Shift Technologies, Inc.

SFT Details

Shift Technologies, Inc. (NASDAQ: SFT) (formerly Insurance Acquisition Corp.) provides end-to-end auto e-commerce platform services in the used car industry. SFT assists customers in finding the right car and offers services including on-demand test drive, a digital purchase-sale transaction, vehicle financing and protection products, and support services during car ownership.   

Geographical Expansion: On July 6, 2021, SFT announced that it expanded its operations in two new markets (Dallas and Fort Worth) in Texas. This follows the launch of the initial full-service markets in Austin and San Antonio, Texas on May 10, 2021.

USD 125.0 Million Notes Offering: On May 25, 2021, SFT priced a private offering of USD 125.0 million aggregate principal amount of 4.75% convertible senior notes due 2026 to qualified institutional buyers. The initial purchasers were also granted a 13-day option to purchase additional notes for USD 25.0 million. SFT intends to use the proceeds of the offering to pay the costs of capped call transactions, and for general and working capital purposes.

Q1FY21 Results: SFT reported a surge of 253.9% in total revenue to USD 106.0 million in Q1FY21 (ended March 31, 2021) compared to USD 29.95 million in Q1FY20. Revenue from the Ecommerce Vehicle segment, which represented 83.9% of the total revenue in Q1FY21, increased 305.9% YoY driven by higher volume and unit sales price. Gross profit increased 120.3% YoY to USD 7.37 million with a 29.7% decline in the gross profit per unit (GPU) in Q1FY21. Net loss expanded to USD 42.76 million in Q1FY21 vs. USD 12.33 million in Q1FY20. As of March 31, 2021, the company had a cash balance of USD 176.99 million (down from USD 233.94 million as of FY20) and total debt of USD 31.43 million.

Key Risks: SFT operates in the used car industry and faces direct competition from national car dealers like CarMax and AutoNation, and internet and online automotive sites (Google, Amazon, AutoTrader.com, etc.), which could undermine its business interests. In addition, SFT depends on third-party lenders to meet the financing requirements of its customers. It also offers value-added services through third-party service providers only. Any discord with these parties could adversely impact SFT’s operations.

Outlook: In Q2FY21, SFT expects its revenue to range between USD 120 - 130 million, representing YoY growth of 270% - 301%, with adjusted GPU ranging between USD 2,000 - 2,200. Estimated Adjusted EBITDA for Q2FY21 is USD (28) - (31) million.

For FY21, revenue is estimated to be in the range of USD 480 - 520 million, depicting a 145% - 166% YoY growth. In the Ecommerce Vehicle segment, SFT forecasts to achieve sales of 21,000 - 23,000 units and an adjusted GPU of over USD 1,800. The adjusted EBITDA margin is anticipated to be better than (24)% in FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SFT Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SFT stock price has decreased 3.95% and 1.55% in the past 1 and 3 months, respectively, and is currently leaning towards the lower band of the 52-week range of USD 6.17 to USD 14.49. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 47.08. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 7.17. We have chosen to remain on the sidelines and will reevaluate the thesis upon further improvement in revenue, profitability, and cash flows. Therefore, we recommend an “Avoid” rating on the stock at the current price of USD 8.27, down 3.39% as of July 27, 2021, 12:19 PM ET.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.