What happened

Shares of online auto retailer Vroom (NASDAQ:VRM) dropped sharply Thursday after Wednesday night's earnings report. At 11:45 a.m. EST, shares were down 25%. 

So what

Vroom announced fourth-quarter and full-year 2020 results after the bell on Wednesday, and its net loss of $60.7 million was 42% more than it lost in the prior-year period. Adjusted net loss of $0.44 per share was also larger than the $0.37 comparable loss analysts expected, according to FactSet. The company's total revenue did beat expectations, however, at $405.8 million. 

Red arrow crashing into ground representing falling stock.

Image source: Getty Images.

Now what

Vroom increased total units sold on its e-commerce platform by 74% in the fourth quarter, and by 82% for the year, compared to 2019 auto sales. The company increased marketing spending, which helped drive an increase of more than 26% in unique monthly online users. The company said the increase in unit sales was also due to increased demand and higher inventory levels. 

However, gross profit per unit decreased 12.5% in the fourth quarter. Vroom said it expects "triple-digit year-over-year growth in e-commerce unit sales" for 2021. That sounds great at first, but investors are likely focusing on the lack of profitability. The e-commerce unit sales made up more than 70% of total fourth-quarter sales, and the 2021 guidance also suggests the gross profit per unit from those sales will be lower at the midpoint than it was in the fourth quarter of 2020. 

Vroom currently has a market capitalization of $4.4 billion even after today's drop, and investors are looking for improving profitability to justify that. 

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