A Look at Vroom’s Newly Added Risk Factor

Vroom Inc. (VRM) buys and sells used cars through online channels. The company serves both retail and wholesale markets.

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Let’s take a look at Vroom’s latest financial performance and risk factors. (See Vroom stock charts on TipRanks)

Vroom’s Q2 Financial Results and Q3 Guidance

Revenue for the second quarter increased 201% year-over-year, to $761.9 million, and surpassed the consensus estimate of $637.99 million. The e-commerce business drove the growth, as sales increased 230.2% year-over-year to $579.7 million. Wholesale revenue increased 151.6% year-over-year, to $128.1 million.

Vroom posted a non-GAAP loss per share of $0.48, which matched consensus estimates, and narrowed from the loss per share of $1.29 in the same quarter last year. The company ended Q2 with $1.5 billion in cash.

For the Q3, the company anticipates revenue in the range of $858 million to $891 million. It expects a loss per share of between $0.73 and $0.78. Additionally, Vroom expects the e-commerce business to continue to drive growth, projecting e-commerce unit sales growth of about 130% year-over-year.

For the full-year 2021, Vroom expects a triple-digit year-over-year increase in e-commerce unit sales, and more than 200% jump in gross profit.

Vroom’s Risk Factors

The new TipRanks Risk Factors tool reveals 65 risk factors for Vroom. Since June 2021, the company has updated its risk profile to add one new risk factor under the Finance and Corporate category.

Vroom tells investors that its debt agreements contain certain conditions that could discourage a third-party from acquiring it. It says that in June 2021, it issued $625 million in senior convertible notes due in 2026. In case of a takeover of Vroom, the holders of those notes may require Vroom to repurchase their notes for cash or increase the conversion rate. The effect is that the terms of those notes could make acquiring Vroom more expensive, hence discouraging a takeover transaction that may otherwise be favorable to investors.

Finance and Corporate is Vroom’s top risk category, accounting for 35% of the total risks. That is above the sector average of 34%. Vroom’s shares have declined about 35% since the beginning of 2021.

Analysts’ Take

In August, Piper Sandler analyst Alexander Potter downgraded Vroom stock to a Hold, and lowered the price target to $30 from $54. Potter’s new price target suggests 12.7% upside potential.

Consensus among analysts is a Moderate Buy, based on four Buys and two Holds. The average Vroom price target of $47.83 implies 79.6% upside potential to current levels.