I wrote about RumbleOn (RMBL – long) in April of last year and again in June.  The stock had quite a ride last year, trading up to $11, and now back to about where it was at the time of my second post.

RMBL 1 year chart

In the meantime, what was formerly a “simple” story –  that of a liquidity provider in the used motorcycle market who had agnostic distribution channels – became complicated.

RMBL bought Wholesale Inc, a used car wholesaler, and their accompanying logistics business, Wholesale Express.  This surprised me because there’s already ample competition in the used car space and ample secondary liquidity.   In other words, it’s hard to sell a used motorcycle – that’s where RMBL’s value add came from – but it’s easy to sell a used car (even if you’re not always happy with the price).

RumbleOn’s management has, quite literally, gone with the “trust us – this is our expertise” line of explanation: I believe it was CEO Marshall Chesrown who, at an investment conference, said something along the lines of “you can question Steve (Berrard, CFO) and my expertise in powersports, but I don’t think you can question our expertise in autos.”   It’s possible I have that quote backwards: that Berrard said it referring to Chesrown – you should be doing your own due diligence anyway!  Here’s what I wrote in the comments of my prior RMBL blog post after the Wholesale acquisition:

1) they whiffed on Q3 earnings and finally got off the $100MM guidance that was a mistake to begin with
2) this lowered guidance was for the “right” reason: they’re not sacrificing profitability for the sake of topline sales: margins are holding up and expanding
3) I think the motorcycle story was easy to understand and it made sense once people understood that RMBL was a motorcycle ACQUIRING company – and that the selling part was the easy part of their model
4) I think the auto expansion complicates that story greatly, and it confuses me. But it’s also the bread and butter of Berrard and Chesrown. I do think they lost some credibility with The Market with the $100mm 2018 guidance that they just finally abandoned though
5) I don’t understand how RMBL plans to acquire cars from consumers. I have talked to management at length friday and sunday and I still don’t understand their edge against the ample liquidity that already exists both online and brick and mortar in the used car space
6) that’s why i didn’t think they’d get into autos, even though everyone else apparently thought they would
7) Management points out that the 900 pound gorilla in the used car space is Carmax, who has a 2% market share… ie: the market is huge, and they only need to capture a tiny portion of it. I hate TAM (total addressable market) arguments, but Chesrown and Berrard have proven experience and success in this exact segment previously. That doesn’t mean they’ll succeed here, but again, this IS their bread and butter
8) despite having a conference call, PR and shareholder letter, i think management did a terrible job explaining how this acquisition isn’t just “buying another crappy used car dealer”… Wholesale is essentially a dealer arbitrageur – they buy from dealers (auctions) and sell to other dealers… RMBL technology might be able to help their process incrementally, and there will be logistical synergies, but I still fail to see how they’ll be able to buy cars from CONSUMERS and sell more cars to CONSUMERS, which is where all the money is.

i sold 1/3rd of my position on the run from $5 to $10+. I have done nothing in the last month or so.

When they announced the Wholesale acquisition, RMBL also announced weak Q3 earnings, a Q4 guide down, and a secondary offering to fund the acquisition.  A bright spot was that one of the reasons earnings and guidance was weak was because management was refusing to sacrifice profitability for the sake of printing top line sales numbers.

A core of the thesis in this stock has, of course, always been that Chesrown and Berrard ARE experts in this space, so longs still have that going for them.

On the negative side, the company did multiple secondary offerings in the past year, including one this week that again took the market by surprise, and leaves me shrugging in confusion considering the earnings pre-annoucement the company released at the same time: they have plenty of cash on the balance sheet, and the cash burn in Q4, despite what I expect will be abominable numbers out of the legacy used-motorcycle biz, seemed to be not so bad.

So where do we stand?  Look: as I said already, I thought the story last year was easy: low float, huge management ownership, easy story to tell, ambitious growth.  The story has changed a lot, and while major growth happened, the overly ambitious growth that Management had guided for didn’t come to fruition – but for the right reason (refusal to sacrifice profitability and to simply ramp marketing spend to crank revenue metrics)!  However, I guess if they were going to continue to dilute via secondary offerings, the stock probably would have reacted better if they had done the “wrong” thing and just printed the top line numbers.  Who knows.

In my first blog post, I wrote:

“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 – any story they tell is likely to sound compelling!”

This remains true!  If you talk with Marshall Chesrown on the phone, you are likely to come away believing in the story he is selling!

I think the key question RumbleOn investors need to answer is: does RMBL actually have a data edge?  I have spoken with both Chesrown and Berrard about RMBL’s data, and I still don’t think I understand what is so great about their data.  Let me be clear: that doesn’t mean they don’t have a data edge.  It means that I haven’t understood management’s answers, and haven’t pressed them enough to decide if I’m not getting it because I’m an idiot (likely?) or because they don’t actually have a data edge.   RMBL certainly has a technology edge that they can bring to old school dealerships, and it seems like that’s the route they’re taking now, trying to add value to established auto dealers via technology and logistics.