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Why Uxin Stock Jumped 29% After Third-Quarter Earnings

By Rich Smith - Apr 28, 2021 at 11:33AM

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Sales are still sinking, so why is this good news?

What happened

Shares of Beijing-based online used car dealer Uxin Ltd (UXIN 2.94%) surged after the company reported earnings for its fiscal third quarter of 2021 Wednesday morning, rising 29% through 10:35 a.m. EDT.  

Most of Wall Street is busy reporting first-quarter 2021 earnings right now, but Uxin is reporting its earnings for its fiscal third quarter of 2021. Moreover, most U.S. companies are currently reporting financial results for the three months ended March 31. Uxin's fiscal third quarter, though, refers to the three months ended Dec. 31, 2020.

Arrow angles up on a green stock chart

Image source: Getty Images.

So what

Now that we're all on the same page, what did Uxin say that drove its share price so high today? Well, the story actually doesn't start out all that well, with Uxin selling a lot fewer cars in fiscal Q3 2021 than it did a year ago -- just 2,307 units, in fact, versus 28,302 cars sold in the prior-year period. However, it sold cars differently this quarter than it did a year ago, too.

In fiscal Q3 2021, Uxin says it "completed the transformation to inventory-owning model during the three months ended December 31, 2020, with 99% of the transaction volume sold from the Company's own inventory." So the company got more revenue per car sold, despite selling fewer cars this time around, with the result that its revenue declined only 31% year over year to $49.5 million.

Uxin also reported positive gross profit margin on these sales -- up from a gross loss as recently as the fiscal second quarter of 2021. It still lost money on the bottom line -- $26.5 million -- but that represented an 82% reduction in net losses from a year ago.

Now what

Result: Uxin stock looks closer to being profitable now than it was a year ago -- which probably explains the rising stock price.

Although the company doesn't expect to turn profitable in its current fiscal quarter, either, management is forecasting this quarter will see sales of between 190 million yuan and 200 million yuan (down 40% sequentially), but gross profit margin up significantly (from 2.9% last quarter) at about 5% in the fourth quarter.

Investors today seem to be shrugging off the continued declines in sales and focusing on that improvement in profit margin.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Uxin Ltd. The Motley Fool has a disclosure policy.

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