The automotive e-commerce boom isn't limited to the U.S., as U.K.-based Cazoo (CZOO +0.00%) seeks to transform the European car buying and selling experience. However, the same problems besetting the U.S. in 2022, such as high inflation and recession worries, have undoubtedly induced anxiety in the European car-buying demographic as well.
Given these challenges, Cazoo's quest to capture an addressable European used vehicle market worth over 100 billion pounds has been much easier said than done. Cazoo's difficulty in turning a profit seems to be reflected in the share price, which has tumbled into penny stock territory during the past year.
OTC: CZOO
Key Data Points
Yet, even troubled stocks are capable of staging outsized rallies under the right conditions. Thus, the persistent downtrend in Cazoo stock was broken for at least one spectacular day -- but cautious investors should consider the totality of the available data before taking a ride with Cazoo now.
The bulls have their day
The weeks leading up to Cazoo's second-quarter 2022 financial results were, for the most part, business as usual, meaning that the share price continued on its downward trajectory. Still, there were a couple of notable events along the way. First, Cazoo announced its business realignment plan, which emphasized retrenchment, including a workforce reduction (a common motif in 2022), less brand-marketing spend, and a vague "delaying a number of planned investment projects." Then, in the wake of the company's acquisition of Brumbrum and prior launches in Germany, France, and Spain, Cazoo launched in Italy in late June.
So, an argument could be made that Cazoo is growing, at least in a literal, geographical sense. Whether Cazoo's cut-back-but-grow-outward strategy will translate into better bottom-line outcomes is a different story entirely, though.
Undoubtedly, these factors were on investors' minds as Cazoo geared up to release its Q2 2022 fiscal results on the morning of August 2. However, few traders could have expected the 118% share-price move that day, along with the 139-million-share single-session trading volume on a stock that typically sees fewer than 3 million shares exchange hands daily.
Mind the bottom line
It's not hard to identify the data points that traders likely focused on. In 2022's second quarter, Cazoo's revenue soared 145% year over year to 333 million pounds, a quarterly company record. Moreover, the company's quarterly vehicle sales jumped 124% to 23,955. CEO Alex Chesterman was quick to tout Cazoo's robust revenue growth, achieved "despite the tough macroeconomic backdrop."
That's not the whole story of Cazoo's second quarter, though. Year over year, the company's gross margin shrank from 5.6% to a paltry 0.5%. Furthermore, Cazoo's earnings loss widened considerably, from 102 million pounds in 2021's first half to 243 million pounds in 2022's first half.
These vastly mixed results call into question Cazoo's claim that the company has "successfully implemented" its "realignment plan to right-size the business and position us for profitable growth." There's growth in some respects, but whether it will be profitable remains to be seen.
It's not inconceivable, then, that a combination of top-line obsession and a massive short squeeze propelled Cazoo stock above $1 on earnings day. It's not a terrible idea for prospective long-term investors to wait on the sidelines for a while and see if future updates confirm Cazoo's "profitable growth" claim.
