Shift Technologies Inc

Shift Technologies Inc (NASDAQ: SFT) is an end-to-end auto e-commerce platform transforming the used car industry with a technology-driven, hassle-free customer experience. The company makes car purchase and ownership simple - making buying or selling a used car fun, fair, and accessible to everyone.

Key highlights

• Healthy growth in revenues: The company generated remarkable revenue of USD 106.0 million in Q1 2021, more than three times the previous similar period's USD 29.9 million. Revenue increased sequentially, demonstrating the company's resiliency. While margins were solid, e-commerce unit sales grew 213.3% to 4,452 units. All of this was made possible by a focused business plan, a significant development in reconditioning throughput, and continuing investment in distinctive technologies, as well as a newly introduced new marketing approach.
• Expanding markets: The corporation has opened a new market in Texas for people to purchase its vehicles. Shift's unique direct-to-consumer, at-home service is now available to consumers in the Austin-San Antonio area, allowing them to purchase and sell automobiles directly with the firm. With this latest expansion, the firm now offers its in-person buyer experience in seven areas throughout the western regions of California, Texas, Washington, and Oregon. 
• Healthy revenue outlook for Q2 2021 and FY2021: The company provided strong guidance for the quarter ending June 30, 2021, as well as for the full fiscal year of 2021, with revenue expected to be in the range of USD 120 – USD 130 million, up 270 – 301% year-over-year, and around USD480 – USD520 million, up 145 – 166% year-over-year. In Q2 2021, an adjusted gross profit per unit would be in the bracket of USD2,000 - USD2,200.

• Bearish technical pattern: On a daily price chart, the stock is trading in a bearish pattern known as the declining channel, where the stock price is forming lower lows and lower highs. We believe that the stock would enter the bullish zone once it breaches the channel's upper band. Moreover, the stock price fell below the 21 days and 50 days moving average in early May and continuously trading below these SMA. Now these SMA may act as a strong resistance for the stock in the short term.

Technical price chart, Analysis by Kalkine Group

Financial overview of Q1 2021 (In thousands of USD)

Source: Company

• In Q1 2021, the company reported a healthy growth of 253.9% in its total revenue at USD 106.0 million, against USD 29.9 million in the previous corresponding period, primarily due to robust performance from the eCommerce vehicle segment.
• Gross profit stood at USD 7.3 million compared to USD 3.3 million in pcp.
• The company clocked higher loss from operations at USD 43.9 million, against USD 11.0 million in pcp. The higher loss was primarily due to a rise in SG&A expenses.
• Net loss for the reported period stood at USD 42.7 million compared to USD 12.3 million in the previous corresponding period.

Risks associated with investment

General business and economic situations have an impact on the used automobile market in the United States. The US economy is prone to times of instability, which may lead to lower demand for automobiles and value-added products, lower spending on cars, consumers being unable to acquire credit to finance car purchases, and diminished consumer confidence to make discretionary purchases.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation: The company's top-line performance in Q1 2021 reflected the robust customer demand. At the same time, its ability to service this demand effectively is reflected in its increased Adjusted GPU and distinct car-buying experience. As the car-buying business grows more digital, we feel there is still a lot of room for growth. Moreover, it gave healthy guidance on revenue number for Q2 2021 and FY2021, back by expanding the market. However, despite the strong growth in revenue, the group’s net loss widened which is an area of concern. Moreover, on the technical analysis front the stock is trading in a declining channel, which reflects the weakness in the price. We have valued the stock using the EV/Sales based relative valuation method and have arrived at a single digit upside (in percentage terms). Considering the aforesaid facts, we recommend a 'Watch' rating on the stock at the last closing price of USD 7.08 on May 28, 2021.

One-Year Technical Price Chart (as on May 28, 2021). Analysis by Kalkine Group

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