Shift Technologies (SFT) America's Saga?

[Jylpyz]

Let’s open a thread about this. This is an interesting growth company I came across on a YouTube channel. Shift Technologies is an online car dealership that went public last year and raised approximately $300 million in funding through a SPAC arrangement.

It’s an online used car dealership founded in 2013, operating in the United States, with about 3,000 cars in its selection and a market value of approx. $600 million. Its P/S ratio based on this year’s forecasts is only 1.35.

The US used car market is huge, about $840 billion. The share of online sales is still less than 1% of this market. The hundred largest car dealerships in the country account for less than 6% of the entire market. In addition, the US is the world’s second-largest online market after China, so there’s plenty of room for growth on its own continent.

The company is growing over 100% annually, but growth has come at a price, and last year the company made a loss of $59 million on revenues of $196 million. The company has raised approximately $220 million in funding over the years, with major investors including Lithia Motors and BMW iVentures.

In the last quarter of last year, they spent about $10 million on marketing, so their marketing budget alone is over 40 times larger compared to, for example, a Finnish car dealership.

The losses are huge for both Shift and its competitors.
But in the long run, investing in the US car dealership market has been very profitable, including Carmax, Autonation, Lithia Motors, Carvana, etc…

Competitors in online car sales include:

Carvana => Revenue: $5.5 billion P/S: 2.54
Vroom => Revenue: $1.3 billion P/S: 2.11

Figures from last year (2020):

• Revenue $195.7 million
• Net result (-$59.2 million)
• Cars sold 13,135 units

Forecast Q1 2021

• Revenue $90-95 million
• EBITDA ($33 million)-($35 million)

Forecast for 2021

• Revenue $450 million
• EBITDA margin >(25%)
• Cars sold 20,900 units

Based on the numbers, this is a very risky investment, but Carvana has also risen well despite making staggering losses in recent years. Shift still had $233 million in cash at the end of last year.

Growth seems to continue in the first quarter of the year, at least in terms of car inventory. The Q4 average was 850 units, and now over 3,000 units (Jan 1665 units, Feb 2089 units), so at least a record-breaking quarter in terms of revenue is coming.

Correct me if necessary.

[Pohjolan_Eka]

Interesting opening, thanks for that!

I think there’s a simple explanation for the low valuation:

Carvana GPU:

Carmax GPU:
Used vehicle gross profit per unit (GPU) rose 1.3% to $2,195

Vroom GPU:

Shift Technologies GPU:
20Q4 Adjusted GPU $514

Investors have clearly noticed the significantly lower margin per car compared to peers and therefore refuse to price the company at the same multiples as its peers. It remains to be seen whether the company can raise its profitability to the level of its peers.

https://cdn.discordapp.com/attachments/829653627106492428/834493084917563422/unknown.png

In addition, they seem to have a strangely close relationship with Lithia Motors. This should probably be investigated a bit more to see how dependent they are on that company and its goodwill.

No big deal, if they can get that GPU up, then this is clearly cheap compared to its peers.

[Jylpyz]

The company’s guidance for the gross profit per car in Q1 21 is $1200-1350 per car, and for 2020, it was $1350.

In addition, inventory turnover in the last quarter of last year was 43 days, meaning sales were made at the expense of profit margins.

The company itself attributed the poor Q4 gross profit per car partly to the use of subcontractors in car reconditioning. They are indeed trying to inspect and repair all cars themselves. Apparently, car repairs in the US are very expensive due to labor costs.

As I recall, their throughput for car reconditioning in January of this year was 500 cars per week. So, they certainly have quite a factory there.

[Jylpyz]

Regarding the car-specific margin, the forecast for the entire year 2021 is $1600 (GPU).

In the case of Vroom, for example, over 50% comes from additional services, such as financing and insurance. Car loan interest rates there can be even over 30% per year, which makes Kamux’s 6.9% interest pale in comparison.

The Product Cross Profit information was not found on their website, so it is not yet known how much of that margin comes from financing and insurance. However, the larger the company grows, the easier it is for them to negotiate agreements with financing and insurance companies. So this will grow with the company.

In some interview, the CEO stated about the Lithia Motors thing that it is just a shareholder and only does a few favors for them this year, e.g.: Floorplan. The smartest people could tell what that is?

I guess Lithia has joined in an investment sense, as Shift is partly a software company, meaning they have their own engineers who make their systems and algorithms, etc… and they really want to utilize AI in all their processes. Their software could already be very valuable to Lithia.

[Jylpyz]

Below is an updated list of Shift’s inventory market share vs. share of inventory.
Apologies that the list does not include the market shares of all brands, as they were outside the 2018 top 10 list, and the full list would have been paid.

The small share of Ford and Chevrolet in the inventory is explained by the fact that Shift has most of its inventories in California, and the sales volumes of these Pickup trucks are smaller there than elsewhere in the country.

In addition, it’s worth noting that the share of Japanese brands is large, as their post-purchase costs are lower than those of US brands.

[Jylpyz]

Excellent Q1 earnings report. Of course, the EBITDA and EPS were worse than forecast, but revenue and gross profit per unit saw a huge improvement.

Below are the highlights:

Total revenue grew 254% year-over-year, reaching a record $106.0 million.

Total units sold were 5,979, up 181%. Total ecommerce units sold were 4,452 and total wholesale units sold were 1,527, an increase of 213% and 116%, respectively.

Gross profit per unit was $1,655, growing 255% from $466 in Q4’2020.

Adjusted gross profit per unit1 (“Adjusted GPU”) was $1,690, growing 229% from $514 in Q4’2020.

SG&A was $50.2 million, or 47.4% of revenue, as compared to $13.4 million or 44.9% of revenue. Marketing expenses were $15.4 million, or 14.5% of revenue, as compared to $1.8 million, or 6.0% of revenue.

Net loss was $42.8 million as compared to net loss of 12.3 million, and basic and diluted net loss per share was (0.55)

Adjusted EBITDA1 was a loss of $34.4 million or 32.5% of total revenue, as compared to a loss of $9.7 million or 32.3% of revenue in the prior year period.

[Trivial]

Great earnings and revenue growing at a furious pace. Perhaps the most interesting piece of information, however, was that the guidance for the end of the year was raised.
FY 2021 Outlook

We are raising guidance for the year ending December 31, 2021 as follows:

• Revenue in the range of $480 - $520 million, an increase of 145% - 166% year-over-year
• Ecommerce units of 21,000 - 23,000
• Adjusted GPU1,2 greater than $1,800 per ecommerce unit
• Adjusted EBITDA Margin1,2 better than (24)%

On the other hand, it’s a growth company and an ex-spac, so it doesn’t matter what kind of result is achieved, as it will probably still fall -5% today anyway.

Competitor CarLOTZ also published a decent result this week, but it fell short of forecasts, and the guidance left something to be desired. The foggy FY 2021 forecast was rewarded with a -20% decline.

Both are in the portfolio for now, and I believe that production problems for new cars due to component shortages and rising used car prices will positively impact the Q2 results.

The business is developing in the right direction, but stock movements are impossible to predict in this market.

[jaska7]

Carvana also had strong numbers a week ago

Carvana (CVNA) - Autokaupan Amazon?

Edit: @Jylpyz Yes, that’s exactly what I meant, that everyone is getting strong numbers across the board!

[Jylpyz]

@jaska1

Carvana also reported strong figures a week ago

Carvana’s 1Q results: Retail units sold totaled 92,457, an increase of 76%  Revenue totaled $2.245 billion, an increase of 104%  Total gross profit was $338 million, an increase of 145%  Total gross profit per unit was $3,656, an increase of $1,016  Net loss was $82 million, an improvement from $184 million  EBITDA margin was (1.3%), an improvement from (12.6%)

Currently, the used car market is doing well in the US, so almost all car dealerships have reported good figures. P.S. Carvana’s stock has increased more than 20-fold since its listing (2017)

[Trivial]

@Trivial

On the other hand, it’s a growth company and an ex-SPAC, so it doesn’t matter what kind of result is released, as it will probably drop -5% today anyway.

Now I’m starting to get pretty annoyed that my guess was right again…

I really don’t understand this market at all, maybe I should just sell all my stocks and switch to index investing.

[kettunen]

@Trivial

I just don’t understand this market at all, maybe I should just sell all my shares and switch to index investing

When using growth and tech stocks as comparables, they’ve been coming down for a while, and today they’ve taken another big hit with significant volume. I’m also watching my portfolio melt as lidar stocks drop by -8-14%. It seems the market isn’t interested in any growth, which is reflected across a wider front with large losses. An “okay” result isn’t enough, apparently not even beating forecasts.

[Jylpyz]

It was dizzying to watch yesterday’s stock price, opening at +5% and at its best -6%.

Hopefully, the market will recover from the collapse of these high-valuation stocks before a possible share issue. The current cash should cover current expenses/growth for approximately one year.

It is significantly better for current shareholders if money is raised at $10 per share than at $6 per share.

[Jylpyz]

Great development in the gross margin per car in Q4 (20) vs. Q1 (21). The gross margin per car has turned positive in both wholesale and customer sales. Also, the gross margin from additional services has risen a whopping $147 per car sold. Inventory turnover has also remained under 50 days.

Q1

Q4

[Jylpyz]

@Jylpyz

Hopefully, the market would recover from the collapse of these high-valuation stocks before a potential share issue. The current cash should last for current expenses/growth for about a year.

It’s much better for current shareholders if money is raised at $10/share than at $6/share.

75M convertible notes out and new lows for the share price. Well, at least the announcement came on an otherwise green day

https://investors.shift.com/news-releases/news-release-details/shift-technologies-inc-announces-75000000-convertible-notes

[Trivial]

@Jylpyz

75m Bondi out and looking for new bottoms for the course. Well, luckily the announcement came on an otherwise green day

Luckily it is indeed an otherwise green day, otherwise it might have been very annoying again. I’m sure this will rise again at the end of the year, and if not, at least I can deduct the handsome losses in taxation.

[Jylpyz]

Looks like there was a change to yesterday’s convertible bond. They are raising a total of 125m

https://investors.shift.com/news-releases/news-release-details/shift-technologies-inc-announces-pricing-upsized-125000000

[Jylpyz]

The analysts’ revenue forecast for the upcoming Q2 is interesting. The highest revenue forecast is only 128.6m, especially when compared to Shift’s car inventory and the current quarter, which is the busiest time of the year for car sales.

Q1 (21) revenue was 106m and the average car inventory was 1648 units.

Q2 (21) estimated average inventory is approx. 3016 units (estimated that at the beginning of next month, there will be 3200 cars in inventory).

The company forecasts Q2 revenue to be 120-130m.

Additionally, according to the CPI report, used car prices in the US rose by 10% in April alone, which also supports sales for the current quarter.

[Jylpyz]

Insider buying

https://investors.shift.com/news-releases/news-release-details/shift-executives-announce-purchase-shares-0#

[Geologiopiskelija]

https://investors.shift.com/news-releases/news-release-details/shift-grows-revenue-377-q22021-raises-guidance-2021

Taken an initial position here. It’s annoying that the exact numbers aren’t shown there, and I couldn’t find the Q2 2020 figures anywhere, only the growth percentages (which are delightfully high ).
Marketscreener’s forecasts show operating profit in the red until at least 2023, even while forecasting over 1 billion in revenue Will this ever become profitable with any amount of revenue?

Edit: Found a separate PDF here with the numbers (Q2 shareholder letter)
Events & Presentations | Shift Technologies, Inc.

[Trivial]

The Q2 results indeed came out last night, and we already touched over the $11 level after hours. Premarket also looked promising, but apparently, US inflation figures and the halt in used car price increases caused panic again, and now we’re wondering which way to go - apparently down again