RMBL - RumbleOn

[LFvalueseeker]

There should be seasonality in bike resale’s. Not many people buy bikes in winter. I am guessing that Q2 would be the top quarter. One might get a clue from Harley Davidsons seasonality.

 

I live in the Northeast and this was my first question to management when trying to model out the quarters.  From what they said, they don't see much seasonality.  Like a typical New Yorker, we believe that we are the center of the universe, but apparently there are other states where people live and ride.  They said that the summers in southern climates are our winters.  So as bike sales slow in the northern climates, they pick up in the southern climates as the preferred riding season is not june, july or august. My buddy in Florida thought I was crazy when I visited him last August and want to "play" golf. (best analogy i have)  I guess wearing leather chaps is tough in 100 degree weather? 

 

In summary, they said we shouldn't see any seasonality early on and nominal at best at scale.  We shall see. 

[Jurgis]

Promotional?

 

Yup.

 

Ok, if you review all of my posts, I think you may feel otherwise.  I joined this forum to have active dialogue on individual stocks.  Find the holes in the story and lets debate them as it tends to lead to better decision making.  I didn't join to be accused of "pumping" a stock.  Blatant pumps are my favorite short term trades.  This is anything but that.  I maintain that I have been very clear on the downsides and the fact that every microcap is inherently risky.

 

I agree with globalfinancepartners: you come through as very promotional.

Maybe you have good intentions. Maybe you are just excited about this company and the opportunity. And, yes, you did disclose your position.

 

But still you have posts only on a single company and all of them very positive.

 

Good luck.

 

Disclosure: No interest in the company and stock.

[LFvalueseeker]

Promotional?

 

Yup.

 

Ok, if you review all of my posts, I think you may feel otherwise.  I joined this forum to have active dialogue on individual stocks.  Find the holes in the story and lets debate them as it tends to lead to better decision making.  I didn't join to be accused of "pumping" a stock.  Blatant pumps are my favorite short term trades.  This is anything but that.  I maintain that I have been very clear on the downsides and the fact that every microcap is inherently risky.

 

I agree with globalfinancepartners: you come through as very promotional.

Maybe you have good intentions. Maybe you are just excited about this company and the opportunity. And, yes, you did disclose your position.

 

But still you have posts only on a single company and all of them very positive.

 

Good luck.

 

Disclosure: No interest in the company and stock.

 

I get excited by a few stocks a year. This happens to be one of them. I apologize if it comes off as promotional. I tried my best to lay out the risks and state multiple times that this is not a blue chip name  Also refreshing that this forum asks the right questions and conducts in intelligent coversation.

[indirect]

Agree Promotional

[cameronfen]

I will say that LFinvestor you do sound promotional and I apologize if I sound promotional you can check my posts, I have a decent post history (although I checked LF does not).  That being said this does look like an interesting company.  I do stand by my 2 sided market comment.  Rumble may buy from consumers, but they have to sell their motorcycles too.  The largest network of private buyers gives rumble the best selection of people to sell to either raising gross margins or allowing higher prices on the buy side.  The other side was discused.  This is the same business model as autotrader and naspers which almost entirely invests in two sided markets thinks autotrader has these economics so argue with naspers if you dont think this has the correct model.  I would omvest more here, but tbh LFs pumpiness does make me hesitate. 

[LFvalueseeker]

I could understand if I came out of nowhere and started this thread. I didn’t and only was made aware of this forum from a google alert. I was happy to find this forum and excited that like minded investors took notice of this unknown company. I have been investing for 15 years and have not found a more robust and actively engaged forum on a variety of companies and investment ideas. I was excited to jump in on the conversation as I have probably spent more time on this name then any analyst (which doesn’t say much) or investor. I’m sorry many of you have viewed my enthusiasm as being promotional. I will sit tight and back off. Was only trying to help others understand the story from 7 months of due diligence.

 

And yes, this is the only stock discussion I have contributed to.  I joined a few days ago because the discussion was already in motion.

[KJP]

I could understand if I came out of nowhere and started this thread. I didn’t and only was made aware of this forum from a google alert. I was happy to find this forum and excited that like minded investors took notice of this unknown company. I have been investing for 15 years and have not found a more robust and actively engaged forum on a variety of companies and investment ideas. I was excited to jump in on the conversation as I have probably spent more time on this name then any analyst (which doesn’t say much) or investor. I’m sorry many of you have viewed my enthusiasm as being promotional. I will sit tight and back off. Was only trying to help others understand the story from 7 months of due diligence.

 

And yes, this is the only stock discussion I have contributed to.  I joined a few days ago because the discussion was already in motion.

 

For what it's worth, I applaud you for bringing a new micro-cap company to the board's attention.  I didn't find your posts overly promotional; instead, I found them far more interesting and useful than the numerous posts that contain nothing more than trivialities about megacaps. 

 

What are the two or three financial metrics that are most important to you with respect to this business and what would be the changes in them over time that would cause you to believe the business model may not work/is not working?   

 

 

[LFvalueseeker]

Appreciate that. Cost to acquire a bike and gross profit per bike are the two most important. I’ll try to dive into this more tomorrow.  Currently licking my wounds from having my integrity questioned.

[bobozou]

1) LFvalueseeker... I also appreciate the posts and information.  Also agree that you've provided alot of information related to this idea (more than most, for most ideas).

 

2) Re -> promotionalism... It may just be a matter of style.  Some people say/write things with conviction (sometimes excessive).  Some people write with a degree of uncertainty (sometimes excessive). 

 

I feel I've seen just as much hype in Tesla, Sears, Amazon, probably Berkshire/Fairfax too.

 

I think it's a bit harsh/critical to be layout out accusations, rather than focusing on the analytical problem (of the business/founders).

 

3) This is not a traditional value investment.  It seems more akin to a high-risk bet, but with asymetrical payoff. 

 

I think that they are trying to do a workable business model (low/no-touch platform to provide liquidity) in a underserved market (2nd hand motorcycles).  The model has certainly derisked from 10-20 years ago, as proven by the used car market (and the number/success of entrants).  The management team seems far more legitimate to have a far more successful track-record than most microcaps (tho the CEO is probably not a 'value-investor', as much as he is a 'salesman'... not a bad thing at all, but some may find him 'promotional').

 

Could it be a fraud?  Yea I guess so

 

Could they fail to scale (due to lack of demand / excessively high acquisition costs)?  Yea, quite possibly

 

Could the economy go south prior to them reaching profitability?  Yes, and that would likely be very bad for stock

 

Could it work?  Yes, I dont see why not

 

Would it be an asymetrical payout of it does work?  Yes, I believe it will be

 

Oh yea - most importantly, (as it goes without saying?) caveat emptor?

[LFvalueseeker]

“In my opinion, the main “risk” to how great the RumbleOn story sounds is that the guys telling it are expert storytellers!  They’re literally PROFESSIONAL car salesman, and everyone knows that car salesman are, well, let’s just say they can sell...”

 

KD Blog said it best.

 

 

[Spekulatius]

motorcycle sales are very seasonal, according to this somewhat dated article. I looked at HOG recent quarterly results and the are still very season, with Spring and summer sales 50% higher than on fall and winter.

https://www.fool.com/investing/general/2014/03/13/this-motorcycle-maker-is-surging-through-seasonali.aspx

 

When I bought and sold my Motorcycle, I lived in Northern CA and ther was definitely a lot of seasonality. Weather is not as bad for riders than in the Northeast, but still somewhat cold and lots of rain make riding a bit dangerous and unpleasant in winter.

 

I am fairly sure, thr market for used bikes follows the same pattern. This almost assures, that thr next quarters will be weaker for Rumble, unless they can grow more than the  seasonal decline of 30-40%.

[cameronfen]

motorcycle sales are very seasonal, according to this somewhat dated article. I looked at HOG recent quarterly results and the are still very season, with Spring and summer sales 50% higher than on fall and winter.

https://www.fool.com/investing/general/2014/03/13/this-motorcycle-maker-is-surging-through-seasonali.aspx

 

When I bought and sold my Motorcycle, I lived in Northern CA and ther was definitely a lot of seasonality. Weather is not as bad for riders than in the Northeast, but still somewhat cold and lots of rain make riding a bit dangerous and unpleasant in winter.

 

I am fairly sure, thr market for used bikes follows the same pattern. This almost assures, that thr next quarters will be weaker for Rumble, unless they can grow more than the  seasonal decline of 30-40%.

 

Unless I'm misunderstanding the next quarter is spring.  They already released their winter quarter results and they were fantastic. 

[LFvalueseeker]

motorcycle sales are very seasonal, according to this somewhat dated article. I looked at HOG recent quarterly results and the are still very season, with Spring and summer sales 50% higher than on fall and winter.

https://www.fool.com/investing/general/2014/03/13/this-motorcycle-maker-is-surging-through-seasonali.aspx

 

When I bought and sold my Motorcycle, I lived in Northern CA and ther was definitely a lot of seasonality. Weather is not as bad for riders than in the Northeast, but still somewhat cold and lots of rain make riding a bit dangerous and unpleasant in winter.

 

I am fairly sure, thr market for used bikes follows the same pattern. This almost assures, that thr next quarters will be weaker for Rumble, unless they can grow more than the  seasonal decline of 30-40%.

 

Unless I'm misunderstanding the next quarter is spring.  They already released their winter quarter results and they were fantastic.

 

My $.02 on seasonality.  After looking at HOG's quarterly top line for last 10+ years, it's clear that Q2 is their best quarter each year.  https://ycharts.com/companies/HOG/revenues

 

My earlier explanation on seasonality is flat out wrong unless used bikes don't experience the same seasonality - I can't see a reason they wouldn't follow the same pattern though.

 

With that said, here is where seasonality could throw a monkey wrench into the equation.  Any early stage company currently experiencing hockey stick growth will likely avoid top line seasonality until the business matures a bit.  This could be next year or the following year depending on how quickly market share capture starts to slow down.  The cost to acquire a bike through digital marketing could be impacted as, in theory, it should be more expensive to convert in the slower quarters.  It's anyones guess how severe that effect will be in 2018.  Best case scenario is their cost to acquire a bike stays flat or decreases through the seasonality as everyday that goes by their ads and audiences should get more efficient.  Worst case scenario, they have underestimated the negative effects of seasonality and cost to acquire a bike jumps into the negative ROI territory.  We have opposing forces occurring, Seasonality vs. Marketing Spend/Conversion Efficiency.  This is one of those potential problems that may be an unknown, even to mgmt at this point.  What I find interesting though is the fact that they continue to publicly confirm top line guidance and positive cash flow in 2nd half of 2018.  They have been on the record nearly a dozen times and once again in their new presentation a few weeks ago. They could be overly bullish or they see the data and it's simply an inexpensive land grab at the moment.  To achieve their projections of top line revenue they essentially need to grow at 100% quarter over quarter in 2018.  I don't see this happening in straight line.  (i.e. 8,16,32,64m)  Ultimately, I think it was a mistake to put forth these crazy growth projections as it becomes a "show me" situation.  They would have been better off issuing quarterly guidance and not focusing on the arbitrary $100m.  It creates a potential problem and could result in jamming revenues in to meet investor expectations.  As we have seen the bike mix shift from Harley to Non-Harley (lower unit prices), they would be better off focusing on turning a profit rather than top line.  My hope is that both are achievable but I'd rather see them do $75m this year producing positive cash flow than $100m with negative cash flow due to higher conversion spend.  Looking forward to Q2 earnings and further guidance as they will be smack in the middle of seasonality upon the release.  (Mid July)

[gfp]

I do apologize if my comments were seen as a personal attack on your integrity.  In my view you were fully clear that your approach to the micro cap space is full on greater fool - and for that you will need a bunch of warm bodies to get excited.  It's no accident that as soon as you started posting the pitch for this stock volume started coming in and you were pretty clear about wanting volume to come in and push it to a technical analysis breakout.  I guarantee you that it would not have gone up 18% or whatever it was yesterday absent your campaign on this message board.  You have been very clear that you don't really care about the end game for the actual company, but are interested in selling your shares in a run-up when volume comes in and creates liquidity for your exit.  Call it what you want.

[LFvalueseeker]

I do apologize if my comments were seen as a personal attack on your integrity.  In my view you were fully clear that your approach to the micro cap space is full on greater fool - and for that you will need a bunch of warm bodies to get excited.  It's no accident that as soon as you started posting the pitch for this stock volume started coming in and you were pretty clear about wanting volume to come in and push it to a technical analysis breakout.  I guarantee you that it would not have gone up 18% or whatever it was yesterday absent your campaign on this message board.  You have been very clear that you don't really care about the end game for the actual company, but are interested in selling your shares in a run-up when volume comes in and creates liquidity for your exit.  Call it what you want.

 

I have been buying additional shares over the past few days.  I would be shocked if this forum caused any of the movement of the stock price.  I didn't create this thread nor do I know a single person on this forum.  I can post a screen shot of the google alert that led me here, if someone can explain how to do that.  My intention is to educate not cause knee jerk investment decisions.  I believe I have been thoughtful with my commentary and analysis.  If my intention was to influence the price, I would be finding every investment forum and posting.  This is not the case.

[KJP]

I do apologize if my comments were seen as a personal attack on your integrity.  In my view you were fully clear that your approach to the micro cap space is full on greater fool - and for that you will need a bunch of warm bodies to get excited.  It's no accident that as soon as you started posting the pitch for this stock volume started coming in and you were pretty clear about wanting volume to come in and push it to a technical analysis breakout.  I guarantee you that it would not have gone up 18% or whatever it was yesterday absent your campaign on this message board.  You have been very clear that you don't really care about the end game for the actual company, but are interested in selling your shares in a run-up when volume comes in and creates liquidity for your exit.  Call it what you want.

 

I have been buying additional shares over the past few days.  I would be shocked if this forum caused any of the movement of the stock price.  I didn't create this thread nor do I know a single person on this forum.  I can post a screen shot of the google alert that led me here, if someone can explain how to do that.  My intention is to educate not cause knee jerk investment decisions.  I believe I have been thoughtful with my commentary and analysis.  If my intention was to influence the price, I would be finding every investment forum and posting.  This is not the case.

 

Most of your posts were responding to substantive questions or comments from other posters.  Again, for what it's worth, I don't see how that amounts to the type of pump-and-dump "campaign" of which you've been accused.  So, I again applaud you for substantively engaging with other board members and posting specific responses to specific questions.  Needless to say, your opinions should be, at the very most, a starting point for anyone whose interest has been piqued.

 

RumbleOn may be a terrible investment; I have no idea.  But I believe people should be encouraged to post more micro-cap ideas on here and to offer substantive responses to questions, rather than being attacked for doing so or limiting their posts to useless, repetitive minutia about very large and very well followed companies.

 

 

[LFvalueseeker]

I do apologize if my comments were seen as a personal attack on your integrity.  In my view you were fully clear that your approach to the micro cap space is full on greater fool - and for that you will need a bunch of warm bodies to get excited.  It's no accident that as soon as you started posting the pitch for this stock volume started coming in and you were pretty clear about wanting volume to come in and push it to a technical analysis breakout.  I guarantee you that it would not have gone up 18% or whatever it was yesterday absent your campaign on this message board.  You have been very clear that you don't really care about the end game for the actual company, but are interested in selling your shares in a run-up when volume comes in and creates liquidity for your exit.  Call it what you want.

 

 

I have been buying additional shares over the past few days.  I would be shocked if this forum caused any of the movement of the stock price.  I didn't create this thread nor do I know a single person on this forum.  I can post a screen shot of the google alert that led me here, if someone can explain how to do that.  My intention is to educate not cause knee jerk investment decisions.  I believe I have been thoughtful with my commentary and analysis.  If my intention was to influence the price, I would be finding every investment forum and posting.  This is not the case.

 

Most of your posts were responding to substantive questions or comments from other posters.  Again, for what it's worth, I don't see how that amounts to the type of pump-and-dump "campaign" of which you've been accused.  So, I again applaud you for substantively engaging with other board members and posting specific responses to specific questions.  Needless to say, your opinions should be, at the very most, a starting point for anyone whose interest has been piqued.

 

RumbleOn may be a terrible investment; I have no idea.  But I believe people should be encouraged to post more micro-cap ideas on here and to offer substantive responses to questions, rather than being attacked for doing so.

 

Thanks.  I didn't spend 7 months accumulating a position to make 20%.  Yesterday's action was a clear technical breakout and hopefully it holds but certainly can fade and turn into a broken chart.  I pointed out a great setup.  I was a buyer in the mid 5's and looking for 2-4X from current levels based on publicly available information.  That outlook can easily change based on positive or negative developments.  I think it's crazy to buy super risky stocks (every micro cap) for nominal returns.  I only get comfortable with a couple ideas a year as most microcaps are not investable due to years of horrible financings and reverse splits.  I am not a swing/thematic trader.  I have a concentrated speculative portfolio where I swing for the fences after a lot of work.  When it works, it's great.  When I am wrong, it's painful. 

[Guest Schwab711]

@LFvalueseeker:

Do you have an opinion on:

How much in sales they need to break even?

Incremental margins after that point?

Expectations for base case and bull case peak annual sales?

 

How concerned are you about the long-run trend of decreasing demand for motorcycles? What do you assume (if anything) for long-run demand?

 

Thanks for sharing your opinions here. It's been helpful to read through them.

 

Sure, here are my thoughts. Breakeven should be around $30m a quarter. (according to mgmt on the last conference call or investor call.  Seems to jive with my model)  They are approaching that run rate now.  Q2 I expect $16-$17m. 

 

I might not be understanding incremental margins question.  But margin should steadily climb to the target of 13% as the mix shifts towards consumers.  Each bike they sell past breakeven is incremental to the bottom line - less acquisition marketing cost, reconditioning, transport, etc. 

 

I believe by year end they will be at a $160mm run rate.  That's roughly a 3% market share.  Peak sales are a wild card.  I don't think they will ever achieve this because of likely acquisition by the previously mentioned companies or private equity.  However, growth will ultimately slow in the motorcycle space as it has to.  They are not motorcycle specific and their platform can tackle anything with a VIN number.  Personal Watercraft would be the next low hanging market to go after.  Essentially motorcycles on the water, simple machines.  Small jet boats could be next.  The story peaked my interest initially because a colleague of mine said the word, "boats", and I immediately started my research.  The used boat market is barbaric, to put it kindly, and disruption is inevitable.  After countless calls with mgmt, I don't think nor support them entering this market anytime soon.  Too complex.  But cars would be interesting. 

 

In their beta test when they were starting out they proved to drop the average age of consumers buying the bikes from the mid 50's to 42.  This is very important as millennials could prove to be a good market for motorcycles.  I haven't forecasted for the demand decrease over time as I think it's a very long time before this becomes a factor. 

 

I do not own this stock in my retirement accounts, I also am not looking to scalp a buck or two.  I think this is a 2-4X short term (3months - 1year).

 

Thanks for getting back to me. Cool we agree on ~$125m break-even. I didn't realize management explicitly stated their guess of $120m. Let's assume that.

 

First, I don't see the jetski/boat markets being very attractive for this business. The are basically Gazelle for motorcycles. That's fine by me. But to do it well, you have to stay away from products that can quickly depreciate or that have shallow liquidity. I think boats and jetskis would fail those tests miserably. Further, cell phones invite a lot more competition because of low cost and dense product value (for storage). Motorcycles definitely has a value-density issue (and probably a value volatility issue) that will keep competition away. Jetskis/boats are worse than motorcycles in everyway. I don't see RMBL expanding any time soon.

 

Also, I don't see how 2x-4x in the next year is feasible without some type of irrational decision (stupid M&A or retail investor speculation). RMBL is probably worth 15%-25% of sales. That would imply a $20m market cap ($1.54/shr).

 

The 13% is projected gross margins. I guess I don't understand why you'd mention them.

 

EBITDA (or even EBITA) probably doesn't make much sense to use for this type of business. If we look at EBT, RMBL might do 3% for each $1 of revenue beyond break-even. That's pretty lofty though considering it is higher than most similar car dealer and local/regional motorcycle dealer EBT margins. I don't know why RMBL will do better than all of them but let's assume.

 

Future Rev (Mrkt Shr %) / Proj EBT / P/pEBT

$125m (3%) / $0m / N/A

$250m (6%) / $4m / 19.5x

$500m (10%) / $11m / 7.0x

$1,000m (20%) / $26m / 3.0x

 

Even if we assume RMBL increases sales by at least an order of magnitude (13.5x [2018e rev] to 65x [2017 rev]) in sales growth AND AutoNation-like EBT margins AND does it while increasing market share from ~0.5% to 20%, the stock is still trading at 3x hypothetical future pre-tax profits.

 

RMBL would have to sell nearly every motorcycle in the country, with some indication that the motorcycle demand trend reversing, to be worth $350m-$400m. It looks like they've spent a few million on the technology, at most.

 

Talking about 2x-4x, especially in 3-12 months, seems detached from the facts of the industry. I don't get it.

 

 

 

Most of your posts were responding to substantive questions or comments from other posters.  Again, for what it's worth, I don't see how that amounts to the type of pump-and-dump "campaign" of which you've been accused.  So, I again applaud you for substantively engaging with other board members and posting specific responses to specific questions.  Needless to say, your opinions should be, at the very most, a starting point for anyone whose interest has been piqued.

 

RumbleOn may be a terrible investment; I have no idea.  But I believe people should be encouraged to post more micro-cap ideas on here and to offer substantive responses to questions, rather than being attacked for doing so or limiting their posts to useless, repetitive minutia about very large and very well followed companies.

 

+1. Folks should keep posting. There's so few original ideas/views right now.

 

@LF, assuming you aren't Landstander I thought you were more than fine. I think your writing style makes you appear to be a sophisticated/institutional investor. That may or may not be the case. Not your fault either way, but between the writing style, volume of posts, and stock movement, I could see why others would at least be concerned about the possibility.

[LFvalueseeker]

@LFvalueseeker:

Do you have an opinion on:

How much in sales they need to break even?

Incremental margins after that point?

Expectations for base case and bull case peak annual sales?

 

How concerned are you about the long-run trend of decreasing demand for motorcycles? What do you assume (if anything) for long-run demand?

 

Thanks for sharing your opinions here. It's been helpful to read through them.

 

Sure, here are my thoughts. Breakeven should be around $30m a quarter. (according to mgmt on the last conference call or investor call.  Seems to jive with my model)  They are approaching that run rate now.  Q2 I expect $16-$17m. 

 

I might not be understanding incremental margins question.  But margin should steadily climb to the target of 13% as the mix shifts towards consumers.  Each bike they sell past breakeven is incremental to the bottom line - less acquisition marketing cost, reconditioning, transport, etc. 

 

I believe by year end they will be at a $160mm run rate.  That's roughly a 3% market share.  Peak sales are a wild card.  I don't think they will ever achieve this because of likely acquisition by the previously mentioned companies or private equity.  However, growth will ultimately slow in the motorcycle space as it has to.  They are not motorcycle specific and their platform can tackle anything with a VIN number.  Personal Watercraft would be the next low hanging market to go after.  Essentially motorcycles on the water, simple machines.  Small jet boats could be next.  The story peaked my interest initially because a colleague of mine said the word, "boats", and I immediately started my research.  The used boat market is barbaric, to put it kindly, and disruption is inevitable.  After countless calls with mgmt, I don't think nor support them entering this market anytime soon.  Too complex.  But cars would be interesting. 

 

In their beta test when they were starting out they proved to drop the average age of consumers buying the bikes from the mid 50's to 42.  This is very important as millennials could prove to be a good market for motorcycles.  I haven't forecasted for the demand decrease over time as I think it's a very long time before this becomes a factor. 

 

I do not own this stock in my retirement accounts, I also am not looking to scalp a buck or two.  I think this is a 2-4X short term (3months - 1year).

 

Thanks for getting back to me. Cool we agree on ~$125m break-even. I didn't realize management explicitly stated their guess of $120m. Let's assume that.

 

First, I don't see the jetski/boat markets being very attractive for this business. The are basically Gazelle for motorcycles. That's fine by me. But to do it well, you have to stay away from products that can quickly depreciate or that have shallow liquidity. I think boats and jetskis would fail those tests miserably. Further, cell phones invite a lot more competition because of low cost and dense product value (for storage). Motorcycles definitely has a value-density issue (and probably a value volatility issue) that will keep competition away. Jetskis/boats are worse than motorcycles in everyway. I don't see RMBL expanding any time soon.

 

Also, I don't see how 2x-4x in the next year is feasible without some type of irrational decision (stupid M&A or retail investor speculation). RMBL is probably worth 15%-25% of sales. That would imply a $20m market cap ($1.54/shr).

 

The 13% is projected gross margins. I guess I don't understand why you'd mention them.

 

EBITDA (or even EBITA) probably doesn't make much sense to use for this type of business. If we look at EBT, RMBL might do 3% for each $1 of revenue beyond break-even. That's pretty lofty though considering it is higher than most similar car dealer and local/regional motorcycle dealer EBT margins. I don't know why RMBL will do better than all of them but let's assume.

 

Future Rev (Mrkt Shr %) / Proj EBT / P/pEBT

$125m (3%) / $0m / N/A

$250m (6%) / $4m / 19.5x

$500m (10%) / $11m / 7.0x

$1,000m (20%) / $26m / 3.0x

 

Even if we assume RMBL increases sales by at least an order of magnitude (13.5x [2018e rev] to 65x [2017 rev]) in sales growth AND AutoNation-like EBT margins AND does it while increasing market share from ~0.5% to 20%, the stock is still trading at 3x hypothetical future pre-tax profits.

 

RMBL would have to sell nearly every motorcycle in the country, with some indication that the motorcycle demand trend reversing, to be worth $350m-$400m. It looks like they've spent a few million on the technology, at most.

 

Talking about 2x-4x, especially in 3-12 months, seems detached from the facts of the industry. I don't get it.

 

How would you analyze Carvana?  CVNA.  That is the best comp in my opinion. 

 

Your approach above is a traditional fundamental value approach.  I use CVNA because growth investors are pricing it at 3-4X sales.  RMBL certainly doesn't fit into a fundamental value portfolio.  To be clear, it's highly speculative.

[Guest Schwab711]

Let me read/think through CVNA and get back to you. I could be overly simplifying here.

[Saluki]

I am also confused with your inventory argument.  As they scale up, there will be more buyers.  Thus, they will need bigger inventory availible for the buyers to choose from.  I mean days in inventory can't decline for ever.  If you buy 5000 motorcycles vs 500, days in inventory has to go down by an order of magnitude to have the same inventory.  I do agree though that as the reach scale efficiencies can improve days in inventory as buyer and seller are better matched.

 

 

Perhaps I didn’t focus more on this in my first post. They have ZERO issues selling/divesting/shifting/Fire sale-ing/punting/disposing the motorcycles. This is NOT a “can they sell it story”.  They have figured out, a while back that, NOBODY is buying motorcycles with cash offers for nearly instant liquidity. They built a tech platform to enable this. (Technically they bought/paid for it from the same group that built the Truecar tech). Think about it, most items we own- small and big ticket- can be sold rather quickly. This includes cars. Motorcycles are similar to cars EXCEPT, they are a want NOT a need.  Therefore, there are many of these “toys” sitting around and no efficient way to sell them. Sure you can post it on Craigslist or other sites and get lucky, but chances are your going to deal with a lot of headaches. You can sell your car by yourself but most choose not to and same with a home, which very few sell on their own. Beyond the “toys” in the garage collecting dust, RMBL has proven their ability to shift demographics from 50 year old men towards women and millennials. (I’m being a bit overly broad here). Younger people want liquidity and are non commital. Women don’t want to haggle. (Stereotyping, I know). Dealerships dont offer cash. SO, here is your first platform company that will buy your motorcycle almost instantly. (They are vehicle agnostic and the tech can apply to anything with a VIN #) So to find those bikes they need to market. (See previous post). Once the bike is acquired, they never see it or touch it. It’s picked up, transported and reconditioned through their dealer network. It’s simultaneously listed in their site for a limited time period and if it doesn’t sell to a consumer, it’s sold to a dealer or sent to auction. In all three scenarios they are profitable. This is totally divorce from Carvana that buys vehicles at auction and sells to consumers. RMBL BUYS FROM CONSUMERS AND WILL INCREASE THE AMOUNT SOLD TO CONSUMERS BUT IN AN EFFORT TO HAVE FREED UP CAPITAL, they turn the bikes quickly.

 

How can they make a profit buying a bike from a private person and in case they can’t sell it to another private person, resell it to a dealer? I doubt they make a profit in this case.

 

Also, with no involvement on their own, how can they prevent buying lemons that have non obvious issues (from scrapes etc)?

 

They do make a profit when buying from a person and selling to an auction. (Dealer > auction)

 

Please see their deck. 

 

They prevent buying lemons because motorcycles are simple machines.  They get pics, VIN #s, and pull a soft credit check. They 100% buy a few bikes that they lose money on, it’s inevitable. But the blended GP is solid.

 

As mentioned a few times know, their tech platform steers them in the right direction to a dollar amount that makes sense for them to acquire. They aren’t guessing and with a 15% conversions rate, it seems to be working.  (If anyone has any experience in digital marketing, 15% is mind numbing)

 

You seem very positive on them.  What are the downsides?  If there advantage is the tech that the Truecar has, why didn't they or their software engineers get in on their business? (I guess one easy answer is they know the industry but curious about more...)

 

Sorry for the delay, unplugged for a bit this weekend to enjoy fathers day with the little one.  The technology was developed by a 3rd party team that specializes in developing software for the auto industry in a variety of applications.  They probably should consider taking some payment in stock considering the upside on select clients. 

 

Ok let's dive into the risks of this story. 

 

I'll start with General risks then get more granular.  I will also offer my perspective but please keep in mind these are all REAL risks.

 

Stock Market Risk:  Microcaps tend to significantly underperform down markets and volatile markets. Flight to quality causes this effect.  Low float stocks with clean cap tables (RMBL) should perform better then most BUT lack of volume and stability could get messy.  If someone needs to unload 50k shares quickly, "Look out below...."

 

Lack of Eyeballs:  This next statement may be a bit controversial given the fundamental nature of this forum.  I am a firm believer that the fundamentals rarely, if ever, reflect in the share price of a MICRO CAP STOCK.  Telling the story, getting in front of investors and generating volume is as important as execution.  I have stated in prior posts that I look small companies a bit backwards. Buying a STORY stock seldom works for me.  I love companies that have clean cap tables with a great underlying story.  The risk is somewhat shifted from execution to, "Will investors care?".  There are a variety of reasons any company goes public early on and wants to live in the cesspool of micro cap world.  Cheaper cost of capital often is the main reason.  Well, without volume, the cost of capital is normally very high when you witness all these PIPE and Shelf deals with warrant coverage and large discounts to the prior day close.  A lack of eyeballs/followers/volume has a very negative ripple effect to any of these pubcos. Everything takes longer and more money to achieve and solid volume will enable any company to raise money efficiently and provide the flexibility required to execute.  In summary, Volume is very important.  (please note, I do not expect RMBL to raise money through equity offerings anytime soon.  If the stock moved to the $10-$20 range, they should sell 1 million shares and strengthen the balance sheet.  The shelf they filed is good housekeeping for the future)

 

The economy:  Goes without saying that a turn in the economy effects every company to some degree.  A bad economy will multiply the market risk and volume risk by creating pressure on small companies and making it harder to find interested buyers.  Oddly enough a bad economy would be really interesting for RMBL on.  Ultimately, I pray this doesn't happen but it would be really interesting to see the effect on this business model.  Their cash offers would sky rocket as the first thing people divest of is their toys.  Boats and Bikes will be some of the first things people need to sell.  If this were to happen the only question is, "Can they continue to distribute effectively?".  My guess is RMBL would experience a massive spike for some time frame but the long term effect would lead to a change in their business model. 

 

Competition:  I would like to see some competition in the sector but multiple players entering the business would lead to higher digital marketing costs and SEO.  Some competition would validate the business, too much could create a mess for all parties.  Keep in mind the US market for used bikes is over $7 billion per year so there is room for a few players.  The last thing we want is a VC backed group of cowboys spending massive amounts of marketing dollars to gain market share.  The "grow at all costs" mentality of new entrants will hurt RMBL.

 

Consumer Distribution Shift:  The longer this process takes the longer time to profitability.  How long will it take them to crack the code to shift the distribution to 50/50 dealer/auction Vs. consumer.  It is unknown at this point.

 

I believe it is very important to take a step back and acknowledge that many of the risks to this business are not even known by management at this point.  They went live in September of 2017.  It hasn't even been one full year and they will make lots of mistakes as every early stage company does.  The beautiful part is, this team has been doing this for 40 years and most of the major blunders should be avoided.  From conversations with the team, they are taking a very responsible approach to growth.  They can scale harder but they have chosen to strategically throttle the growth to ensure that the backbone or infrastructure is stable and can support the future.

 

Well, if you go to Harley Davidson's webpage and type in your zipcode to find a dealer (Or Polaris' if you want an Indian bike) and see where the nearest dealerships are (one is 15 miles from me and the other is 20) you will quickly realize how much smaller the motorcycle market is than the auto market.  I have to drive less to get to a Tesla showroom than a Polaris or Harley showroom. If they tried this model and it showed growth for a few years, I would look at it, but I  see no shortage of people selling  used bikes on craigslist, but a lack of people buying new bikes (Harley is struggling to sell bikes to women, millennials and people of color because it's hard growing your company if your typical first time buyer is a white male in his late 50s). And although Harley's are expensive bikes, it doesn't cost a lot to buy a used yamaha or honda bike (versus a car) so if you factor overhead and low turnover into the equation, that doesn't leave a lot of meat on the bone.  Auto Dealers make most of their money on financing and servicing, it would be hard for an auto dealer to just make money on buying and selling low-priced cars, I assume the same would be true for motorcycles.   

[KJP]

 

How would you analyze Carvana?  CVNA.  That is the best comp in my opinion. 

 

Your approach above is a traditional fundamental value approach.  I use CVNA because growth investors are pricing it at 3-4X sales.  RMBL certainly doesn't fit into a fundamental value portfolio.  To be clear, it's highly speculative.

 

The market Carvana is pursuing is so much larger than RumbleOn's, so the "what might be" with respect to Carvana appears much greater than RumbleOn.  I believe that affects the valuation you would put on the business today.

 

Also, in the Carvana thread on this board I attempted to briefly summarize the importance of ancillary revenue sources to the economics of CarMax.  Is there an opportunity to sell similar types of ancillary products (financing, gap insurance, warranty plans) to the buyers of used motorcycles?

[writser]

Most of your posts were responding to substantive questions or comments from other posters.  Again, for what it's worth, I don't see how that amounts to the type of pump-and-dump "campaign" of which you've been accused.  So, I again applaud you for substantively engaging with other board members and posting specific responses to specific questions.  Needless to say, your opinions should be, at the very most, a starting point for anyone whose interest has been piqued.

 

RumbleOn may be a terrible investment; I have no idea. But I believe people should be encouraged to post more micro-cap ideas on here and to offer substantive responses to questions, rather than being attacked for doing so or limiting their posts to useless, repetitive minutia about very large and very well followed companies.

 

+1, appreciated.

 

What are your thoughts on the shelf registration + vote on ‘blank cheque’ preferreds? Aren’t you afraid of potentially dilutive securities? Have they discussed the goal of these preferreds in a conference call whatsoever? (sorry for being lazy).

 

Also, the dual class share structure is a bit of a turnoff for me. Thoughts on that? TIA.

[landstander]

KJP - I do believe ancillaries (finance, warranty) might be an opportunity at some point, but don't believe management has discussed their roadmap and it's not material now (less than 1% of rev).

 

BTW - I started this thread as I didn't see any analysis of the company, outside of KD's post. I was concerned about posting the company on this board as it wasn't a traditional value investment, but appreciate the differing viewpoints that have been offered. It's exactly why I lurk here so often :)

[LFvalueseeker]

 

How would you analyze Carvana?  CVNA.  That is the best comp in my opinion. 

 

Your approach above is a traditional fundamental value approach.  I use CVNA because growth investors are pricing it at 3-4X sales.  RMBL certainly doesn't fit into a fundamental value portfolio.  To be clear, it's highly speculative.

 

The market Carvana is pursuing is so much larger than RumbleOn's, so the "what might be" with respect to Carvana appears much greater than RumbleOn.  I believe that affects the valuation you would put on the business today.

 

Also, in the Carvana thread on this board I attempted to briefly summarize the importance of ancillary revenue sources to the economics of CarMax.  Is there an opportunity to sell similar types of ancillary products (financing, gap insurance, warranty plans) to the buyers of used motorcycles?

 

About 100x the size larger with established competition from 18,000 dealers and new entrants such as Carvana, Vroom, Blinker, etc.. They are all trying to disrupt a much larger market and killing each other to acquire customers.  (RIP Beepi)  The key question is what market share can RMBL acquire?  At 10% it's $50m a month in revs.  That's a huge number and I have no idea how quickly they can even capture 2% let alone 10% and what the cost to get there will be especially if we see competitors enter the market.  Hyper growth doesn't last that long and the hurdles start approaching quickly.  This requires more DD on my part.

 

Ancillary Revenues - From what I understand nearly 50% of the appraisals they provide are a waste because the owner is underwater on their loan.  I mentioned in a previous post that they can only pay cash for the bike if it has a clean title, which half the time they don't.  I have no idea what the process would be to partner with the financing players to conduct a three way transaction in an effort to create a seamless exit for the seller.  My guess is that lots of bike owners that are underwater have low monthly payments and kick the can down the road.  If they could pay $X dollars to get out of their financing obligation and get rid of the bike, maybe they would act on this.  BUT, the last thing I want to see is RMBL turn into a specialty finance company.  I'll inquire about warranties and other revenue sources.