Vroom IPO: Five things to know about the online used-car seller

Online used-car seller Vroom Inc. is aiming to raise more than $300 million in an initial public offering under the shadow of the coronavirus pandemic…

Vroom VRM, could benefit from the broader shift to online shopping accelerated by the pandemic. With the economic uncertainty and turmoil in the car industry, however, its business model could become more challenging. Vroom already has had to cut prices and its profit margins have shrunk.

“The market is placing a high value on next-generation companies that can thrive in a post-COVID economy,” said Matthew Kennedy, a senior IPO market strategist with Renaissance Capital, which manages IPO-focused ETFs. “Vroom falls into that category.”

Car dealerships are under pressure as consumers both delay big-ticket purchases and limit non-essential travel, if the dealerships are open at all, Kennedy said.

“However, tech-focused used car platforms like Vroom proved more resilient. Consumers are increasingly interested in shopping online for cars, and the COVID-19 outbreak (has) accelerated that trend.”

Kennedy points to the success of Carvana Co. CVNA, -2.17% shares, which have rebounded since March, when most of the U.S. went under shelter-in-place, public-health orders to slow the spread of the virus. Shares of Carvana, Vroom’s main competitor, are trading more than 600% above the company’s 2017 IPO price.

“That alone could drive interest in Vroom,” he said.

The IPO market has…

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