Why Cazoo has suffered from a plummeting share price

The mechanics, of course, are much more complicated. Cazoo wants to control the entire process from sourcing the cars, refurbishing them and delivering them. Part of the reason it lost £550m last year was because it spent a fortune buying up companies to help it along its path, including reconditioning businesses SMH Fleet Solutions (£76m) and Smart Fleet Solutions Limited (£39m), vehicle data cruncher Cazana (£24m), online van retailer Vans 365 (£7.9m) and Italian online car retailer Brumbrum (€80m).

Cazoo also spent big buying companies to fuel its car subscription ambition, including Cluno in Germany for £60m, Drover in the UK for £65m and Swipcar in Spain for £24m. As of April, Cazoo claimed 10,000 subscribers paying, in the UK anyway, between £329 and £1229 per month. “We view subscriptions as part of the future of the car market,” the company said in an annual report published on 5 May.

One purchase has been seized on by detractors for seemingly going against the company’s stated aim of selling online only: the £24m addition of Imperial Car Supermarkets in 2020. Cazoo, however, has said this was bought for its vehicle refurbing centres, stock holding and collection points for the cars it bought. “The retained Imperial retail sites were repurposed as our customer centres,” it said in its annual report.

Cazoo is a long way off its stated long-term aim to make a gross profit per vehicle sold of £3000, and even from its £900 target in 2021 after recording £124 in the first quarter.

But then again this is a young business going through a cash burn to buy aligned properties and splurge on marketing to get its name better known (including sponsorship of Everton and Aston Villa football clubs). Its stock was probably overvalued and is now maybe underpriced. Chesterman himself told The Times recently investors dumping stock were reacting to an “irrational fear”. Time and future customers will ultimately judge whether Cazoo is the new normal for used car buying.

Bright vs cloudy: Cazoo’s different takes on its future prospects

Before Cazoo listed on the New York Stock Exchange last year, it presented a sunny pitch deck listing its many upsides versus the competition and enthused its potential investors with news that it was competing vigorously in ‘total addressable market’ in Europe worth £480m. This was essentially all the information Cazoo needed to give to list via the SPAC (or special purpose acquisition company) method whereby you merge into a company already listed for that purpose.

On 5 May, however, Cazoo published a proper rundown of the risks investors face in the 20K form/annual report as required by the US Securities and Exchange Commission – and if you haven’t seen one of these before, it makes for pretty alarming reading.

For example, in the risk section, you find this statement: “We have a history of losses and we may not achieve or maintain profitability in the future.” It also lists many other risks – eg the car companies themselves deciding to move aggressively into this space (a distinct possibility).

These aren’t unusual statements to find on the 20K form (for foreign companies) required by the SEC, one reason why the SPAC listing process got a bad name for itself. Investors would have preferred to read these before a company lists, not afterwards. Given Cazoo’s recently spectacular dive in share value, many will be ruefully wishing the US listing process was a whole lot better managed.