Vroom Inc., a former $2.5 billion powerhouse, has announced that it will wind down its online used-car sales business in an effort to maintain liquidity. The company's market cap has dwindled to less than $100 million, prompting this strategic decision.
Despite the setback, Vroom remains committed to growth and will now place greater emphasis on its two remaining ventures. The first focuses on auto financing, while the other centers around analytics and digital services for the auto retail industry.
Following the news, Vroom's shares plummeted by over 50% during the extended trading session on Monday. Surprisingly, this decline did not affect the stock prices of its competitors, Carvana Co. and CarMax Inc., as both remained flat in the after-hours session.
The Rise and Fall
Vroom made its debut on the equity markets in June 2020, following in the footsteps of Carvana's successful IPO three years prior. This move generated optimism about online car purchasing amidst the constraints imposed by the pandemic. However, Carvana faced its own challenges and had to seek an agreement with bondholders last year in order to bolster liquidity.
The Appeal of Online Car Buying
Despite these recent setbacks, online car buying continues to attract interest from individuals seeking to avoid interactions with car salespeople, expand their search for the perfect vehicle, or simply enjoy the convenience of shopping online.
Carvana Faces Operational Challenges Amidst High Demand
Carvana, a leading player in the used car industry, has experienced substantial growth in demand for its services throughout 2021. However, this success has come at a cost. The company has faced significant operational constraints as it strives to keep up with the surge in customer demand. These challenges encompass various areas of the business, including purchasing additional cars to bolster inventories, facilitating last-mile pickups, managing customer care interactions, and fulfilling complex title-processing and registration requirements.
Acknowledging these obstacles, Vroom.com announced on Monday a board-approved "value maximization plan." As part of this plan, transactions on the Vroom.com platform will be temporarily halted, and the company intends to sell its current inventory to wholesale businesses. In addition to this, Vroom has ceased the purchase of additional vehicles and is implementing a reduction-in-force strategy that aligns with the scaled-back operations.
Recognizing the need for additional capital to navigate these difficulties, Vroom had endeavored to secure the necessary funding but unfortunately fell short. In a statement, Chief Executive Thomas Shortt expressed his disappointment, stating, "Despite significant efforts to do so, we ultimately were unable to raise the necessary capital in the current market." He further added, "Two years ago, we set out to build a well-oiled machine, improve unit economics, and dramatically enhance our customer experience. I believe we achieved those goals."
While faced with these challenges, Vroom remains committed to responsible management and prudent capital deployment. Board Chair Robert Mylod affirmed the company's dedication to maximizing value for all stakeholders amidst the ongoing circumstances.
Vroom: A Challenging Year
Shares of Vroom have experienced a significant decline of 43% over the past 12 months, in stark contrast to the impressive gains of 22% achieved by the S&P 500 index (SPX) during the same period. Vroom's market valuation currently stands at $76 million as of Monday's closing.
The challenging year for this company calls for a closer look at their market performance and potential strategies for growth.