Vroom Stock Stalls Out as Used-Car Seller Posts Disappointing Quarter

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Tight supplies and soaring prices for new cars continue to have ripple effects on the market for used vehicles, and the companies that sell them. A disastrous set of financial results from the online used-car company

Vroom

highlights the issue.

Used vehicles and parts are scarcer because consumers who can’t find new cars to buy at rational prices are holding on to their vehicles longer. Late Monday, Vroom said it lost 95 cents a share in the fourth quarter, wider than the Wall Street forecast at 77 cents, while gross profit per car sold dropped almost in half, to $473 from $878 a year ago. Vroom said the decline reflected higher acquisition costs for premium vehicles, plus higher reconditioning costs due to labor shortages and “elevated demand” at third-party reconditioning services.

The bigger-than-expected loss came even though revenue came in at $934.5 million, up 130% from a year ago, and ahead of the Street consensus forecast of $901.9 million. That includes $738.7 million from the company’s core e-commerce unit, up 159.2%. (The company also sells some cars wholesale and through more traditional retail outlets.) Vroom (ticker: VRM) sold 21,243 cars through the e-commerce segment in the quarter, up 92.7% from a year earlier. 

Compounding matters, Vroom sees first-quarter revenue of $875 million, well below the previous Street consensus at $1.04 billion. Management expects e-commerce unit sales in the 18,000 to 19,000 range.

Responding to the news, Wells Fargo analyst Zachary Fadem cut his rating on the stock to Equal Weight from Overweight, chopping his price target to $6, from $16. “We find our Vroom bull case increasingly difficult to defend,” he said in a research note. The sharp drop in gross profit per vehicle was “yet another operational misstep in a long series of forgettable results” since the company’s June 2020 initial public offering, he said.

“While we are admittedly (and embarrassingly) slow to see the writing on the wall, we believe the macro narrative is too difficult, operational hurdles appear too great, and long-term profit trajectory too uncertain to continue recommending shares,” Fadem said. 

J.P. Morgan analyst Rajat Gupta, who has a Neutral rating on Vroom shares, said the company also missed Street estimates on earnings before interest, taxes, depreciation and amortization, with a loss of $120 million, exceeding the Street’s projection of a loss of $98 million. He seems little hopes for a near-term improvement in investor sentiment, given inconsistent execution, elevated spending levels and an outlook “that remains uncertain in a constrained labor and logistics environment.”

Vroom went public in June 2020 at $22 a share. It opened for trading at $40.24, closing at a record $73.87 in September of that year, but has continued to ratchet lower, and lower. On Tuesday, the stock was off 42%, to $3.53.

Write to Eric J. Savitz at [email protected]