Vroom Exceeds Expectations in Q3; Shares Up 2.2%


Vroom, Inc. (VRM) delivered estimate-beating third-quarter results, registering triple-digit growth in the e-commerce segment. In response, shares were up 2.2% during the extended trading session on November 9.

The online platform for buying and selling used cars exceeded both earnings and revenue expectations as a result of the ongoing global chip shortage, which impacted the production of new cars and increased the demand for used cars.

Stellar Q3 Results

The company reported an adjusted loss of $0.70 per share, 3 cents better than the consensus estimate of a loss of $0.73 per share. VRM had posted an adjusted loss of $0.29 per share in the same quarter last year.

Furthermore, total revenue increased a whopping 177.6% year-over-year to $896.76 million, surpassing Street estimates of $887.64 million. The revenue growth was backed by an increase in the number of units sold, coupled with a higher average selling price per unit.

Notably, Vroom’s e-commerce revenue grew 216% year-over-year to $701.68 million, with e-commerce units sold growing 123% compared to the prior-year quarter. The robust growth in e-commerce units sold was driven by higher inventory levels, national advertising campaigns, increased marketing spend, and increased demand for used cars.

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Management Comments

Happy with the quarterly results, Paul Hennessy, CEO of Vroom, said, “Looking ahead, we intend to continue to focus on strong execution and maintain the momentum in our business to drive continued growth in unit sales and on improving unit economics. We also are excited to move forward with our acquisition of United Auto Credit Corporation, which will accelerate our strategic objective to establish a captive financing arm.”

Guidance

Based on the robust demand for used cars, the company expects to record triple-digit growth across key metrics. Accordingly, VRM forecasts Q4 revenue to fall in the range of $865 million to $900 million, against the consensus estimate of $866.4 million. Meanwhile, Q4 adjusted loss is expected to be between $0.77 per share and $0.70 per share, against the consensus estimate of $0.71 per share.

Wall Street’s View

Responding to Vroom’s financial performance, Wells Fargo analyst Zachary Fadem noted that Vroom’s Q3 print was far from perfect but better-than-feared.

The analyst said, “This print was all about stability and considering fears around a business model pivot (asset-light to hybrid) and near-term profit re-base, results proved better than feared… VRM remains on track for triple-digit unit growth and 200%+ gross profit growth in FY21. Adding it all up, shares are washed out, a FY21 re-base didn’t need to happen, and we believe the UACC acquisition and fresh set of long-term targets present positive catalysts in the upcoming months.”

Fadem maintained a Buy rating on the stock with a price target of $45, which implies a whopping 132.2% upside potential to current levels.

With 6 Buys and 2 Holds, the stock commands a Strong Buy consensus rating. The average Vroom price target of $43 implies 121.9% upside potential to current levels. However, shares have lost 49.4% over the past year.

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