Carvana Co. CVNA 3.51% , an online-only seller of used vehicles,is generating new interest from both car buyers and Wall Street asits business benefits from the burst in internet shopping.

Carvana’s recent success comes at a critical moment for theeight-year-old company, which was founded with the mission ofchanging the way people buy cars but has yet to turn a profit andis fending off tougher competition in the online-retailingspace.

The Tempe, Ariz., company last week posted a 25% increase invehicles sold for the second quarter, a time when

many dealerships were still closed because of the Covid-19pandemic. Total revenue grew 13% to $1.12 billion for theApril-to-June period.

“What we needed was an event that would generate the willingnessto try something new,” Chief Executive Ernie Garcia said. “That maybe happening now faster than it ever has.”

But the used-car retailer is still losing money as it investsheavily in its own operations in an effort to grow its U.S. marketshare, and analysts polled by FactSet don’t expect it to beprofitable on a net basis until 2023. Challenges related toreconditioning used vehicles for sale also have weighed on results.For the April-to- June quarter, the company reported a loss of $160million.

Still, Carvana’s latest results beat Wall Street’s expectations,and the company’s stock rose 28% the day after the quarterlyreport, closing at $222.99. Shares have since retreated to $192, asof Friday’s close, but remain double where they started theyear.

Carvana, known for its tall, glass towers that dispense vehiclespurchased by customers, was built with the intent of giving carbuyers an alternative to going to a dealership. Shoppers can browseand purchase preowned models through the company’s website, andthen arrange for the purchase to be delivered by truck to theirhome or office.
Carvana promotes a seven-day return policy to ease concerns aboutbuying a car sight unseen.

Used vehicles—unlike those sold new—aren’t required to be soldthrough a franchise dealership network, allowing Cavana and rivalsVroom Inc. and Shift Technologies Inc. to operate withoutbricks-and- mortar storefronts.

Growing demand for used vehicles has helped lift business forCarvana and its rivals, especially with inventory still tight onthe new-car lot because of virus-related factory constraints.

Carvana has steadily increased sales in the past three years andexpanded into more than 260 markets in the U.S. The used-carretailer expects to sell up to 265,000 cars in 2020, a nearly 50%increase over 2019.
As more businesses moved online to capture the surge in shoppingtraffic, traditional dealerships also have scrambled to make theshift to internet retailing, building out their websites with morecapabilities and investing in delivery personnel.

Dealership chain AutoNation Inc., for instance, has movedaggressively to shift its operations online, promoting a newstore-to-door delivery service that allows customers to skip theshowroom. It is starting to trim positions in the physicalshowroom, as a result.

A few years ago, Carvana and other used-car retailers likeCarMax Inc. presented a wake-up call for traditional auto dealers,said Rhett Ricart, chairman of the National Automobile DealersAssociation and

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a Ford dealer in Columbus, Ohio. But dealers have since adjustedand now have many of the same tools, he

said.
“That’s been accelerated by Covid-19,” Mr. Ricart said. “Otherentrants might have had it easy before,

but now new-car dealers are going to be a very formidableadversary in the used-car market.”
Investors, meanwhile, are increasingly placing their bets on theupstarts. Carvana’s stock price has

more than quadrupled since late March when lockdowns beganproliferating across the U.S.
Competitor Vroom Inc. went public in June in an effort to challengeCarvana and take advantage of

investor enthusiasm for online-car retailing.
In the stock’s first day of trading, Vroom’s shares more thandoubled and have remained elevated,

closing at $63.97 a share Friday, nearly triple the $22 IPOprice. Vroom’s market value is $7.3 billion, below Carvana’s nearly$33 billion market capitalization.

Shift Technologies, a San Francisco-based startup with a similarinternet-only model, is looking at a public offering.

Carvana is working through its own growing pains, though.Compared with more-established used-car retailers, Carvana has tospend more on advertising and marketing to grow its brandrecognition. It also is working to build out its network ofso-called reconditioning centers—places where it cleans and fixescars to get them ready for sale—to speed up its turnover ofused-car stock.

On top of that, many of its existing centers were closedtemporarily this spring as part of the lockdowns.

“The fact that Carvana is multiple years ahead of thecompetition on this front certainly helps,” said Zack Fadem, ananalyst for Wells Fargo & Co. But it is still building itsoperations, and that can take time, he

added.

What the ratios tell you about Carvana’s performance relative tothe industry?

Answer rating: 100% (QA)

Ans The ratios tell us about Carvanas performance relative to the industry Many investors believe Carvana is a budding ecommerce giant poised to disru... View the full answer