Written by: Aditya Raghunath
Shares of online automotive retailer Vroom (NASDAQ: VRM) went public on June 9, 2020 at a price of $22 per share. The company issued 21.25 million shares and raised $467 million from investors. Vroom stock is currently trading at $44.04 which is 100% higher than its IPO price, easily outperforming the NASDAQ and S&P 500 gains in the last month.
The stock in fact touched a record high of $60.91 in intra-day trading on June 25, 2020. The company is currently valued at a market cap of $5.08 billion.
Vroom is an end-to-end e-commerce platform and aims to offer a convenient way to buy and sell used vehicles. It is banking on technology expertise that is scalable and data-driven to gain traction among buyers and sellers. Vroom claims its platform offers an extensive selection of vehicles coupled with features such as transparent pricing, competitive financing and contact-free pick-up and delivery.
A look at the company’s key metrics
Similar to most other companies that list on the equity markets, Vroom has raised capital to support its expansion. The number of vehicles available for sale on its platform in the first quarter of 2020 rose to 5,107, up from 2,963 in the prior-year period. Its average monthly visitors also increased from 441,489 in the first quarter of 2019 to 947,014 in the first quarter of 2020.
The number of units sold on the Vroom platform has risen from 998 in January 2019 to 2,880 in April 2020, indicating a compound average growth rate of 121%. In the first four months of 2020 it sold 9,910 units, up from 4,361 units in the first four months of 2019, up 127% year-over-year.
Vroom is banking on disrupting a fragmented market valued at $841 billion
Vroom has estimated the total addressable used vehicle market in the U.S. at $841 billion, higher than the new auto vehicle market that is estimated at $636 billion. It claims over 40 million units were sold in 2019.
Further, the used vehicle market is highly fragmented with over 42,000 dealers and millions of peer-to-peer transactions. Vroom is optimistic about creating massive disruption at scale in an industry that is infamous for customer dissatisfaction and one with low ecommerce penetration that stands at a paltry 0.9%.
According to the Vroom’s prospectus, industry experts estimate ecommerce penetration in this segment will rise to 50% for used vehicle sales by 2030, giving the company enough opportunity to drive top-line growth.
Vroom said, “Our platform, coupled with our national presence and brand, provides a significant competitive advantage versus local dealerships and regional players that lack nationwide reach and scalable technology, operations and logistics. The traditional auto dealers and peer-to-peer market do not and cannot offer consumers what we offer.”
However, the company continues to generate a majority of its revenue from offline sales. It acquired Texas Direct Auto in December 2015 and the combined operations has helped Vroom drive top-line growth over the years.
Vroom’s e-commerce sales have grown at an annual rate of 77% between 2016 and 2019. Comparatively, overall sales were up 40% year-over-year at $1.19 billion.
Vroom stock is trading at a reasonable valuation
Vroom is valued at a trailing price to sales multiple of 4.24 which is very reasonable considering its growth prospects. However, similar to a ton of tech platforms, Vroom continues to burn cash at a fast clip.
Vroom reported a net loss of $142.8 million in 2019, up from a loss of $85 million in 2018. In Q1 its net loss rose to $41 million, which was lower than its $45 million loss in Q1 of 2019.
While the company said it is focusing on the sale of high demand models to improve profit margins, investors can expect Vroom stock to be volatile in the near-term.
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