Carvana (CVNA)

Online used car dealer Carvana (NYSE: CVNA) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 38.3% year on year to $4.23 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).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Carvana’s 1.8% annualized revenue growth over the last three years was weak. This wasn’t a great result, but there are still things to like about Carvana.

This quarter, Carvana reported wonderful year-on-year revenue growth of 38.3%, and its $4.23 billion of revenue exceeded Wall Street’s estimates by 6.2%.

Looking ahead, sell-side analysts expect revenue to grow 16% over the next 12 months, an acceleration versus the last three years. This projection is particularly healthy for a company of its scale and suggests its newer products and services will spur 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 13.8% annually to 133,898 in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q1, Carvana added 42,020 retail units sold, leading to 45.7% 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 has been roughly flat over the last two years. 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 $31,606. It declined 5.1% year on year, worse than the change in its retail units sold.

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 19.5% gross margin over the last two years. That means Carvana paid its providers a lot of money ($80.50 for every $100 in revenue) to run its business.

Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Carvana grow from a combination of product virality, paid advertisement, and incentives.

Carvana is extremely efficient at acquiring new users, spending only 7.7% 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.

Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.

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 8.6%. 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 13.1 percentage points over the last few years, as its sales growth gave it operating leverage.

In Q1, Carvana generated an EBITDA profit margin of 11.5%, up 3.9 percentage points year on year. The increase was a welcome development and shows its expenses recently grew slower than its revenue, leading to higher efficiency.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Carvana’s full-year EPS flipped from negative to positive over the last three years. This is a good sign and shows it’s at an inflection point.

In Q1, Carvana reported EPS at $2.24, up from $0.12 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Carvana’s full-year EPS of $3.99 to stay about the same.

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 decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.5% over the last two years, slightly better than the broader consumer internet sector.

Taking a step back, we can see that Carvana’s margin expanded by 31 percentage points over the last few years. This is encouraging, 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 $0 of cash and $0 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 $1.63 billion of EBITDA over the last 12 months, we view Carvana’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $339 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 and EBITDA expectations this quarter. We think this was a solid print, but expectations were likely sky-high given the stock rocketed 50%+ over the past month. Shares traded down 6.7% to $241.40 immediately after reporting.

Updated: May 21, 2025 at 10:27 PM EDT

Before deciding whether to buy Carvana or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There are some positives when it comes to Carvana’s fundamentals. Although its revenue growth was weak over the last three years, its growth over the next 12 months is expected to be higher. And while Carvana’s projected EPS for the next year is lacking, its rising cash profitability gives it more optionality. On top of that, its EPS growth over the last three years has been fantastic.

Carvana’s EV/EBITDA ratio based on the next 12 months is 20.4x. This valuation tells us that a lot of optimism is priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $285.96 on the company (compared to the current share price of $291.10).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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