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Why Vroom stock is getting run over

Brian Sozzi
·Anchor, Editor-at-Large
·2 min read
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Vroom's (VRM) fourth quarter had a flat tire or two.

Shares of the online used-car seller plunged more than 14% in early trading Thursday after the company missed analyst estimates across the board and served up light first-quarter guidance Wednesday evening. The performance put slight pressure on shares of Vroom rival Carvana.

The attention around the sell-off made Vroom's stock among the top 30 most visited tickers on Yahoo Finance ahead of the opening bell.

For Vroom — which had a sizzling debut in public markets in June 2020 — the mixed quarter could be boiled down to execution missteps.

"The demand arrived as expected, but due to the constraints in sales personnel and sales support personnel, we were unable to convert and process the sales associated with that demand. The result is that our inventory aged. That aged inventory needed to be discounted to move through our retail channels or liquidated in our wholesale channels. Said another way, we bought more inventory than we could actually process and that excess inventory needed to be moved in Q4 and will continue to be moved in Q1," Vroom CEO Paul Hennessy told analysts on an earnings call.

To that end, the average selling price for Vroom's units sold in the quarter fell to $24,909 from $30,808 as it worked to clear aged inventory.

Here is how Vroom stacked up versus Wall Street estimates on its earnings day.

  • 4Q Net Sales: +14.1% to $405.8 million vs. $401.8 million

  • 4Q Diluted EPS: loss of 44 cents a share vs. loss of 37 cents a share

  • 1Q Net Sales Guidance: $500 million to $529 million vs. $495.5 million

  • 1Q Diluted EPS Guidance: loss of 61 cents to 68 cents vs. loss of 37 cents

Wall Street moved quickly to ratchet down their financial assumptions on Vroom this year. They also remain concerned about Vroom's execution in the quarter.

"Execution missteps caused e-commerce results to fall short. GPU was particularly disappointing, as capacity limitations contributed to aging inventory and forced Vroom to reduce prices or liquidate wholesale. We believe Vroom is experiencing temporary disruptions caused by investments to rapidly scale, which also plagued Carvana soon after becoming public. We remain hold [rated] as valuation likely stays discounted until confidence in the achievability of estimates returns," said Jefferies analyst John Colantuoni.

Said Vroom's Hennessy, "We are confident that is our throughput increases as a result of our investments, and as we turn our inventory faster, both our unit economics and our customer experience improve."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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