Amazon of Used Cars? Looks Like a Pipe Dream

tech.hindustantimes.com:

Pitching Cazoo Group Ltd. as the “Carvana of Europe” seemed a shrewd move when serial entrepreneur Alex Chesterman was shopping his online used-car dealer to investors last year. It doesn’t look so clever now.

Initially, his decision to shun the London market in favor of a SPAC listing on the New York Stock Exchange paid off handsomely. Cazoo obtained a whopping $7 billion valuation, a stunning amount for a business launched in December 2019 and one certainly helped by U.S. muse Carvana Co.’s then-$60 billion market capitalization.

These companies’ business of allowing consumers to purchase a car with a few mouse clicks and have it delivered to their driveway, with a seven-day money-back guarantee, struck a chord with investors. But Cazoo sold just 50,000 cars in 2021 and earned a mere £25 million ($31 million) of gross profit — the money left over after deducting the cost of acquiring vehicles and preparing them for sale. The net loss was £300 million.

This week the British firm became the latest pandemic winner to announce layoffs after a plunge of almost 90% in its shares since November. Besides a 15% headcount reduction and more disciplined marketing budget – which all sounded much like Carvana’s recent restructuring — Cazoo also slashed revenue guidance and other key financial targets in response to the increasingly difficult consumer environment.

Rising interest rates have made investors leery of online used-car retailers that promise a hassle-free service but require huge amounts of capital to finance inventory, refurbish vehicles and truck them to homes. Cazoo will remain in the red for at least a couple more years, according to analyst forecasts compiled by Bloomberg.

As at Carvana, the hedge funds and family offices