Author Topic: RMBL - RumbleOn  (Read 15669 times)

Broeb22

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Re: RMBL - RumbleOn
« Reply #10 on: June 13, 2018, 03:55:22 PM »
Some more info on Marshall Chesworn.

Am I the only one concerned to partner with someone who takes chances like this in their personal life after they already had more money than they would ever need?

https://www.inlander.com/spokane/gambling-losses/Content?oid=2189353


LFvalueseeker

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Re: RMBL - RumbleOn
« Reply #11 on: June 14, 2018, 10:29:16 AM »
Long post, have patience and I apologize for jumping around a bit….

I came across this blog through a Rumbleon Google alert and it’s great to see active discussion on RMBL.  Full disclosure, I am long just under 1% of the fully diluted shares.  All open market purchases, roughly in line with current share prices.  This story came across my desk when they were seeking to Re-IPO in October.  Given the banks involved, I chose to pass and do extensive research and likely acquire shares cheaper than deal price.  ($5.50) 

I have been investing in the markets for 15 years, mainly in micro/small caps, and this is my favorite situation I have ever been involved with.   Some additional color on what I focus on – I buy a few large positions a year, at most, and I will opportunistically trade around unique intraday or weekly situations outside my core positions.  My philosophy is every good story eventually has its day/week/month in the sun and the day trading chat rooms have replaced the funds that used to build large positions in microcaps.  (they create the parabolic moves) Most microcaps eventually go belly up, so with the right story, fundamentals, mgmt. team, etc…it’s a matter of time until the stock catches fire. 

With that said, I also start my due diligence backwards, starting with the cap structure.  Buying a STORY seldom works as most microcaps I encounter have messy cap tables littered with warrants, converts and other dilutive instruments that make it very challenging for the stock to appreciate. 

Rumbleon checks all the boxes in what I look for except one – volume….

Small Float – Check
Large Insider Ownership – Check
Experienced Jockeys – Check
Explosive Growth – Check, Check
Disruptive Technology – Check
Large TAM – check
Scalable – check
Volume – not yet (this is where the opportunity is)


So let me touch on a few points about this company that were raised on this forum and others that I have sorted out through 20+ calls with mgmt..

At its simplest form this is an incredibly powerful business model that is infinitely superior to Carmax, Carvana, Vroom, Blinker, Beepi (toast), Shift, Auto 1 Group and any other used auto tech startups.  Carvana loses ~$5,000 per car and the thesis is that they can achieve Carmax margins at scale.  They currently buy nearly all of their cars through auction – it’s going to be very difficult to meet their claims through this acquisition strategy.

RMBL is strictly a user acquisition marketing arbitrage story with no current competition and all metrics are pointing up and to the right.  Distribution is not the concern, acquiring bikes is the challenge.  Back of the envelope math shows that they are acquiring each bike at an average of under $200 marketing spend – conservative estimate.  That cost should decline month-over-month as they continue to refine their digital strategy, employ retargeting techniques, build a recognizable brand and experience some notion of referral/word of mouth traction.  At $200 they are still profitable on a unit basis.  Even at $200, it’s extremely compelling.  This is exceptionally low for a big ticket item.   This is a result of a ~15% conversion rate which includes deals that cant be touched because people are underwater on their loans.  (a massive opportunity if they can crack it with a banking partner)  So that 15% conversion is more like 30% of actual legitimate “doable” deals.  The reason for this is motorcycles are a WANT not a NEED.  You have an engaged audience that is very captive.  Digital marketing performs great when you quickly identify the audience and laser focus ad placement.

A note about digital ads:  If you’re like me, I see RMBL ads all day every day on my FB and IG feed.  You will see loads of angry people complaining about low-ball offers.  This is totally natural as bikes are more sentimental/emotional things to people then cars.  We are accustomed to getting low-ball offers the car dealership and for trade ins.  This is how the world works and has forever.  For many people they are experiencing this for the first time on their bike.  What it shows is that a lot of people are curious about selling their bike.  From conversations with the team, they are capturing a lot of these same people that complain and then a few weeks later realize that Peer-to-Peer methods are not worth the headache.  People are also delusional in what they think the value of their precious Harley Davidson is.  Fat margins on new bikes cause this reality check.  I am not a motorcycle owner but I am a boat owner and it’s a very similar experience. 

One concern brought up on this forum is the inventory tracker on the website.  It’s natural to think that as unit volumes increase so should the inventory count.  If the machine is well oiled – this is not the case.  What we are currently witnessing is mgmt. choosing to keep active inventory in the 600-800 bike range. If you are acquiring bikes at a more rapid pace (which we know they are by looking at cash offers) then you need to sync that with distribution.  I suspect, based on conversations with the team, that they throttle their digital spend and acquisition efforts with the auction calendar in mind. I expect the active listings to grow moderately over time but we do not want to see them grow too quickly.  They are churning efficiently.  As clearly indicated in the deck, they are making enhancements to the website to drive higher margin business by selling bikes to consumers vs. dealers/auctions.  This will result in longer inventory turn over and they should quickly determine the inflection point at which inventory turnover maximizes gross profit.  As a shareholder I would encourage them to increase the listing days to achieve higher margins and also ramp digital spend as every profile captured helps improve the moat and build the data set.

An anecdote about Data: Blockbuster was sold to Viacom for $8.5 billion not because of their physical locations but solely for the data.   RMBL data will prove to be valuable to a variety of suitors.

Suitors – who would acquire this company?  Most people would think Harley Davidson and this is plausible but from my research the auction companies are more natural fits.  Copart (CPRT) Adesa (KAR) and COX, the owner of Manheim Auctions, KBB and others.  (privately held conglomerate)

Valuation – The valuation of this company is a tough nut to crack.  I’ll give my $.02.  Since 2013 over $1billion has been invested, mainly by VC’s, in the “online” automobile sector.  I am referencing the companies above (Vroom, Carvana, etc.). If RMBL were privately held and walking down Sand Hill road in the Valley they would certainly command a $125-$200m valuation given their traction, asset light business model and TAM.  Where do I come up with these numbers?  They are based on data points of a variety of seed, series A-F and IPO data.  More importantly, I have spoken to well respected VC’s to get a gut check and they confirm that valuation range and say it could be light if the demand was there.  So, we basically are buying a company with revenue growth typically reserved for the VC/PE community at a seed/series A type valuation in the public markets.  Another way to skin it, they are trading at 1 times Q2 expected revenue.

The above statement will likely spur the question, “why did  they raise money and go public and not use private capital?”  The answer fairly simple, the largest shareholder, Berrard, is a public markets guy.  They funded the company by writing their own checks along with friends and family.  They didn’t need outside investment which comes with strings attached in the form of opinions. These guys have 40 years of auto experience and don’t need advice on how to run this business.  Next question, “Why did they do it with Vroom?” They needed large slugs of outside capital because Vroom is not asset light and inventory turnover is longer.  Through their experience, they have developed a streamlined mouse trap in an off-shoot of the car business.  Vroom brought on the Priceline CEO to run it and Marshall and Steve stepped away.  For what it’s worth, Marshall’s son is still the Chief Revenue Officer and both guys have large equity stakes in Vroom. 

Craigslist, Ebay, Cycle Trader and others are not incentivized for the bike to sell.  The listing fees are their bread and butter.  Some semblance of liquidity exists in the bike market as it does in the crypto currency market.  But it’s far from perfect- you cant efficiently buy/sell cryptos like stocks.  RMBL is not for everyone, if it were we wouldnt have an opportunity to own it.  Carmax isn’t for everyone but the convenience outweighs the headaches for a lot of people.  Same thing here.  There is a staggering amount of Harley Davidsons with non-active registrations.  That means they are sitting idle in garages collecting dust because they are a show-piece or the owner doesn’t feel like dealing with knuckleheads showing up at their house to kick the tires.  It’s like barn finds of pristine bikes and the auction companies are taking notice giving RMBL their own lane these days.

I originally was introduced to Steve Berrard through Services Acquisition Corp, a blank check (SPAC) that acquired Jamba Juice.  I was a large holder of the SPAC and was making a pure bet on Steve.  He delivered and the SPAC unit was up 50%+ upon deal announcement, which is far from the norm in the blank check spac sector.  This is his 13th pubco and he didn’t come out of retirement for money, he sees a massive opportunity. 

Marshall and Steve met when Autonation bought Marshalls company for $100million.  Does his BK scare me?  No, he went belly up after 2008 along with a lot of really smart people that were leveraged and the banks stopped lending.  It is certainly a red flag on the surface but find me successful person that doesn’t have several bad deals in their past.  They all do.  (plus over $300million of funding was put into Vroom after the BK.  Catterton, T Row Price, etc.. It didn’t bother them, shouldn’t bother us)

It’s also a good idea to listen to their last quarterly conference call.  These guys are professionals and miles above most micro cap teams.

What is my price target?  It all depends on what drives the buying and interest.  I can easily see a major publication writing a story about, “Meet the team disrupting the used motorcycle space” or next quarter earnings being the match that lights this up.  Given the low float, I expect to see a day that it trades several million shares moves to the $10-$20 range.  Once the volume comes, it will open the story up to many potential investors.  Low float mania is a real thing and we see companies moving wildly with little-to-no underlying sustainable business.  When this moves and people dig deeper they will be happy with what they find.  This is not the norm in microcap world.

In summary – creating liquidity in an illiquid market tends to create significant value.  I have never witnessed a micro cap grow from a few million in revenue to $100 million in less then two years.  It simply doesn’t happen.  Will they achieve this revenue target?  Yes.  They can juice the marketing spend to hit it.  Can they do it while creating positive cash flow?  That remains the question.  It’s only a matter of time until this disruptive story hits other radar screens as the growth simply can’t be ignored for long. 

Happy to continue the conversation.
« Last Edit: June 14, 2018, 10:35:55 AM by LFvalueseeker »

johnny

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Re: RMBL - RumbleOn
« Reply #12 on: June 14, 2018, 06:18:41 PM »
If RMBL were privately held and walking down Sand Hill road in the Valley they would certainly command a $125-$200m valuation given their traction, asset light business model and TAM.  Where do I come up with these numbers?  They are based on data points of a variety of seed, series A-F and IPO data.

Which specific transactions do you think are most representative of the market and analogous to this situation?

LFvalueseeker

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Re: RMBL - RumbleOn
« Reply #13 on: June 15, 2018, 07:29:04 AM »
Johnny, unfortunately I no longer have access to Pitchbook(.com) which back in October 2017 allowed me to see the private valuations of the automobile startups.  I have reached out to a few colleagues who hopefully have access.  I will post the screenshot as soon as I receive it.  If anyone on here could help identify someone with Pitchbook that would also we great. (crunchbase pro may work too)

RichardGibbons

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Re: RMBL - RumbleOn
« Reply #14 on: June 15, 2018, 08:42:13 AM »
One concern brought up on this forum is the inventory tracker on the website.  It’s natural to think that as unit volumes increase so should the inventory count.  If the machine is well oiled – this is not the case.  What we are currently witnessing is mgmt. choosing to keep active inventory in the 600-800 bike range. If you are acquiring bikes at a more rapid pace (which we know they are by looking at cash offers) then you need to sync that with distribution.  I suspect, based on conversations with the team, that they throttle their digital spend and acquisition efforts with the auction calendar in mind. I expect the active listings to grow moderately over time but we do not want to see them grow too quickly.  They are churning efficiently.  As clearly indicated in the deck, they are making enhancements to the website to drive higher margin business by selling bikes to consumers vs. dealers/auctions.  This will result in longer inventory turn over and they should quickly determine the inflection point at which inventory turnover maximizes gross profit.  As a shareholder I would encourage them to increase the listing days to achieve higher margins and also ramp digital spend as every profile captured helps improve the moat and build the data set.

I'm trying to understand your argument here, but I'm not sure I completely do.

Are you basically saying that they are deliberately not trying to buy bikes except close to the time that the low-margin auctions are available so they can turn over their inventory quickly? Like, maybe they're so constrained by their storage costs or financing costs that it's not worth it for them to even bother trying to increase the inventory on their website. Or another way of putting it is that not enough people want to buy from their website for it to be worthwhile acquiring more inventory except when they're close to the time that they can dump that extra inventory at an auction.

Is this what you're saying? Most online marketplaces are driven to increase scale to increase networking effects--i.e. the exact opposite of "I expect the active listings to grow moderately over time but we do not want to see them grow too quickly". If you're right that they're deliberately not increasing scale, I want to understand the reasoning behind that. 

Why don't they want to see the high-margin listings on their website growing as fast as possible?  Is it that the storage or financing costs would be too high? Or am I misunderstanding something about their business model?

LFvalueseeker

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Re: RMBL - RumbleOn
« Reply #15 on: June 15, 2018, 08:56:19 AM »
They are currently approaching 1,000 units sold per month.  Their active inventory is constantly churning.  When churn is efficient the inventory tracker is almost irrelevant.  When I first saw the inventory tracker, I was excited as I thought I could track unit sales.  Took me a while to realize that it's almost meaningless. 

You want to see this number grow moderately in the short term as they sort out the "turnover days : gross profit maximization point" <- totally made up metric.  We don't want them building up large amounts of inventory for too long as it ties up capital. We want them buying them and selling them as quick as possible until they precisely determine the exact amount of turnover days where they maximize sales to consumers.  This is one of those things that would be simple to explain over the phone - less so in writing, especially on a Friday. 

Said another way - The longer the bike sits on the site for sale, the greater the odds are it's sold to a consumer at the best margin.  But as it sits in inventory (which is misleading as they don't touch the bikes whatsoever) it reduces available capital.  For example, a bike could sit on their site for 6 months and produce a gross profit of $1,000 when sold.  That same bike could be sent to the auction after 30 days for a gross profit of $700.  I'd prefer to do that 6 times and generate more gross profit.  Currently they shouldn't have any capital issues as Ally $25m Floor Plan allows for 5X leverage.  But we want them to find the sweet spot ASAP, so they can scale harder and more efficiently.  It's not rocket science and I trust a career CFO in the auto business to sort this out very quickly. 

LFvalueseeker

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Re: RMBL - RumbleOn
« Reply #16 on: June 15, 2018, 09:00:45 AM »
The one thing you may be missing is that they are not simply a listing site.  They pay same day cash for the bike from consumers.  Carmax for Bikes without the Brick and Mortar locations. 

Thats the technology platform they sit on top of.  Same team that built the True Car technology.  Almost immediate appraisal and cash/wire offer to the seller.  That is the major enhancement creating liquidity. 


Pelagic

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Re: RMBL - RumbleOn
« Reply #17 on: June 15, 2018, 09:35:20 AM »
Johnny, unfortunately I no longer have access to Pitchbook(.com) which back in October 2017 allowed me to see the private valuations of the automobile startups.  I have reached out to a few colleagues who hopefully have access.  I will post the screenshot as soon as I receive it.  If anyone on here could help identify someone with Pitchbook that would also we great. (crunchbase pro may work too)

Crunchbase's free option seems to have some decent comparisons. I used the filters "automotive" and "marketplace" then click on each individual company to see the funding rounds and amounts.

https://www.crunchbase.com/search/organization.companies/3533cd522bb46a61225306d3b3ace2865fc61f1d
(hopefully that links returns the same search I created)

Shift.com for example is a p2p marketplace for car buying and selling while offering intermediary concierge services - $112M raised.


cameronfen

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Re: RMBL - RumbleOn
« Reply #18 on: June 15, 2018, 09:35:54 AM »
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.   

LFvalueseeker

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Re: RMBL - RumbleOn
« Reply #19 on: June 15, 2018, 09:40:19 AM »
Johnny, unfortunately I no longer have access to Pitchbook(.com) which back in October 2017 allowed me to see the private valuations of the automobile startups.  I have reached out to a few colleagues who hopefully have access.  I will post the screenshot as soon as I receive it.  If anyone on here could help identify someone with Pitchbook that would also we great. (crunchbase pro may work too)

Crunchbase's free option seems to have some decent comparisons. I used the filters "automotive" and "marketplace" then click on each individual company to see the funding rounds and amounts.

https://www.crunchbase.com/search/organization.companies/3533cd522bb46a61225306d3b3ace2865fc61f1d
(hopefully that links returns the same search I created)

Shift.com for example is a p2p marketplace for car buying and selling while offering intermediary concierge services - $112M raised.

The key is getting the valuations at each of the rounds.  It will clearly show that RMBL is very cheap versus the peer group.  Shift, Blinker, Beepi (defunct), Vroom, Carvana, Auto 1 (Germany, i think)  Pitchbook has the data and is the best for details on private companies and VC/PE financing info.  Hopefully, I will get this info shortly.