Vroom Stock Races Ahead As Auto Sales Go Digital

Vroom is poised for success as digital car sales become the new norm

Traditional auto dealers have always prided themselves on their shiny showrooms, but the outbreak of the pandemic has propelled online car sellers to the forefront of this industry. Vroom (NASDAQ:VRM) saw a significant jump in its valuation since issuing an IPO, leaving competitors in its dust as Vroom stock went higher.

Vroom Stock Will Ride Multiple Trends to Long-Term Success
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As more customers get accustomed to buying products online, the trend is slowly shifting to the auto sector as well – an industry where face-to-face time with the customer is existential to the sale.

Empty showrooms across the nation have now become the norm and car sales have plummeted as low as 59% since the health crisis.

On the flip side, online car sellers like Vroom are in its heyday as the pandemic and consumers’ changing buying habits have been a boon for sales. With investors reigning optimism on the prospect of a new market segment in the traditional auto-world, Vroom stock is definitely a buy.

Vroom Stock Makes Ripples in an E-commerce World

Vroom is part of a new wave of auto companies that has an e-commerce segment in addition to its wholesale business unit. In 2019, online car companies like Vroom, Carvana (NYSE:CVNA) and Shift sold just 300,000 units, making up just 1% of the total car sales.

However, things changed with the outbreak of the pandemic when traditional automakers were forced to shut their showroom doors. As customers become more accustomed to buying products online, they soon made the shift in cars as well.

This led to a significant boost in sales for online car companies like Vroom whose share value doubled since its IPO in early June and its competitor Carvana saw a steady increase in its value since March of this year.

Prior to the pandemic, Vroom’s online business made up less than 50% of its revenue. However, given the disruptive power of e-commerce in vehicles in recent months, this is where the future of the company lies. Vroom plans to invest heavily in its online business and use this segment to drive growth.

According to CFO Dave Jones, Vroom has invested in the technology required to accelerate this business since April of last year. This resulted in a fruitful payoff as the number of units sold increased by 145% year over year in April along with a 60% growth in first-quarter revenue.

Thanks to the digital revolution in the auto sector, Vroom was able to earn revenue of $375.8 million in the first quarter of this year.

Vroom’s online market segment will only continue to grow in the coming months as car sales remain digitized. The company’s strong position in this niche makes it a worthy investment.

A Successful IPO for Vroom Stock

Despite dwindling car sales, Vroom made the bold move to issue an IPO on June 9. The decision paid off as company shares prices soared on the first day of trading on the Nasdaq composite. Vroom stock opened at $40.25, which was 83% higher than its initial offering price of $22. By the end of day trading, the price of the stock stood at $47.90.

Vroom’s valuation skyrocketed since the IPO, bringing its net worth to almost $5 billion. The company’s successful IPO is a testament to the power of e-commerce and its ability to upend the car industry in the coming years.

Although things have been quiet on the IPO front since the outbreak of the virus, the recent entrants in the public market are proof that certain businesses are likely to come out of the other side of the pandemic more successful than ever. Vroom is set to make ripples in the auto world with its efficient business model and unique service offering. The company’s stock is a keeper for the long haul.

A Competitive Advantage

Vroom faces stiff competition from its auto e-commerce counterparts like Carvana but the company has a number of competitive advantages that help it stand out from the crowd. Vroom keeps its capital assets to a minimum, meaning less fixed costs for storage space and utilities.

This gives the company greater flexibility when making decisions on how to allocate its finances. The auto seller’s total assets are valued in the millions while its revenue was $1.2 billion in 2019. In addition to this, Vroom outsources its vehicle reconditioning centers, keeping only one of them in-house. This allows the company to offload some of its risks while taking advantage of cost savings.

The financing arm of the business is also outsourced to partner banks and lending agencies. Vroom can lower its risk exposure while ensuring its liabilities are minimal. Although the company loses out on potential revenue from vehicle centers and loan financing, a low asset and liability balance can help Vroom remain fluid in its business decisions.

The Bottom Line on Vroom Stock

Since the outbreak of the pandemic, Vroom has seen a decline in sales and was forced to cut prices while selling 70% of its inventory. However, the future prospects for this company are considerably bright as we move towards a more digitized world.

Companies like Vroom are pioneers in the auto e-commerce space and other auto giants are catching on to this trend. Brands like Fiat Chrysler (NYSE:FCAU) and General Motors (NYSE:GE) are placing more emphasis on its online sales since the first quarter of 2020.

As Vroom continues to embrace and invest in its e-commerce segment, the company is well-positioned to benefit from triple-digit growth rates. A successful IPO and a disruptive business model make Vroom stock a great investment.

Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/vroom-stock-races-ahead-as-auto-sales-go-digital/.

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