Midtown-based used-car seller Vroom sees its shares plummet on Wall Street
“There has certainly been a lot of speculation during the lockdown period that the world will be fundamentally different and a lot of things will change online,” said Nick Colas, co-founder of DataTrek Research. “There’s this creeping realization that things might not be as different as we first thought.”
More demand, more costs
Founded in 2013, Vroom buys and sells used cars exclusively online, shipping them to customers’ driveways in most cases. Annual car sales have doubled to around 75,000 in 2021, generating the bulk of Vroom’s $3.1 billion in revenue.
But the company posted a net loss of nearly $130 million for the fourth quarter, nearly double its loss in the same October-December period in 2020.
A combination of high costs to buy and repair cars reduces the amount of Vroom with each sale. An important metric for the company, its gross profit per e-commerce vehicle unit, fell 46% in the fourth quarter to $473.
In a Feb. 28 call after Vroom’s earnings release, analysts sought an explanation. Was it something in the way the company managed its inventory? Did he buy the wrong cars?
“I really don’t feel like we’re buying the wrong kinds of vehicles,” replied Bob Krakowiak, the company’s chief financial officer. “It’s more that we were trying to optimize a really tough hand that we were faced with in the current reconditioning situation.”
Paul Hennessy, chief executive of Vroom, said the company is prioritizing building a network of garages to refurbish its merchandise and boost its ability to make last-mile deliveries, rather than relying on another company.
Nathan Hecht, CEO of Lower Manhattan’s online auto marketplace Rodo, said the industry’s biggest challenges are macroeconomic, such as inflation and geopolitical risk. While he declined to comment specifically on Vroom, he said demand isn’t the issue for online used-car sales in general.
“The pandemic has accelerated the shift to the internet for all of us,” he said.
In a March 1 research note, Wall Street firm Jefferies maintained a “hold” rating for Vroom.
“We are seeing peak revenue growth as (Vroom) benefits from exposure to the massive $550 billion market for used passenger vehicles,” the company’s report said. “However, a recent slowdown in earnings growth is reducing our confidence in the feasibility of long-term estimates, a concern which we believe is shared by the market and likely to keep valuation muted until further signs. resumes appear.”