On its first day of trading after its IPO in June 2020, shares of Vroom [VRM], an online-only used-vehicle dealer that has lost piles of money every year, more than doubled from its IPO price of $22 a share, amid enormous hype on Wall Street. It then proceeded to skyrocket to $73.87 by September 1, 2020. And then the hype started to leech out, and on Friday, shares closed at $7.06, down 90.4% from the closing high (price data via YCharts).
Looking at a chart like this gives me the willies because it proves that there is something seriously wrong with how money-losing companies in well-established profitable industries, such as selling used vehicles, are hyped to retail investors and even asset managers as disruptors that are going to change the world, and these disrupters don’t need profits because who cares about profits when you’re changing the world.
And then the Big S hits the fan, after Wall Street banks and the insiders made huge amounts of money. That’s when other folks get cleaned out, having bought into the hype, and some unknowingly by having invested in funds that held these shares. This is now happening with hundreds of companies.
Right. Just check $AN. Those guys got it going on. Very profitable and growing like kudzu. Compare $AN to “disruptors” $VRM and $CVNA. These two fat unicorns are just more Silicon Valley vapor promises to cover for the VCs running out the backdoor with the loot raised from gullible investors:
Selling used cars is very profitable – if you understand the basics, including not overpaying for cars. It’s profitable even during tough times, when new vehicle sales struggle.
For the past 18 months, the industry has been in the hottest used vehicle market ever, with retail prices spiking to silly levels, and with people paying new-vehicle prices for two-year old used vehicles. This has generated huge per-vehicle gross profits for dealers across the board.
But Vroom and Carvana still lost money. They weren’t created to profitably sell used vehicles. That was never the plan. It would have made them look like one of the other fossils. The plan was to grow no matter what, while burning investor cash, and to bedazzle investors with that growth, and distract them from the miserable bottom line. They were created to enrich Wall Street banks and insiders.