RumbleOn - (RMBL) - New Stock Idea

danstocks · October 10, 2018, 12:03am

RumbleOn - (RMBL) operates a capital-light disruptive 100% Online Market Place for Motorcycles and Powersports, facilitating the ability of both consumers and dealers to Buy-Sell-Trade-Finance pre-owned vehicles in one online location. RMBL piggybacks off the existing network of dealers and auction houses throughout the country by outsourcing all maintenance, reconditioning, warehousing, and shipping to these partners. As a result, it is able to expand rapidly into adjacent markets. (RV’s coming in Q4 2018 and Boats in early 2019).

They are also launching RumbleOn Classifieds, a one-stop platform exclusively for consumers to buy and sell powersports vehicles. It is the first of its kind in the powersports marketplace. Bill Bonnaud, RMBL’s new Director of Classifieds has over 30 years of experience in the powersports industry. In addition, RMBL has also hinted at getting into sales of parts, accessories, and clothing and gear related to motorcycles and RVs and boats.

RMBL mission is “to completely disrupt the way consumers buy and sell vehicles today”.

Cash: $18 Million
Market Cap: $123 Million
Customer Concentration: None
TAM: Over $20 Billion (between Motorcycles, RVs, and Boats)
IPO: 10/2017

There is very little analyst coverage outside of the underwriters and very little mention of it becoming an online marketplace with significant first mover advantage that is moving into higher margin businesses like online classifieds.

RMBL is the only buyer and seller of vehicles that operates 100% online. They offer online Cash Offers which are received in minutes after filling out some information on their website or app (these are VIN verified). RMBL then ships it to one of it’s 11 partner locations across the country where it is inspected, reconditioned and prepared for sale. RMBL then turns around and sells it to any interested, dealer, auction house or consumer. Their classifieds business will have competition from the likes of Craigslist and a smaller company called CycleTrader.com, however RMBL is a platform allowing you to list nationally instead of just a localized regional area like on Craigslist. Listing fees generally generate over 90% margins. Cars.com (CARS) and CarGurus (CARG) are two examples of such businesses operating at 90%+ margins.

Revenue Growth since IPO:
Q4 2017 – $3.44 Million
Q1 2018 - $8.08 Million
Q2 2018 - $13.9 Million
Expected Q3 2018 - $25.50 Million
Expected Q4 2018 - $50 Million.
RMBL is looking to have 12,000+ unit sales by the end of 2018 which would result in $150 Million Revenue Run Rate, with plans to double that by the end of 2019.

Numbers below are comparing Q1 and Q2, not the normal YoY:
129% increase in unit sales
72% increase in revenue
126% increase in gross profit
Gross margin increase of 260 basis points from 8.6% to 11.2% and looking to get to 13% next quarter and 14% longer term
Net Loss decreased to 33.8% from 44.5%
Total SG&A decreased to 39.9% from 48%
Compensation and related costs decreased to 11% from 17.3%
Advertising increased to 16% from 13.9% but looking to get this to 6.5% by the end of Q4
Guiding for close to breakeven on cash flow from operations in Q4.

Management:
Marshall Chesrown (owned 17.9% of shares after the IPO) is co-founder and CEO of RMBL. He was an AutoNation Executive (once called the “best used-car retailer in the country” by AutoNation’s former President and CEO Michael Maroone), who went on to help raise roughly $100M in funding for Vroom.com, an online used-vehicle retailer he co-founded which is now the 2nd largest e-commerce retailer of used vehicles in the US behind Carvana (CVNA).

Steve Berrard (owned 15.8% of shares after the IPO) is co-founder and CFO of RMBL. He helped start AutoNation back in the 90’s and before that was the CEO of Blockbuster, helping to sell it to Viacom for $8 Billion.

Glassdoor: 5.0 with 45 Reviews and 100% Recommend CEO (only 2 ratings though)

Conclusion: This really seems like a disruptor of a very fragmented niche area with lots of optionality (full pipeline of product enhancements and expansion initiatives for 2nd half of 2018). The founders (and new Directors) have been doing this sort of thing for a really long time with different businesses and seem to have what it takes to make it happen. I love how small this business is and how fast it is growing. Financials seem to be heading in the right direction. A capital-light business model. 100% online, meaning no retail locations and no warehouses, etc. Over 100,000 cash offers already, which if not accepted will now lead to RumbleOn Classifieds (higher margin). This can happen within several areas (Motorcycles, RV’s, Boats and more). New Dealer Direct (Inventory available DAILY and not once a month as the industry is today). A growing Partnership Network of 11 locations literally across the country.

All of this gets me very excited. If you are able to offer some critiques or helpful insights I would greatly appreciate it.

Sources:
Q2 Shareholder Letter - https://s22.q4cdn.com/172929361/files/doc_financials/2018/q2…
Catalyst Capital article – Seeking Alpha - https://seekingalpha.com/article/4197618-rumbleon-internet-d…
S-1 Filing – Seeking Alpha - https://seekingalpha.com/filing/3708024

Daniel
P.S. Currently I have a 9.2% position. Next earnings report is scheduled for 11/08/18.

mekong22 · October 10, 2018, 9:40am

Dan

great writeup, thanks for sharing!

the revenue growth and small valuation (especially if they hit the full year 2018 number puts them around a less than 1.0 P/S is very intriguing

Just took a quick look at their latest 10-Q for June 30, 2018.

the low margins (< 10%) jump out at me, as well as the rate that they are burning through cash. They took on about $6 million of debt in the first half of this year, without which it appears they would have run out of money (only $5.5 million of cash on the balance sheet at 6/30/18). They’re spending about $5 million+ per quarter on SG&A, so even at $50 million for Q4, at less than 10% margins, they would still not be covering their costs even if they get there.

Certainly if they can continue to grow revenue at the rate they have been going and control their costs, then this could be a big winner, but for me, it’s more of a gamble at this stage. I’d rather let it play out a bit more and pay a higher valuation further down the line even if I lose out on some of the early upside.

At 9.2%, you clearly have a high conviction, so good luck, I hope it plays out nicely. Will be interested to follow the story and whether they can truly be a game changer throughout the industry

-mekong

PaulWBryant · October 10, 2018, 12:07pm

There is very little analyst coverage outside of the underwriters and very little mention of it becoming an online marketplace with significant first mover advantage that is moving into higher margin businesses like online classifieds.

Market Cap: $123 Million

Gross margin increase of 260 basis points from 8.6% to 11.2% and looking to get to 13% next quarter and 14% longer term

I have a 9.2% position.

Daniel,

Thank you for bringing this to the board. You asked for critiques and insights, so I wanted to give my feedback. Frankly I see all the above snippets as red flags.

Stocks with little analyst coverage are especially dangerous because there may be unknown, unexposed dangers lurking that we aren’t privy to.
A tiny market cap of less than 500m (basically a penny stock) is dangerous for the same reason, and also because the stock can be subject to manipulation (pump and dump schemes etc).
The gross margin here is the biggest flag. Although it is improving, it is extremely low at just over 11%. I notice that though the revenue has bounded upward tremendously, cost of revenue has jumped too. That makes me think the platform may not exactly run itself. I could be wrong, and this could be headed for 60% or 80% gross margins like the companies we follow here. But as you can see, that’s a LOOOOOOOOOOONG way off, and it’s really speculation at this point.
As I believe this to be speculation, I don’t know that you’re wrong. Sometimes speculation works. But a 9.2% position is huge. I would implore you with every ounce of credibility I’ve got: if you must own this, make it a 2% position or smaller. Whatever you can completely lose without caring. Not saying it will go to zero, but I wouldn’t be surprised if it fluctuates wildly. Yes, they may hit their numbers and go up tremendously. But this story could very well peter out, and the stock could trend down as investors give up on them.

It’s too early to tell, in my opinion.

Bear