Better-Than-Expected Results Put Vroom Stock in Fast Lane

Shares of Vroom, Inc. (VRM) skyrocketed 18.5% in Monday’s extended trade and a further 39.8% at the time of writing after the company reported first-quarter results that surpassed analysts’ expectations. Vroom is involved in buying and selling used vehicles through its e-commerce platform.

Results in Detail

The company has reported an adjusted loss of $0.71 per share, better than the consensus loss estimate of $1.01 per share. Vroom had posted an adjusted loss of $0.57 per share in the same quarter last year.

Furthermore, total revenues increased 56.3% year-over-year to $923.8 million, surpassing estimates of $874.1 million. The revenue growth was on the back of rising e-commerce revenues and the acquisition of UACC’s operations in February 2022.

Vroom’s e-commerce revenue grew 59.9% year-over-year to $675.4 million, with e-commerce units sold up 25.6% compared to the prior-year quarter. The robust growth in e-commerce units sold was driven by higher inventory levels, national advertising campaigns, and increased demand for used cars.

Management Comments

The CEO of Vroom, Thomas Shortt, said, “As we look forward, we intend to prioritize unit economics over growth, reduce operating expenses, and focus on 4 key initiatives to build a profitable business.”

“For 2022, we are focusing on prioritizing unit economics over growth throughout our business. With the announcement of our business realignment plan, Vroom is positioned to significantly reduce our operating expenses and accelerate our path to profitability,” said Robert Krakowiak, the Chief Financial Officer at Vroom.

Business Realignment Plan

Alongside earnings, the company has revealed a plan to achieve long-term profitable growth by focusing on strengthening unit economics, reducing operating expenses and maximizing liquidity.

Under the plan, Vroom will lower targeted unit sales to focus on sustainable sales margins and gross profit per unit growth, reduce workforce, regionalize its business and operations, reduce marketing expenses and further automate key portions of sales operations.

Upon the successful execution of the plan, the company expects to achieve about $135 to $165 million of sequential cost reductions and operating improvements across its operations for the remaining 2022.

Guidance

VRM forecasts 2022 e-commerce unit sales in the range of 45,000 to 55,000. Meanwhile, the company expects a negative adjusted EBITDA between $375 million and $325 million.

Stock Rating

Responding to Vroom’s financial performance, Wells Fargo analyst Zachary Fadem maintained a Hold rating on the stock with a price target of $2, which implies 85.2% upside potential to current levels.

The analyst said, “While VRM shares appear to be heading higher tomorrow on better-than-feared Q1 results, a CEO transition and aggressive cost-cutting plan, we see a company with its back against the wall and clearly in need of strategic change.”

With three Buys and seven Holds, the stock commands a Moderate Buy consensus rating. Vroom’s average price target of $5.35 implies a whopping 393.4% upside potential to current levels. However, shares of the company have lost 97.2% over the past year.

Insider Trading

Based on the recent corporate insider activity on TipRanks, sentiments seem to be Positive on Vroom. This means that over the past quarter there has been an increase in insiders buying shares of VRM.

Takeaway

Vroom’s potential for long-term growth can be seen in its strategic growth plans and the strong performance of its E-commerce segment. Also, the rising demand for used cars is expected to support its financials. Investors interested in the stock may want to take a closer look before making a decision.

Discover new investment ideas with data you can trust.

Related News:
Tyson Foods’ Q2 Results Increase Investors’ Appetite
For Upstart, It May Be Raining but Not Pouring
Zynga Stock Declines on Weak Q1 Results