Shift ($SFT) DD: A rapidly growing competitor to Carvana that seems undervalued

by Tiaan

What is Shift?

  • Shift is an online platform where you can buy used cars and/or sell your used car. Their main competitors are Carvana and Vroom.

I’ve never heard of Shift..can they even compete with big players like Carvana?

  • Used car sales are actually consistently greater than new car sales in the US, and for over a decade, the rate of used car sales has been growing faster than the rate of new car sales. The total used car market in the US was $841b in 2019, yet less than 1% of all car sales in 2019 occurred on an ecommerce marketplace like Carvana or Shift. This is at odds with the trends, as more consumers are moving towards doing most if not all of their shopping online. This trend was accelerated with the COVID 19 pandemic. There is plenty of space for growth in this category for several major players.

What separates Shift from their competitors, such as Carvana and Vroom?

  • Shift has several unique features compared to their competitors. They are the only service in their space that offers free test drives at your home. If you see the car you like online, you can request to test drive it, and Shift will bring it to your door for you to test drive with no commitment to buy. They also focus on older cars compared to their competitors, specifically cars that are 3-5 and 6-10 years old. They also focus on cars that are less than $20k in price, with 40% of their sales being $10k-$20k and 16% being <$10k. Cars of this age and price range are the largest segment of the used car market. For reference, 1-3 year old car listings comprise 48% of Carvana’s and 68% of Vroom’s listings, compared to just 25% of Shift’s. Cars priced over $20k comprise 79% of Vroom’s listings and 27% of Carvana’s, compared to 20% of Shift’s.

Where does Shift operate?

  • They currently operate primarily in the west coast including California, the state with the largest number of vehicles sold per year, Portland, Oregon and Seattle, Washington. In Q4 of 2020, they launched four hubs in Texas, the state with the third largest vehicle market, in Dallas, Fort Worth, Austin and San Antonio, with more plans for future expansion.

The Numbers

Here’s how Shift’s current numbers stack up against their competitors:

Feature Shift Carvana Vroom*
Share price as of 3/10/2021 $8.55 $260.45 $34.10
Market Cap $716M $44.8B $4.62B
Total Enterprise Value (TEV) $497M $46.7B $3.92B
2020 Revenue $195.7M $5.58B $1.36B
Estimated 2021 Revenue (average of analysts) $445M $8.7B $2.51B
Estimated 2021 Revenue Growth % 127% 56% 85%
2020 TEV/REV 2.54x 8.3x 2.88x
NTM TEV/REV 1.1x 5.36x 1.56x
NTM TEV/EBITDA -4.41x -563x -16.2x

*Note that Vroom is down nearly 33% this month and is just now approaching levels comparable to Shift at its current price level.

From the table above, we can see that by buying Shift, you are paying a lower multiple even when factoring in analyst’s average estimates of larger growth (over 100%) in 2021 compared to their competitors.

Recent Earnings (3/09/2021)

Shift has been growing very rapidly and shows no signs of slowing down:

  • In Q4 of 2020, they sold 4,666 units earning $73.4m revenue, representing 147% and 168% year over year growth and ended the year at $195.7m in total revenue (18% YoY growth) with 13,135 units sold.
  • Their margins have also drastically improved, with their adjusted gross profit per unit in 2020 being $1,350 compared to $811 the year before, a 66% change. This has been largely due to their focus in 2020 on building up their in-house recondition (repairs/maintenance) team instead of relying on 3rd party mechanic vendors, with only 14% of cars being reconditioned by 3rd parties in Jan of 2021 compared to 45% at its peak.
  • As they have grown their in-house reconditioning team’s ability to process cars in house, they have invested significantly in acquiring inventory, and have increased their sellable inventory by 148% from December 2020 to March 2021.
  • As of Dec 31st, 2020, the company had $234m in cash and cash equivalents and $49m in inventory, with $312m in total assets and $74.9m in total liabilities.

2021 Guidance:

  • For Q1 of 2021, they are guiding revenue of $90m-$95m, representing 200-217% YoY growth. For 2021, they are expecting $450M in revenue, a 130% YoY increase and is inline with analyst’s expectations, with $1,600 adjusted gross profit per unit, a 19% YoY increase, which is on track for their target of $2,500 in the next few years.

Disclaimer

  • I hold shares in Shift and continue to buy at these prices as I am bullish on the company. Thanks for reading

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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