This Could be the Amazon of the Auto Market

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The year is 1995.

Your newspaper is delivered to your driveway every morning by the paper boy. You write physical letters to your mom to stay in touch.

When you want to shop, you go to a mall. When you want a book, you go to a bookstore. And when you want to buy a new car, you go to the local dealership.

Fast forward to 2020.

Your newspaper is digitally delivered to your inbox every morning (if you even have a subscription). You FaceTime or Zoom your mom to stay in touch.

When you want to shop, you go to Amazon.com. When you want a book, you download an e-book. And when you want to buy a new car… well… you still go to the local dealership.

See the problem there?

Every facet of our lives has been dramatically modernized and digitized over the past 25 years.

Except for the car buying process… which remains stuck in the stone age because of antiquated beliefs that you need to physically see and touch a car to really know if you like it.

But Covid-19 is changing these antiquated beliefs.

And over the next decade, the legacy dealership-centric car buying process is going to leapfrog into the modern digital era, fundamentally disrupting the $1.5 TRILLION auto market in the U.S.

This is a once-in-a-lifetime disruption, and you can play it by buying a mid-cap stock that is pioneering a new era of online car buying and selling and could become the Amazon (NASDAQ:AMZN) of used cars.

Pioneering Car Buying & Selling into a More Efficient Future

Make no mistake.

We are finally jumping headfirst into a world where consumers buy and sell cars online.

That’s great news for a freshly public, up-and-coming $5.6 billion auto e-commerce company by the name of Vroom (NASDAQ:VRM).

Vroom is part of a new class of emerging, all-in-one online marketplaces for researching, discovering, buying, and selling used cars.

These marketplaces are leveraging technology to prove that we don’t need dealerships anymore.

Need to see the car? Vroom and others provide advanced 3D image rendering to provide robust, granular visualizations of the exterior and interior of every car on their site – and these visualizations are truly on par with seeing the car in person.

Need to inspect for scratches? Vroom and others provide an in-depth visual summary of all scratches, dents, and imperfections on all listed vehicles.

Need to test drive it? After you purchase a car from Vroom, you have seven days to test drive it – and if you don’t like the way it drives, you can return the car for a full refund.

Meanwhile, inventory on Vroom is national and measures in the thousands of cars (versus just hundreds for an individual dealership). Vroom’s platform is always open (dealerships close at 7pm). And, of course, the platform is built on frictionless e-commerce with contactless doorstep delivery.

In other words, Vroom has created a modern e-commerce platform which simplifies, streamlines, cheapens, accelerates, and broadly improves the car buying/selling process.

Adoption of this breakthrough process is soaring in 2020 thanks to the Covid-19 pandemic.

In the first half of 2020, Vroom sold nearly 110% more cars online than the company sold in the first half of 2019.

This is really just the beginning for Vroom.

There are over 40 million used cars sold every year. Only 0.9% of those cars are sold online. Meanwhile, about 13% of furniture is sold online, while around 30% of apparel is sold online, and over 40% of consumer electronics are sold online.

Clearly, there is visibility for the auto market to run towards 10%, 20%, 30%-plus online penetration over the next several years as online auto shopping adoption soars in a post-Covid world.

In this soaring market, Vroom will forever remain a very important player… something like the Amazon of used car buying… because the company has huge advantages when it comes to vehicle inventory, national distribution, powerful brand equity, and robust data.

The implications of this for Vroom stock are enormous.

If the auto market looks like the home goods market by 2030 (13% online penetration) and Vroom nabs 10% of that online used car market, then my numbers say this will be a $20 billion company by the end of the decade.

But… if the auto market looks like the apparel/consumer electronics markets by 2030 (30%-plus online penetration) and Vroom again nabs just 10% market share, then my numbers imply a 2030 valuation of $50 billion.

This is factoring in the U.S. opportunity only.

Needless to say, then, Vroom stock has huge long-term upside potential over the next decade as the company pioneers a new era of online car shopping.

It’s not too dissimilar from what Amazon did over the past decade.

So… to that extent… if you’re looking for the next Amazon, you may have found it in Vroom stock.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

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The post This Could be the Amazon of the Auto Market appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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