Key points:
- VRM shares soar 35% on positive earnings, management change and realignment strategy
- The company reported an adjusted loss of $0.71 and revenue of $923.8M, both beating consensus
- New CEO Tom Shortt set to take the reigns and guide the company's new realignment plans
Vroom (NASDAQ: VRM) stock soared around 35% in Tuesday premarket trading, with investors reacting well to promising metrics revealed in the company’s first-quarter earnings report. The surge is a welcomed break from extended selling territory, which has dragged the VRM share price down almost 90% since the start of the year. Although the company still posted a loss, it surpassed analyst expectations and tempted back buyers with an interesting business realignment plan – involving a new CEO.
The company posted an adjusted loss of $0.71, better than the consensus estimate of a loss of $1.01 per share. The first quarter loss also edged past Q121, which was $0.57. Revenue however grew 56% year over year to $923.8M, again beating the wider analyst consensus of $874.1M. E-commerce was a large driver for the start of the year, growing nearly 60% to $675.4M, making up a significant portion of the total $923.8M recorded; helped further by Vroom’s acquisition of UACC earlier this year.
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A tightening of financial stimulus is turning car culture towards older, used and pre-loved vehicles. Consumers are favoring used vehicles instead of their expensive, new counterparts as inflation increases and consumer spending starts to dip. This, mended with heavy advertising spending and strong inventory levels creates the ingredients for a strong Q1.
If solid growth across multiple metrics wasn’t enough to sway buyers, Vroom announced that its Board of Directors has approved a business realignment plan, aiming at creating a stable trajectory towards long-term profitability by “prioritizing unit economics, reducing operating expenses and maximizing liquidity”. Plans include reducing the workforce, minimizing marketing expenses through focusing on the highest-ROI channels, automating key sales operations and focusing on ‘sustainable sales margins’. If the new realignment goes according to plan, Vroom hopes to cut costs by between $135M and $165M across the rest of 2022. The plans will be overseen by new CEO Tom Shortt.
It isn’t surprising to see VRM shares sitting at such a premium from yesterday’s close. The company is relishing the increase in used car interest, and investors are always keen on seeing a revilatised business model – we just have to wait and see if the changes will hit the expected mark.
