Shares of Vroom jumped 5.3% on Tuesday after the online automotive retailer announced the acquisition of CarStory, through the purchase of its parent company Vast Holdings, in a cash and stock deal worth $120 million.
Vroom (VRM) believes that the acquisition of CarStory, which provides artificial intelligence (AI) powered used car information, will “strengthen and extend the reach” of its automotive e-commerce platform.
Per the agreement, Vroom will pay 60% of the deal amount in cash and the remaining 40% in the form of its common stock. The transaction is expected to be completed in January 2021. The company anticipates the transaction to have a neutral impact on 2021 financial results.
Vroom CEO Paul Hennessy said, “At Vroom, we’ve built a platform made for scale and driven by data. As car buyers and sellers across the country increasingly turn to ecommerce solutions, CarStory will strengthen and extend the reach of our digital retailing platform, and together we will accelerate the transformation of the massive used auto industry.” (See VRM stock analysis on TipRanks)
Following the deal announcement, Wells Fargo analyst Zachary Fadem said, “While the NT (near term) benefits of the deal are difficult to quantify, we note CVNA’s (Carvana Company) Propel AI acquisition in 2018 clearly improved the company’s operating efficiencies, sourcing capabilities, and customer service levels. We see similar benefits for VRM during a time where the company’s website “bells and whistles” can certainly improve, and customer service bottlenecks appear to be constraining NT sales.” Fadem reiterated his Buy rating and price target of $55 (47.3% upside potential).
Currently, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 11 Buys, 1 Hold and 1 Sell. The average price target stands at $57.50 and implies upside potential of about 54% to current levels. Shares have dropped 22.1% since the stock’s public listing on Jun. 9, 2020.
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