Is Carvana Set to Lead as Auto E-Commerce Adoption Accelerates?

Carvana Co. CVNA, a leading e-commerce platform for buying and selling used cars, is reshaping the traditional car purchasing and selling process by emphasizing a broad selection, competitive pricing, quality assurance, transparent transactions and a pressure-free experience. Its proprietary technology and vertically integrated model enable a considerably lower variable cost structure compared to traditional dealerships, while delivering substantial customer value through a seamless, high-quality car buying and selling experience.

Per the Federal Reserve Economic Data, e-commerce has steadily increased its share of non-automotive retail for over two decades and reached roughly 18% of such transactions in 2023. Although the automotive retail sector has adopted e-commerce more slowly than other retail categories, continued consumer comfort with making high-value purchases online is expected to drive greater digital penetration in this space as well.

Given the vast and fragmented nature of the used vehicle market, combined with the broader expansion of online retail, Carvana sees a significant opportunity for sustained growth. The company aims to capitalize on this by further utilizing its established e-commerce and logistics infrastructure, expanding monetization through additional products and services and addressing various points in the car buying and ownership cycle, such as vehicle service contracts and auto insurance. Its technological capabilities and process automation are expected to enable differentiated offerings in these areas. CVNA carries a Zacks Rank #3 (Hold) at present. 

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Unlike Carvana, which operates exclusively online, competitors such as Group 1 Automotive, Inc. GPI and Lithia Motors, Inc. LAD follow a hybrid model, integrating digital features into their traditional dealership networks.

Group 1 introduced AcceleRide in 2019 to allow customers to purchase new or used vehicles entirely online. The platform allows Group 1’s customers to explore various financing options, assess trade-in values and select home delivery. To enhance convenience, AcceleRide also incorporates manufacturer rebates and incentive offers, along with the ability to finalize all trade-in information digitally. 

Lithia's digital retail platform, Driveway, is designed to give customers full control over their vehicle ownership journey. Through Driveway, users can access a broad, nationwide selection of new, used, and certified pre-owned vehicles, with the option to have their purchase delivered directly to their home or picked up from one of over 290 Lithia locations within the Driveway network.

Carvana’s Price Performance, Valuation and Estimates

Carvana has outperformed the Zacks Internet – Commerce industry year to date. CVNA shares have surged 63.3% compared with the industry’s growth of 11.4%.

YTD Price Performance

From a valuation perspective, Carvana appears overvalued. Going by its price/sales ratio, the company is trading at a forward sales multiple of 3.42, higher than its industry’s 2.17.

EPS Estimates Revision

The Zacks Consensus Estimate for 2025 and 2026 EPS has moved up 5 cents and 8 cents, respectively, in the past seven days.

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This article originally published on Zacks Investment Research (zacks.com).

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