Car vending machines: is this the end of dealerships?
Key statistics: NYSE: CVNA
Closing share price 17.09.18: $60.27
52-week high: $72.59
52-week low: $16.300
Most recent dividend: 12.17c
Annual dividend yield:
It's been called the Amazon of car buying. Though it may still be too early to compare it with Jeff Bezos' empire, Carvana (NYSE: CVNA), an online used car dealer company, shows a promising and positive trajectory.
During the last reporting season in the US, Carvana delivered strong second-quarter results. Market analysts noted that the growth figures across many financial metrics have been positive compared with those of the previous year.
Young and growing company
Based in Tempe, Arizona, Carvana is a relatively young company. It was founded in November 2016 and only held its IPO in April 2017.
Like other companies such as Uber and Airbnb that are heavy users of technology, Carvana is shaking up the online car dealership industry in the US.
And at the moment, investors seem to be valuing the company like an internet/technology stock.
Its core offering is a service that allows customers to shop, finance and trade in their cars using the company's website.
Shaking the car dealership industry
Though some analysts are quick to point out that Carvana is only a car dealer, the company has ambitious and new ways of making the car-buying experience a bit more exciting than going to a traditional dealership.
On top of this, each car is subject to a rigorous 150-point inspection and is guaranteed to be accident-free with no prior frame damage.
Buyers of vehicles listed on Carvana have the option to collect their vehicle from one of Carvana's signature car vending machines.
Though it may currently sound unusual to get your next car from a vending machine, the novelty will help boost the profile of Carvana. Convenience is also a factor, with the company saying the whole pick-up process can take as little as 10 minutes.
Here are some recent figures from Carvana that show its growth trajectory: - The number of units (cars) sold increased by 111% compared with last year's figure. - Total revenue was up 127%, for a total of $US475.3 million ($664 million). - The share price is up about 26.3% in the past month and up 257.11% in the year to date. - Total gross profit jumped by 206%.
Some analysts have noted that Carvana's rise in revenues is no surprise.
While based in Arizona, it has gradually expanded its network and is now serving about 45% of the US population. It's also worth noting that Carvana has recently launched its service in two significant population areas: New York and the San Jose Bay Area.
Used-car buying with flair
Similar to Amazon's online platform, where you can buy almost anything these days, Carvana uses an e-commerce platform that allows customers to identify a vehicle and inspect it using a vehicle imaging technology.
When satisfied with what they have seen, the customer can obtain financing and insurance cover, complete the purchase and schedule the delivery. All this can be done from a desktop or mobile device.
For buyers who are tired of the hassling and haggling from used-car salespeople, Carvana must seem like nirvana.
Its transaction technology and customer-matching algorithm is yet another example of the way that companies are using advanced technologies to deliver new ways of doing things to tech-savvy consumers.
While some analysts are quick to point out the possibility that Carvana's growth may be too fast, too soon and may not be sustainable, investors are voting with their wallets and have been eagerly driving the share price higher.
Looking at the charts, Carvana's share price shows a steady and gradual appreciation. While it was trading below $US20 as recently as March this year, it tested the $US31 region in April with a subsequent break above here in June, seeing strong gains up to recent highs above $US70 in early September.
Accompanying the solid gain in price over the past six months, there has been a steady increase in trading volumes as well. Technical analysts view this as a positive sign for the upward trend in price.
Carvana is clearly on a strong and positive growth trajectory.
For a service that delivers convenience and accessibility to time-poor consumers, it looks as if this company is in for more expansion.
As more consumers opt for technology-enabled companies, even the most mundane task like buying a used car may get a lift, which will bode well for Carvana.
Similar to Australia's carsales.com.au, which recently reported hefty profit figures, Carvana has many things going for it.