A proposed class action alleges Vroom, Inc. and its CEO and CFO have issued over roughly the last year “materially false and/or misleading statements” with regard to the e-commerce platform’s “business, operations, and compliance policies.”
The 40-page securities lawsuit alleges Vroom, a platform that buys and sells used cars and provides contactless delivery to the buyer’s driveway, was not entirely forthcoming to stockholders with regard to its apparent lack of inventory, which the suit says materially constrained the company’s ability to increase revenues in 2020’s second quarter and meet surging consumer demand for online used cars. Moreover, the case claims Vroom issued false and misleading statements with regard to its slashing of the average selling price per vehicle by 15 percent due to a “sustained and fundamental market shift” to lower-priced cars, and not simply because of the company’s apparent “inventory reduction activities” from earlier in the year.
Further, the suit says Vroom was not upfront during the class period about its lack of adequate sales and support staff that caused “degraded customer experiences, lost sales opportunities, and a greater than 10% increase” in the average number of days to sale for Vroom products. Vroom, the lawsuit says, was forced to invest “tens of millions of dollars” in growing inventory and bolstering its sales and support and logistics networks, which materially impaired the company’s short-term profitability, per the case.
Unbeknownst to investors, Vroom, as a result of the foregoing, was generating “materially lower profits per vehicle,” and poised to suffer “accelerating losses and increased negative cash flows” even with a “robust online used car market,” the complaint goes on to allege. Further, Vroom’s inventory growth had far outrun “the capabilities of its existing sales and support personnel,” which created a logistical bottleneck that “threatened the Company’s profits, the value of its existing inventory, and its ability to achieve positive cash flows,” the case alleges.
Overall, the sum of the foregoing has led Vroom to be unable to sell “a significant portion of its existing inventory,” in particular due to its apparent lack of adequate sales personnel and over-reliance on third-party sales support, with the company forced to “mark down and liquidate existing inventory at fire sale prices,” according to the lawsuit. As the case tells it, all of the above put Vroom on track to miss its “already disappointing” fourth quarter 2020 profits and earnings guidance, which the suit claims “lacked any reasonable basis in fact.”
According to the lawsuit, Vroom stock prices fell more than 18 percent in mid-August 2020 upon news of the company’s essential confirmation that the pricing pressures it faced were “not short term but reflected a fundamental market shift toward lower priced vehicles.” Vroom’s stock price sank again in November by a little more than 13 percent upon news that the company revealed in an earnings call that it was suffering from a sales-and-support-related “bottleneck,” and would need to invest heavily in building out its sales support and logistics networks to avoid constrained growth, the case says.
Stock prices fell for a third time in March 2021 by 28 percent on unusually heavy trading volume after Vroom disclosed “severe sales backlogs” and several related problems, the suit goes on:
“Defendants acknowledged that Vroom was operationally constrained and unable to keep up with demand because of these sales constraints, which had forced the Company to liquidate aging inventory at fire sale prices for a significantly reduced profit or even at a loss, despite a historically favorable online used car market. Defendants further revealed that Vroom’s sales deficiencies were so severe that the deficiencies would continue to constrain the Company’s profits well into the first quarter of 2021, even though Vroom had purportedly tripled its sales support staff.”
The case looks to represent all persons and entities in the U.S., other than the defendants, who acquired Vroom securities between June 9, 2020 and March 3, 2021.
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