![]() ![]() Moreover, Peer-to-peer sales contribute ~50% of all sales in this market. There are more than 42,000 used-car dealerships in the US alone. As you can see, the US used-car retail market is highly fragmented, with the top 100 dealer groups having just a 6% market share. We have previously spoken about the $840B+ used-car retail market in the US, but let's review our thoughts on it once more. In today's article, we will review the used-car market opportunity, assess Shift's business (qualitatively and quantitatively), and determine its fair value (and expected returns). According to my estimation, Shift can generate a CAGR return of ~35% over the next ten years. The stock is trading at a 76% discount to its fair value of $35.67. However, this price decline is an excellent opportunity to generate massive alpha over the long term. Since going public through a SPAC deal, Shift's stock has underperformed significantly after disappointing earnings reports (significantly lower GPU than previous guidance) in 2020. Over the next decade, Shift is set to deliver rapid revenue growth (~200% y/y growth expected for 2021) combined with margin improvements arising from economies of scale and the addition of higher-margin services. As the world's digital transformation proceeds further, more people should buy and sell used cars on e-commerce platforms like Shift, Vroom, and Carvana. However, the coronavirus pandemic has accelerated consumer use of e-commerce platforms and motivated people to own personal vehicles, and so, the online used-car sales market is likely to benefit from these tailwinds. In 2020, Shift's revenue growth rate slowed down to just 18% due to short-term issues related to inventory (which have been resolved as of March 2021). Hence, Shift is well positioned to benefit from the inevitable growth of e-commerce in the used auto retail market. Today, e-commerce penetration in this market stands at less than 2%. In the United States alone, the highly fragmented used-car market is estimated to be worth $840 billion. Furthermore, Shift offers value-added services such as financing, insurance, vehicle maintenance contracts, etc. ![]() Shift is an end-to-end auto e-commerce platform that enables users to buy and sell cars online right from the comfort of their homes. We will look at the logic of Shift's valuation at a later point in this article, but going by the numbers mentioned above, you know it's a no-brainer buy if the business holds up strong on our quality (BTM Crucial Characteristics) check. Vroom:Īs you can see, Shift is the best value and offers the highest expected return from this group of rapidly growing end-to-end auto e-commerce companies. In my hunt to find a way to play the used car market opportunity, I have finally zeroed in on Shift Technologies ( NASDAQ: SFT ).īefore we get into the detailed investment thesis, I would like to share a comparative analysis of Shift vs. Even at current prices, I don't like their valuations. Since then, Carvana has outperformed the S&P 500 by ~2%, and Vroom has underperformed S&P 500 by ~40%. However, after carrying out thorough due diligence, we concluded that both Carvana and Vroom were richly priced at $210 per share and $49 per share, respectively. Carvana: A Compelling Narrative With One Major Issue We have previously presented detailed research on both - Carvana and Vroom, as can be found here:ġ. Sergio Di Pasquale Luci/iStock Editorial via Getty Images Investment ThesisĪn acceleration in the transformational shift in the massive yet highly fragmented used car retail market (from traditional auto-dealerships toward digitally-native tech companies like Carvana ( CVNA) and Vroom ( VRM)) has piqued our interest over the last few months. ![]() Active contributors also get free access to SA Premium. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Learn More »Įditor's note: Seeking Alpha is proud to welcome Ahan Vashi as a new contributor. Looking for more investing ideas like this one? Get them exclusively at Beating the Market.According to my estimates, Shift's stock is severely undervalued and long-term investors could expect to generate ~35% CAGR returns over the next decade.Furthermore, I provide my fair value and expected return estimates for Shift based on very conservative assumptions. In this note, I will share a detailed qualitative and quantitative analysis of Shift's business.End-to-end e-commerce platforms such as Shift, Carvana, and Vroom are revolutionizing the used car industry through the use of advanced AI/ML technology.However, this market is still highly fragmented and e-commerce penetration remains below 2%. In the United States alone, the used car industry is estimated to be worth $840B per year.Shift is one of the most compelling ways to play the transformational change in consumer buying and selling patterns in the used car market. ![]()
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