Although Opendoor Technologies Inc (OPEN  ) reported its second-quarter results below expectations, the company's fundamentals are improving with "strong momentum" towards its adjusted net income (ANI) milestone, according to JPMorgan.

The Opendoor Technologies Analyst: Analyst Dae K Lee reiterated an Overweight rating and price target of $8.

The Opendoor Technologies Thesis: The company's revenue grew 23% sequentially to $883 million, with contribution profit up 59% to $51 million and the highest contribution margin in two years, of 5.8%, Lee said in the note.

ANI came in at -$30 million, with momentum building toward management's target by year-end, the analyst stated. "At current volumes, margins & cost base, OPEN could reach ANI profitability on a 12-month go-forward basis into next year, no macro recovery required," he further wrote.

Lee expects Opendoor Technologies to reach ANI of around $1 million in 2027, with upside from "mortgage attach, faster turns, & AI-driven cost leverage scale."

He noted several positive signals:

  • Contracts are running more than 500 per week "in the weakest housing market in a generation & the worst season"
  • True-seller conversion rose sharply at the same spread levels
  • Aged inventory, of over 120 days, is down to 9% from 51% three years ago
  • Significant AI-driven operating leverage
"Notably, mgmt expects to compress the historical 2Q-to-3Q seasonal contribution margin drop to well below trend, guiding 3Q CM to ~4%-4.5% with contribution profit dollars to more than double Y/Y," with further improvement expected in the fourth quarter, the analyst wrote.

OPEN Price Action: Shares of Opendoor Technologies rose 0.5% to $3.50 at the time of publication on Monday.