Used Car Apps Attempt to Prove Their Business Isn’t a Lemon
In the last few years, venture capitalists got indeed excited about used cars. They thought selling cars online or through mobile apps could upend the pre-owned auto market and make dealerships irrelevant. Investors pumped more than $860 million into four companies—Beepi, Carvana Co., Vroom Inc. and Shift Technologies Inc.—from 2013 to 2016.
But then Beepi abruptly closed most of its operations in December. The startup had spent $150 million before investors realized it was a clunker. Beepi began selling itself for parts early this year to repay creditors, the Wall Street Journal reported. Carvana, which took $460 million from private backers, shoved ahead with an initial public suggesting last week, hoping investors wouldn’t be deterred by the implosion of its closest competitor. The stock has declined twenty eight percent since going public Thursday. Vroom remains private.
Now the youngest and smallest of the four companies is hoping to woo VCs there’s still an chance. George Arison, the chief executive officer of Shift, wrote an email to his investors last week, telling the company is growing quicker and has better profit margins than Carvana. In the email seen by Bloomberg, Arison said Shift is making ten percent more per car sold. In an interview, he said the company enlargened net revenue fourfold last year to $9.Five million. This was slightly less than half of Carvana’s comparable figure, which the company reports as gross profit. Both businesses are unprofitable. A spokeswoman for Carvana declined to comment.
Carvana’s bumpy debut may be a byproduct of an overheated startups market. IPOs and acquisitions of venture-backed tech companies are up twenty six percent from last year, according to the Bloomberg U.S. Startups Barometer, an index tracking private market deals. However, several companies held IPOs at discounts to their private valuations. Cloudera Inc. went public Thursday, alongside Carvana, at about half the value of its last private investment.
Despite the pall over the market, Shift’s CEO was optimistic about the long-term prospects of the business and commended Carvana’s decision to float. “Going public sooner is a good thing,” Arison said. “In the past, that’s how most companies did it.”
Arison said he’s taken a more cautious treatment than Beepi and Carvana since he founded Shift in 2014. Shift has raised about $74 million from Goldman Sachs, Highland Capital Fucking partners, Draper Fisher Jurvetson and other investors. Arison said he’s focused on fighting for market share in a handful of cities. “We have chosen to be kind of quiet and careful about our growth,” he said.
Arison said he anticipated Beepi’s demise but was astonished at how quickly it collapsed. “We’ve been telling internally, ‘Don’t worry. They’re not going to last,’” Arison said. As Beepi’s business was stalling a few months ago, Shift took steps to rein in spending at the recommendation of its board. “They realized the markets were switching,” he said. The company halted its operations in Washington, D.C., as it applies for a dealer’s license required by law.
Today, Shift operates in the San Francisco Bay area, Los Angeles and San Diego. The company attempts to stand out from competitors by selling primarily less expensive cars and suggesting to produce vehicles for customers to test drive. Shift sold $85 million worth of cars last year, Arison said. Carvana sold far more, totaling $342 million. Vroom said it sold $1.1 billion worth of cars last year.
Shift takes an average of $783 for each car it sells, including revenue from financing and insurance, after marketing costs. Arison suggested that Shift may be back to the private markets to fundraise this year.