Sep 24, 2020
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How Does Vroom Make Money?

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The logo for Vroom Inc. is displayed on a laptop computer in an arranged photograph taken in the. a web platform to purchase sell or trade used vehicles online listed at the markets in early June and the stock has more than doubled from its offer price of $22 per share to about $55 currently

The company has been recording strong revenue growth with sales rising from about $855 million in 2018 to about $1

 

2 billion in 2019 and we predict growth to accelerate over 2020 to about $1. 7 billion as the Coronavirus pandemic and the commercial downturn are expected to extend demand for used cars

We think Vroom is well-positioned to capitalize in this considering its end-to-end e-commerce model that offers transparent pricing financing options and nationwide contact-free delivery

 

Our interactive dashboard Vroom Revenues: How Does Vroom Make Money? discusses Vroom s business model followed by sections that review past performance and 2020 and 2021 expectations for the company s revenue drivers and competitive comparisons with rivals Carvana and CarMax

Some key elements of this analysis are discussed below

 

Vroom reported about $1. 2 billion in Total Revenues for full-year 2019. This includes 3 operating segments:

1. Ecommerce ($588 million or 49% of Total Revenues in 2019): sources inventory from auctions consumers rental car companies and dealers reconditions the vehicles and sells to customers via its website and app while offering financing and other services

2

 

Texas Direct Auto ($390 million or 33% of Total Revenues in 2019): segment includes the company s only physical retail location its owned vehicle reconditioning center in addition Vroom s Sell Us Your Car Centers. 3. Wholesale ($213 million or 18% of Total Revenues in 2019): Vehicles that don’t meet the company s retail sales criteria are sold via wholesale auctions with revenues recorded under this segment

Creative For National Voter Registration Day Vroom s Ecommerce segment Sales from the Ecommerce segment rose 95% from $301 million in 2018 to $588 million in 2019 as volumes expanded from 10k units to almost 19k units with average selling prices rising by about 3% to $30 500

We expect revenue to grow to $1 billion in 2020 and to about $1

 

75 billion in 2021 as deliveries continue to rise because of growing visibility of the company s platform (947k average monthly unique visitors over 2x year-over-year) and insist for used cars as a result of the Covid-19 pandemic. The used car market is prone to recover much faster from the Covid-19 related disruption as people tend to be more frugal in periods of uncertainty

Moreover considering the present health crisis individuals are prone to favor cars over public transport and used cars could hit the sweet spot

 

Vroom s Texas Direct Auto & Wholesale Segment Revenues from Vroom s TDA segment grew from $380 million in 2018 to $390 million in 2019 driven primarily by higher average selling prices although volumes saw a slight decline

We expect the metric to grow much slower than the eCommerce operations with sales rising from $410 million and $430 million in 2020 and 2021

 

The wholesale business that’s Vroom s smallest division saw sales grow from around 174 million in 2018 to 213 million in 2019. We predict wholesale revenues to grow to about $256 million in 2020 and $307 million in 2021

While Vroom stock has soared since its listing there are other large-cap opportunities that still look interesting

 

Which S&P 500 component stocks have the finest chance of outperforming the benchmark index? Our 5 Inside the S&P 500 That ll Beat The Index: NFLX NOW look promising. See all Trefis Price Estimates and Download Trefis Data here What s behind Trefis? See How It s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product R&D and Marketing Teams

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