Why this used car salesman could be driving the next e-commerce boom

0

Buying and selling cars used to mean spending hours at a dealership. But a booming vehicle retailer Vroom (NASDAQ: VRM) combines both practical and AI-powered market data to potentially capitalize on the future of car buying and selling. As Vroom conquers market share in the next e-commerce revolution, investors who are climbing now might be able to turn a profit in style.

Image source: Getty Images.

Buy and sell smarter, not harder

Vroom buys and sells cars through its online platform. Purchases come with both a trial period for potential returns as well as a free limited warranty. When you’re ready to buy, Vroom has partnered with several banks to offer financing options – and they’ll even offer to buy your old car during the process. The buyer receives an offer that is valid for seven days, and if he sells, Vroom gets more inventory in return. The platform as a whole is intended to create convenience for consumers.

Automotive e-commerce attempts to make it easier to buy and sell cars. Vroom offers convenient vehicle pickup and delivery right to consumers’ doors. Car buyers can avoid the pressure of price haggling at dealerships and complete the process entirely from home. But to survive, Vroom will need more than convenience – he will also need continued growth.

Vroom’s growth indicators suggest that the company may indeed have the potential to change the car buying market. In FY20, it sold 82% more e-commerce units (cars, SUVs and trucks) year over year, with revenue increasing 56% and gross margin in 89% increase. Vroom attributed this expansion to both increased inventory and marketing expenses.

Even after a fantastic year of growth, Vroom still has a lot of competition, with Carvana (NYSE: CVNA) leading the pack of rivals. Carvana has a bigger market capitalization, but that doesn’t necessarily make them the best retailer. Vroom offers a better standard warranty, covering each vehicle for 2,000 more miles than Carvana, and Vroom includes one year of roadside assistance. This added peace of mind could make the difference for some customers when purchasing used vehicles.

Both online platforms have a lot of similar features, so every last detail of their offerings, inventory, and back-end technology is essential. Both companies continue to post respectable growth indicators; below, we’ll put them face to face to see how their valuations match up with their underlying businesses.

Metric

Vroom

Carvana

Market capitalization

$ 5 billion

$ 44.5 billion

P / S

2.62

3.01

P / B

4.13

115.11

Cash

$ 1.06 billion

$ 432.08 million

Debt

$ 347.38 million

$ 1.89 billion

Source: Company earnings releases.

Investors are paying the premium for Carvana quite well. In contrast, Vroom managed not only to grow during a global pandemic, but also to accomplish this daunting task without piling up debt on its balance sheet. It also presents more attractive valuation metrics in P / S and P / B ratios, especially considering that small-cap growth companies tend to grow faster than mid-to-large growth companies. capitalization. All of this equates to strong growth already built in with heavily indebted Carvana, while Vroom remains undervalued and plentiful with cash.

Anticipate market trends

Vroom’s recent acquisition of CarStory could give it the edge in a crowded market. CarStory aggregates and optimizes vehicle market data from thousands of sources. This market data identifies a plethora of variables such as the average purchase price, vehicle model preferences, and the year of production of those models. This data can then be used to identify trends in the automotive retail market. The integration of this AI into Vroom’s core business could allow the company to better anticipate customer needs, accelerate its customer acquisition and the growth of its gross margin.

Other retailers use different forms of market data collection and AI when monitoring traffic to their sites. For example, Carvana’s most recent quarterly report reported monitoring data for around 244,000 purchases last year. For comparison, CarStory analyzes approximately 7 million listings each day, collected from current and recently sold vehicles from various car dealerships. Not all of these ads are purchases, but it’s easy to see just how big an edge CarStory has in data accumulation.

Vroom may not capitalize on growth potential by not increasing its average profit per unit, or simply by not selling enough vehicles. This failure could cause it to fall behind in a very competitive market. However, the integration of CarStory AI by Vroom, combined with its successful growth strategy so far, is expected to continue to increase its market share. This strategy will eventually peak at an optimized gross profit per unit. It will then be enough for him to continue to sell more stocks than in the previous quarter to continue to grow.

As the global pandemic begins to abate, Vroom can invest more money by buying inventory and increasing advertising. Investors should watch the development of both gross profit per unit and the number of units sold over the next year. The continued growth of these two metrics is key to Vroom’s future growth. If he can continue on his path, Vroom may be able to capitalize on the auto e-commerce boom by combining both AI market data and convenience.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

Leave A Reply

Your email address will not be published.