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Why Vroom Stock Fell More Than 12% in November

By Jon Quast - Dec 4, 2020 at 5:54PM

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A drop in revenue and steep net losses aren't what Wall Street had in mind.

What happened

Shares of used-car company Vroom ( VRM -6.17% ) were down 12.7% in November, according to data provided by S&P Global Market Intelligence. Investors didn't like the company's results for the third quarter of 2020 or its guidance for the fourth quarter. Oddly, positive news regarding a coronavirus vaccine also sent the stock down during November.

So what

Vroom stock took a step back after Pfizer and BioNTech announced promising coronavirus vaccine news. To be clear, Vroom isn't hurt by a vaccine. But consumers have increasingly tried used-car e-commerce in 2020 because of the pandemic. This was an existing trend, but physical-distancing considerations have accelerated the process. Perhaps with a vaccine, used-car e-commerce will slow the pace at which it takes market share from brick-and-mortar dealers.

A frustrated man puts his hands on his face with a down stock chart in the background.

Image source: Getty Images.

After the vaccine announcement, Vroom reported Q3 results. The company has three reportable segments and, taken as a whole, revenue was down 5% year over year. Furthermore, it reported a net loss of $37.9 million and even had negative earnings before interest, taxes, depreciation, and amortization (EBITDA) -- arguably the easiest number to show positive bottom-line results.

For Q4, Vroom's management expects revenue of $372 million to $414 million and ongoing losses. Investors weren't happy with that. As a result, Vroom stock fell to its lowest point since its initial public offering (IPO). 

Now what

With the coronavirus, you'd expect an e-commerce company like Vroom to be growing like crazy. But that's why it's important to remember this isn't a pure e-commerce company, at least not yet. About half of its revenue still comes from other sources. Specifically, sales at its physical used-car lot plummeted 64% in Q3, dragging down overall results.

While overall results can't be disregarded, investors should constantly assess Vroom's growth engine: e-commerce. Over time, one would expect e-commerce sales to account for the majority of its overall revenue. In Q3, Vroom's e-commerce sales grew and gross profit per vehicle increased. That's a good sign for the financial viability of this business, though there's a lot more to consider before investing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Vroom, Inc. Stock Quote
Vroom, Inc.
$13.83 (-6.17%) $0.91
Pfizer Inc. Stock Quote
Pfizer Inc.
$53.73 (2.54%) $1.33
BioNTech SE Stock Quote
BioNTech SE
$351.74 (-2.97%) $-10.78

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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