Vroom is poised to be one of the biggest winners of Tuesday’s volatile trading session, with the stock racing ahead after the company reported better-than-expected earnings and announced a new chief executive in tandem with a strategic shift.
But investors thinking about capitalizing on the gain should proceed with caution.
Vroom (ticker: VRM
) posted an adjusted loss of 71 cents for the first quarter, a narrower loss than the $1.01 loss forecasted by analysts polled by FactSet. Sales clocked in at $924 million, above forecasts for $872.7 million. Investors were also reacting positively to the company’s announcement that Tom Shortt, former chief operating officer, would become chief executive officer effective immediately, succeeding Paul Hennessy.
For fiscal 2022, Vroom is expecting e-commerce unit sales of 45,000 to 55,000, with an adjusted Ebitda loss, or earnings before interest, taxes, depreciation, and amortization, of between $375 million to $325 million.
Vroom was up more than 70% at one point on Tuesday. At last check, the stock was up 15% to $1.24. At first glance, that’s a substantial gain, but in reality it’s not likely to make a big dent in the used-vehicles platform’s laggard stock price, which has declined starkly since its initial public offering in June 2020.
Over the last 12 months, Vroom has lost 96% of its value, losing 88% this year alone. The shares, which traded as high as $1.93 on Tuesday, are well off their all-time closing high of $73.87 in September 2020. At the time, the company was valued at $8.82 billion. Today, Vroom’s market cap has fallen to $148 million.
It doesn’t help that the company went public at the start amid a volatile environment for used cars. Aside from inflation, new auto production has stalled amid a global chip shortage, driving up prices for used cars. It’s also impacted competitors CarMax ( KMX
) and Carvana ( CVNA
), with the stocks declining 29% and 83% year to date, respectively. Even so, Carvana has maintained a market cap of $7.31 billion, while CarMax is valued at $14.9 billion.
Vroom said on Tuesday it would begin to implement a business realignment plan to turn things around. The plan prioritizes unit economics, reducing operating expenses, and maximizing liquidity. Jobs cuts are included. Management expects to achieve approximately $135 million to $165 million of cost reductions and operating improvements throughout 2022.
“VRM has struggled with the operational intensity of the business and recognizes the need to fix its operations and reduce costs in order to eventually grow profitably,” wrote Wedbush analyst Seth Basham in a research note.
Basham lowered his price target to $4 from $5, while maintaining an Outperform rating on the stock — one of the few analysts to keep a bullish perspective on the shares. Analyst sentiment has gradually soured on the stock, with 75% of the 12 analysts covering the shares on FactSet rating it a Hold. Only 25% had a Buy rating.
“While we applaud efforts to stabilize losses, we reiterate our Market Perform rating on Vroom given a tough industry backdrop and a significant retrenchment in sales,” wrote William Blair analyst Sharon Zackfia.
The company still needs to navigate a host of risks, including its limited operating history and lack of profitability, she added.
Write to Sabrina Escobar at [email protected]
