Carvana (CVNA)

Online used car dealer Carvana (NYSE: CVNA) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 54.5% year on year to $5.65 billion.

Company Overview

Known for its glass tower car vending machines, Carvana (NYSE:CVNA) provides a convenient automotive shopping experience by offering an online platform for buying and selling used cars.

Consumers ever rising demand for convenience, selection, and speed are secular engines underpinning ecommerce adoption. For years prior to Covid, ecommerce penetration as a percentage of overall retail would grow 1-2% annually, but in 2020 adoption accelerated by 5%, reaching 25%, as increased emphasis on convenience drove consumers to structurally buy more online. The surge in buying caused many online retailers to rapidly grow their logistics infrastructures, preparing them for further growth in the years ahead as consumer shopping habits continue to shift online.

Competitors include traditional car dealers like AutoNation (NYSE:AN), CarMax (NYSE:KMX), Sonic Automotive (NYSE:SAH), and Lithia Motors (NYSE:LAD) as well as online rivals such as Vroom (NASDAQ:VRM).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Carvana grew its sales at a tepid 8% compounded annual growth rate. This wasn’t a great result compared to the rest of the consumer internet sector, but there are still things to like about Carvana.

This quarter, Carvana reported magnificent year-on-year revenue growth of 54.5%, and its $5.65 billion of revenue beat Wall Street’s estimates by 11.1%.

Looking ahead, sell-side analysts expect revenue to grow 21.3% over the next 12 months, an acceleration versus the last three years. This projection is particularly noteworthy for a company of its scale and implies its newer products and services will catalyze better top-line performance.

Unit Growth

As an online retailer, Carvana generates revenue growth by expanding its number of users and the average order size in dollars.

Over the last two years, Carvana’s retail units sold, a key performance metric for the company, increased by 31.4% annually to 155,941 in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q3, Carvana added 47,290 retail units sold, leading to 43.5% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating unit growth.

Revenue Per Unit

Average revenue per unit (ARPU) is a critical metric to track because it measures how much customers spend per order.

Carvana’s ARPU fell over the last two years, averaging 2% annual declines. This isn’t great, but the increase in retail units sold is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Carvana tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether units can continue growing at the current pace.

This quarter, Carvana’s ARPU clocked in at $36,212. It grew by 7.6% year on year, slower than its unit growth.

For online retail (separate from online marketplaces) businesses like Carvana, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include the cost of acquiring the products sold, shipping and fulfillment, customer service, and digital infrastructure.

Carvana’s unit economics are far below other consumer internet companies because it must carry inventories as an online retailer. This means it has relatively higher capital intensity than a pure software business like Meta or Airbnb and signals it operates in a competitive market. As you can see below, it averaged a 20.9% gross margin over the last two years. That means Carvana paid its providers a lot of money ($79.06 for every $100 in revenue) to run its business.

Consumer internet businesses like Carvana grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Carvana is extremely efficient at acquiring new users, spending only 8% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation from scale, giving Carvana the freedom to invest its resources into new growth initiatives while maintaining optionality.

Carvana has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer internet sector, boasting an average EBITDA margin of 10.3%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Carvana’s EBITDA margin rose by 16.9 percentage points over the last few years, as its sales growth gave it operating leverage.

In Q3, Carvana generated an EBITDA margin profit margin of 11.3%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Carvana has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.1%, subpar for a consumer internet business. The divergence from its good EBITDA margin stems from its capital-intensive business model, which requires Carvana to make large cash investments in working capital (i.e., stocking inventories) and capital expenditures (i.e., building new facilities).

Taking a step back, an encouraging sign is that Carvana’s margin expanded by 21.5 percentage points over the last few years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Carvana reported $2.14 billion of cash and $5.75 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.09 billion of EBITDA over the last 12 months, we view Carvana’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $555 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Carvana blew past analysts’ revenue expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its outlook for next quarter's number of used car unit sales slightly missed. Zooming out, we think this was a solid print, but investors were likely hoping for stronger guidance given the recent macro jitters. Shares traded down 9.5% to $320.32 immediately following the results.

Updated: December 3, 2025 at 9:24 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Carvana, you should also grasp the company’s longer-term business quality and valuation.

Carvana possesses a number of positive attributes. Although its revenue growth was uninspiring over the last three years, its growth over the next 12 months is expected to be higher. And while Carvana’s gross margins make it extremely difficult to reach positive operating profits compared to other consumer internet businesses, its rising cash profitability gives it more optionality. On top of that, its expanding EBITDA margin shows the business has become more efficient.

Carvana’s EV/EBITDA ratio based on the next 12 months is 20.5x. This valuation tells us that a lot of optimism is priced in. Carvana is a good one to add to your watchlist - there are companies featuring superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $420.78 on the company (compared to the current share price of $397.02).