Fortunately, Shift's cash burn is set to slow down drastically over the next three quarters. In Q1, Shift used up ~$88M of its cash (well, $38M was spent on increasing inventory), leaving just ~$107M of cash on its balance sheet (including restricted cash). In Q4, Shift announced Softbank as a new equity and debt investor, but there's been nothing since, and the stock has just kept trading lower and lower. In my view, the market is basically giving this business away for free, which has been built at an astronomical cost of ~$500M over the last decade or so. The remaining debt of $144M is convertible debt (very unlikely to be paid back in cash), and this equity dilution is factored into my valuation model. From these I remove some of the short-term liabilities (~$50) to reach my final liquidation value of $120M (approx. Shift has roughly $270M of liquidation value (cash + inventory), from this we remove $100M Flooring line of credit, which leaves Shift at $170M in liquidity. Here's how I think about liquidation value: We have discussed Shift's cash burn situation at length (multiple times) over the last three quarters because the company is literally priced for bankruptcy (trading at roughly its cash position ). Let's see what the company is doing to avoid a liquidity crisis at the firm in the next six months. However, the big question is - " Can Shift avoid bankruptcy in 2022?" Shift Is A Binary Bet If the company can deliver these numbers, I think raising capital will be much, much straightforward. EBITDA down to mid-single digits would be a spectacular feat for Shift. On the earnings call, Shift's management reiterated their confidence in this guidance. EBITDA of -13.5%, which would mean a sharp improvement in the second half of this year. While the drastic drop-off in growth rates may seem scary, it is the result of tough comps and balanced growth and spending plan from management. For Q2, Shift is expecting revenue of $230M (at the midpoint of the guidance range), which means a growth rate of ~48% y/y. Shift's Q1 results were perfectly in-line with what we expected, and the re-iteration of guidance for the rest of 2022 was very reassuring, considering the difficult macroeconomic environment. In 2022, we are focused on balancing growth and profitability, which includes driving operational efficiencies, cost savings, and improving our liquidity position. The days of Shift's hyper-growth seem to be numbered as the company aims to limit cash burn and improve profitability however, Shift is still set to grow at 50%+ CAGR for the next three years. According to Shift's management, Q1 would be the highwater mark for inventory this year, and no new regions are likely to be added this year. In their plan for 2022, Shift's management is projecting higher conversion rates as the (sales) workforce returns to the office.Īt the end of Q1 2022, Shift had 5,464 vehicles listed for sale on its website, up from 3,736 vehicles last year. Looking at some non-financial data, we can see that Shift's average monthly unique visitors grew to 823K (up 16% y/y) however, the average days to sale slowed to 56 days, which indicates lower conversion rates despite higher levels of inventory. Hence, I am seeing a gradual decline in used-car prices over the next twelve months, and I think a normalized used-car market is far more ideal for Shift than a market with a severe inventory shortage.ĭuring Q1 2022, Shift sourced 96% of its e-commerce units directly from consumers and partners (i.e., it is still not buying much from the wholesale auctions market, which the company indicated as very expensive in Q3 2021). While I think used-car prices can't stay high for much longer, I recently visited a Honda dealership, and the inventory on the lot was minimal, and the wait time for an HR-V was 15 days. According to Shift's management, used-car prices have been moderating over the last few months, but the supply of new auto vehicles is still very low, and hence, used-car prices are likely to remain elevated. GPU guidance, which came in at $220M (up 107% y/y) and $1,681, respectively. Anilakkus/E+ via Getty Images Shift Q1 2022 Earnings Reviewĭespite a challenging macro-economic environment (declining used car prices, rising interest rates), Shift ( SFT) managed to beat revenue and adj.
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