This week got started on a high note with Vroom (VRM) pricing last night well above their $15-17 range at $22/share. The deal has been in high demand from the start with Carvana (CVNA) setting a strong precedent.
As a reminder, Carvana came public just over two years ago and we covered it then. There is more background on it here: Carvana wants to change how we buy used cars. The chart below illustrates some of the post-IPO history. Revenue growth and stock price performance have been strong. Gross profit growth has been meager though and the company is still producing small losses. Analysts are forecasting positive AJEBITDA in 2022 on $9.4B of revenue.
There’s also the example of CarGurus (CARG) which went public in October of 2017 at $16 but after a two-year run up into the $50’s the shares have declined steadily from September 2018 and are now at $27.
At $22/share the market value of Vroom is $2.6B. Revenue last year was up 39% to $1.2B and $375M for the March 2020 quarter which was up 59%.
The nagging issue for this business has been the gross profit margin. For example, Vroom made just $57M of gross profit in 2019 and generated $18M during the March quarter.
Vroom puts this slide up as a positive since gross profits are growing however that’s purely driven by volume. It’s easy to see that the percentage trend remains flat.
Vroom does have a plan to develop an asset efficient approach to this that will generate gross profit margins in the 12-15% at a scale of over 200K units.
To chase VRM here you probably need to be quite convinced that this gross profit margin will begin to turn upwards to support their targets.
Now that we have enough stocks to scrape together a “sector” this is a space we can watch more closely - names include CARG, CVNA, VRM, and TRUE.
Other Deals
This week we have seven (7) more deals on the calendar. Here’s a snapshot:
Last week we had more strong deals with Shift4 Payments (FOUR) pricing above the range at $23 and subsequently trading up to $35.
ZoomInfo (ZI) which we profiled priced above the range at $21 and now changes hands at $44.
Even Warner Music Group (WMG) got done in the range at $25 and managed to move up to $31 in the after-market.
We’ve also had 11 new filings so far in June and a robust IPO pipeline to complete before deep summer vacation in late August.
The Candyman
P.S. - Did someone forward this to you? You can join over 2,000 regular readers here:
About IPO Candy
IPO Candy was founded in 2009 to be the best source for IPO information, analysis, insights, and alerts. Top investment banks, investors, and companies planning their IPO enjoy our services. We also maintain a model portfolio, provide investment alerts, and are developing new services all the time so feel free to make suggestions!
DISCLAIMER: What we provide is only for informational use. It is not intended to provide investment, tax, legal, or personal advice. Anything we publish does not constitute a suggestion, solicitation, or offer to purchase or sell securities. We do not warrant the completeness or accuracy of anything and assume no such duty to update such information - although you know we would! For more, please refer to the sections of our website that deal with our terms & conditions and privacy policies.