Vroom gained 117% on its initial public offering date, June 9. Its initial offering price was $22 at the opening bell. In early trading, shares moved as high as $46. At the closing bell, the stock finished at around $45 for a 117% gain.
The company listed on the Nasdaq Global Select Exchange. Investment banks supporting the offering include Goldman Sachs & Co. LLC (GS), BofA Securities (BOC), Allen & Company LLC, Wells Fargo Securities (WFC), Stifel, William Blair, Baird, JMP Securities (JPM) and Wedbush Securities.
For the balance sheet, the company raised $467.5 million. However, the underwriters also have 30 days to buy an additional 3.1875 million common stock shares at the initial $22 price.
Vroom is an online property that serves as a marketplace for the buying and selling of used cars. The company has its headquarters in New York City. It was founded in 2013. Up until the public offering, it has raised around $450 million from several venture capitalists and private equity investors. Some of its biggest pre-IPO investors have included AutoNation (AN), T. Rowe Price and Cascade Investments.
From Vroom.com, customers can buy, sell or trade a vehicle. Sellers provide details of their vehicle and Vroom returns with an offer as well as pick up for the inventory. For buyers, Vroom offers financing options through banking partners. Cars in inventory range from around $6,000 to $75,000.
Top-line sales were strong for the company in 2019. Revenue for the year was $1.2 billion. Growth in cost of goods sold (COGS) was nearly matching revenue.
In 2019, the company grew retail vehicle sales by 45%, wholesale vehicle sales by 22% and net product sales by 21%. COGS were also up 43%, wiping out much of the pure sales for a gross profit decrease of 5% year-over-year. First quarter results for 2020 were much better, with gross profit up 53% and COGS increasing 60% compared to the fourth quarter of 2019.
Below the revenue line, the company's operating profit and gross profit are non-existent. The operating loss for 2019 was $133.1 million and the net loss was $143 million. The company also has some accretion of redeemable convertible preferred stock after the net profit amounting to a total net loss of $275.7 million for a net loss per share of $64 in 2019.
The company is showing a net worth of -$573.9 million. The IPO adds $467.5 million, improving their net worth to around -$106 million. Assets ended 2019 with a value of $563 million, helped by an increase of 78% in inventory assets at $206 million.
Looking to the future
In my view, Vroom has an exciting business model with opportunities to buy, sell and trade-in vehicles. It's certainly seeing increased demand with total revenue up 39% in 2019 and 60% quarter-over-quarter for the first quarter of 2020.
When it comes to expenses, the company's COGS are high. Operating profit and net profit are also deep into the negative millions. Watching the second quarter earnings release will be critical.
Disclosure: I own shares of VRM.
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This article first appeared on GuruFocus.