IPO of the Week: Carvana

Josef Schuster
Dr. Josef Schuster is the founder of Chicago-based IPOX Schuster LLC and chief architect of the IPOX® Indexes. The IPOX methodology is implemented in an IPO and spin-off strategy at Catalyst Funds. Before founding IPOX, Dr. Schuster pursued his academic work on European IPOs in the Financial Markets Group (FMG) at the London School of Economics (LSE), where he completed his MSc and PhD and conceived the idea to start IPOX. He regularly appears in the media as an expert in global New Listings and respective investment products.

Company Description

Founded and commenced operation in 2012, Carvana was a subsidiary of DriveTime Automotive Group until its subsequent Spinoff in 2014. The Phoenix, Arizona-based company provides an eCommerce platform for buying used cars. Carvana purchases, reconditions then sells and delivers the vehicles. The company also offers vehicle pick-up option from vending machines which provides a unique experience.

Business Model

Carvana generates the majority of revenue from used vehicle sales. Revenue on retail units sold include a) the sale of the vehicle, b) gains from financing offerings, c) sales commissions on vehicle service contracts (VSCs) providing insurances, and d) wholesale sales (at auction) of vehicles acquired from customers as trade-ins.

Spin-Off History

On 4/28/2017, Carvana debuted on NYSE led by Wells Fargo, BofA Merrill Lynch, Citigroup and Deutsche Bank. The used cars eCommerce company raised $225.0 million as it sold 15.0 million shares at an IPO price of $15.0 per share, mid of its expected range. Carvana was valued at ca. $1.98 billion at offer. The shares opened 10% down and continued to fall short. The stock closed its first day at $11.10/share. Carvana was included in the IPOX® 100 U.S. Portfolio on 06/15/2018 and currently weighs approximately 0.6% of the portfolio.

Historical Performance

Growth Outlook

Industry Comparison

Company

Stock

Symbol

IPO

Date

Initial
Return

Offer to Date

2019

YTD

Beta to S&P

EPS

2018

Revenue

(in millions)

2018 Net Income

(in millions)

P/S
ratio

Carvana

CVNA US

4/28/2017

-26.0%

430.8%

143.41%

1.90

-$2.24

$1,955.47

-$61.75

1.2x

CarGurus

CARG US

10/12/2017

72.4%

98.88%

-5.66%

1.13

$0.57

$454.09

$65.17

6.5x

AutoTrader

AUTO LN

3/19/2015

8.9%

126.45%

13.34%

--

£0.21

£355.10

£197.7

13.5x

Cars.com

CARS US

TEGNA spin-off on 5/18/2017

-58.84%

1.12

$0.55

$662.13

$38.81

0.96x

Other Major Competition

Traditional franchised dealerships, Independent dealerships, Offline membership-based (Costco Auto Program), Automobile manufacturers. Other online car retailers (Vroom, Shift, Kelly Blue Book/KBB.com, TrueCar.com (TRUE US) etc.)