While we have seen Covid-19 pandemic hitting global economies, businesses, and equity markets at large, IPO market has not been an exception to this. The trends have impacted investors’ sentiments across primary and secondary markets. Consequently, NASDAQ did not witness a crowded IPO platform with regards to companies that planned to debut the stock market.
With the ‘new normal’ with respect to economic scenario, improving confidence among investors, and rally for US equities with NASDAQ storming new all-time high of 9,924.75, IPO market is likely to see a rebound in terms of a higher number of companies going public.
This can be related to the numerous IPO deals that will hit the charter this week.
The ongoing week is set to see one big deal for Vroom (VRM), given the fact that digital or online theme in the stock market amid Covid-19 has become investors’ favorite. We lately saw Shift4 Payments, Inc. (NYSE: four) debuting the stock market last week and closing at $35.15 on Monday. The stock soared ~53% from the IPO price of $23. On the same lines, ZoomInfo Technologies Inc. (NASDAQ: ZI) that also made a stock market debut last week, zoomed above $44 levels, more than double from its IPO price of $21 per share.
A Sneak Peek at VROOM - With IPO market gathering the steam, VROOM, online used car seller, raised its IPO size to ~$468 million by offering ~21.3 million shares at $22. Originally, the offer was filed for 18.75 million shares with the price band of $15 to $17. The company is expected to start trading on NASDAQ with the ticker “VRM”. Big financial institutions like Goldman Sachs Group Inc., Bank of America Corp., Allen & Co. and Wells Fargo & Co., etc., are underwriters of this issue.
Coming to the deployment of funds, the company aims to invest in general corporate objectives, which include advertising and marketing, technology related add-ons, working capital management, operating and capital related expenditures. A portion of the net proceeds might be used to explore new business opportunities. However, one factor that can derail the growth aspirations is to do with restrictions around non-essential travel but that is circled around short-term challenges. Nonetheless, VROOM can turn out to be an example of a paradigm shift for car industry.
Business Model and Financial Snapshot: VROOM generates its revenue from the sale of used vehicles and value-added products via directly to customers or through its ecommerce segment. Looking at the FY19 segment-wise revenue contribution, e-commerce accounted for the highest chunk at 49.3%, followed by other segments.
It will be crucial to look at VROOM given the range of competitors it has including Carvana (CVNA), Cars.com (CARS), TrueCar (TRUE). Among these, CVNA has soared in a big manner since its listing 2017. Investor fraternity is looking at VROOM with a similar audacity and expected return profile.
It is noteworthy that the U.S. used automotive market is highly fragmented and is ripe for disruption; and e-commerce penetration, which is currently at just 0.9% of all used vehicle sales, is likely to grow significantly by 2030. With national presence, brand recognition, scalable technology, operations and logistics, the Company might see a competitive advantage over local dealerships and regional players.
In a scenario, wherein the long-term impact of the COVID-19 pandemic on consumer behavior is hard to measure, buying vehicles through online platforms is likely to remain in limelight. With key business strategies remaining intact, the company is likely to see enhanced opportunities driven by higher consumer demand and acceptance of e-commerce solutions with regards to its business model.