Online used car retailer Cazoo is suffering one of the worst post-pandemic hangovers of all the automotive tech stocks after its share place plummeted 85% since listing in August last year.
The company is not alone in falling out of favour among those that listed in the controversial SPAC method in a superheated 2021, but unlike other badly hit automotive stocks such as Nikola, Rivian and Lucid, Cazoo does actually generate decent revenue, if not profits yet.
By the end of last year, the company had delivered more than 60,000 used cars to customers in its distinctive covered vans since starting in December 2019 and in the first quarter this year generated revenue of £295 million, up 159% on the same period last year.
So why is a company once worth $7 billion, according to its highest share price, now worth just over $1bn?
“The relative severity of the fall is a reflection of the fact that investors now realise the emperor has no clothes on,” Steve Young, managing director of automotive retail analyst firm ICDP, said. “The original basis for the launch and subsequent listing of Cazoo was based on a poor understanding of the market.”
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Young and others in the car retail business believe that founder, entrepreneur Alex Chesterman, launched his business on the false belief that he could bring economies of scale to an industry that is famously fragmented. Chesterman regularly points out that no player in the used car business controls more than 3% of the market. Cazoo is targeting 5% long-term, which could make it the dominant force in used cars.
The model is fairly simple. Chesterman, the brains behind property aggregator Zoopla and mail delivery movie club Lovefilm, has said his inspiration was US online used car operator Carvana (another business suffering in the current tech stock slump). Customers browse the Cazoo website, pick a car they want, and it gets delivered to their door. They have seven days to decide if they want to keep or return (Cazoo says just 5.2% of customers hand it back) and that’s it.