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Vroom Readies For IPO, With A Reasonable Valuation

Jun. 03, 2020 12:23 PM ETVroom, Inc. (VRM)9 Comments


  • Rapidly growing used car platform is getting ready for an IPO.
  • Not all revenue is the same. TDA is a physical property, which has little or nothing to do with its ecommerce revenues.
  • Vroom's IPO valuation will come in at 1x sales, thus making it in no way irrationally priced.
  • Looking for a helping hand in the market? Members of Deep Value Returns get exclusive ideas and guidance to navigate any climate. Get started today »

Investment Thesis

Vroom (NASDAQ:VRM) is growing its revenues at a breakneck pace. The company is likely to end up being priced at close to a $2 billion market cap. On the one hand, I question just how much of its revenues are growing rapidly, noting that TDA has little to do with its ecommerce revenues.

On the other hand, given that its IPO puts the company's valuation at approximately 1x forward sales, this implies that it is not expensive in today's market.

What Does Vroom Do?

Vroom is an online platform for selling used vehicles. The company positions itself amidst the highly fragmented used car market, claiming that used is the 'new' new. Its carrot for investors is that it's a high growth opportunity:

Source: Author's calculations, investor prospectus

For the year ended 2019, its revenues were $1.2 billion, and its Q1 2020 revenues reached $376 million.

Given that Q1 2020 saw its revenues increase by 60%, it would not be unreasonable to estimate that Vroom's 2020 revenues could minimally reach $1.8 billion.

Post-IPO It Will Have A Very Strong Balance Sheet

As for its balance sheet, it's clean, with no 'nasty' surprises. Post-IPO proceeds of $275 million makes Vroom close to debt-free, and with total cash and equivalents of approximately $445 million.

How Important Are Each Of Its Segments?

In the graphic below we can see that as of the end of March 2020, ecommerce accounted for approximately 62% of total revenue.

Source: Author's calculations

Furthermore, you can see that a quarter of its revenues are derived from TDA. Back in December 2015, Vroom acquired Houston-based Texas Direct Auto (“TDA”), which is a physical location that has nothing to do with its ecommerce operations.

Consequently, even if it does not add to the 'ecommerce' narrative, it adds to sales. For now, management will do all

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Comments (9)

09 Jun. 2020
I lost my socks 🧦 today! Whooo! I need better techniques! All bad! 😭
rose2020 profile picture
Your bar chart is misleading!
Priced at 22 but looking for 40 at the open so far. Not sure if much will be left for the retail buyer after that.
pat45 profile picture
priced at $22 tonight
Thanks for the article. Do you know when is the IPO?
Michael Wiggins De Oliveira profile picture
Thanks for the comment. To be honest, I didn't checl. But given the prospectus is up, I'm guessing less than 2 months.
Looks like pricing the 10th and trading the 11th.
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