn’t think the trend will be going away anytime soon. However, he cashed out during lockdown and has never looked back.
“It’s completely detached from the reality of the business,” said Giliver, speaking about the summer stock spikes of Kohl’s and Opendoor. “It’s not like the company is doing twice as well overnight.”
But as Giliver, Swartz, and Sloniewsky all noted, in the case of GameStop, activist retail investors actually can change the market fundamentals of the failing business over time — and did with Gamestop. And while the short squeeze alone didn’t solve all of the company’s problems, the high stock price did become a tool that business leaders could use to fund their turnaround.
On paper, a new era for Opendoor is the plan. The announcement of Nejatian and Rabois joining the C-Suite in September spiked the stock 80% in one day, a win for the $OPEN Army and the company that operated at a loss of $29 million in the second quarter and $392 million in last fiscal year.
Since that exciting day on the market, Rabois assured investors that Opendoor could turn a new leaf and cut costs by slashing it’s ‘bloated” workforce 85 percent. When considering other cuts, the chairman doesn’t need to worry about the CEO, who currently receives a $1 salary — the rest of which is tied to increasing the stock price of the company.
But if the hope for the future of Opendoor is to move beyond the memestock label, tying your CEO’s compensation to escalating stock targets rather than operational metrics is an interesting way to do it.
And for many retail investors, including Jackson, the night $OPEN hit $10 was less about fundamentals than the euphoria of catching the moment.
“For whatever reason,” said Jackson. “It sort of feels like winning the lottery.”