Carvana Stock Rival ACV Auctions Is 'Coiled Spring' Under The Hood Of Used Car Business

Blockhead11-15

Since its initial public offering in 2021, ACV Auctions (ACVA) has defied the post-Covid slump in the used car business, turning profitable this year with sales on pace to grow by double digits. ...

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Though nowhere near as well known as online used-car retailer Carvana (CVNA), ACV stock is beating its larger rival in its own niche.\nThe combination of rising market share and an eventual turn for the better in used-car sales makes this little-known technology play \"like a coiled spring,\" Citizens JMP analyst Nick Jones told Investor's Business Daily.\n\n\n\n↑\nX\n\n\n\n\nThe Chip War With China Is Heating Up. Who's Winning?\n\n\nSee All Videos\n\n\n\n\nNOW PLAYING\nThe Chip War With China Is Heating Up. Who's Winning?\n\n\n\n\nUnderstanding ACV's potential requires going deep under the hood of the used-car industry. In contrast to consumer-facing plays like Carvana stock and leading auto shopping site CarGurus (CARG), ACV is a strictly business-to-business play.\nThe business-to-business market for used cars is a \"massive market most investors hadn't really ever heard of,\" Chief Executive George Chamoun explained at a Sept. 10 Goldman Sachs technology conference.\nBefore Covid, dealer-to-dealer sales of used cars topped 10 million per year. But that eventually hit a bottom just below 8 million.\nConsumers often trade in their old car for a new one, or return cars after vehicle leases expire. Dealers then may decide to move those vehicles off their lots, rather than selling them to retail customers, if they have too much inventory or the vehicle isn't a good match for their clientele.\nCarvana, CarGurus Enter Wholesale Auction Business\nTraditionally, dealers bought and sold those pre-owned vehicles via in-person auctions, with privately held Manheim Auctions being the industry behemoth. However, \"digital wholesale auctions (are) taking share from physical, with ACV leading that charge,\" Needham analyst Chris Pierce told IBD.\nCarvana stock has rallied back to 2021 heights as it disrupts the used-car business. Carvana and CarGurus have both made acquisitions in the wholesale auction business. In 2022, Carvana bought Adesa, whose business focused on physical auctions.\nBut with the Carvana stock Oct. 30 third-quarter report, the company said that it has integrated with just five of 56 Adesa sites. CarGurus' acquisition of CarOffer has yet to pan out, with revenue falling 55% from a year ago through the third quarter.\nOn ACV's third-quarter earnings call, Chamoun said, \"We are building the technology that empowers all these dealers to really compete against Carvana and the other big-box players,\" alluding to 16,500 franchise dealers and 30,000-plus independent dealers.\n\"We think they could be buying a lot more cars from consumers and selling more used cars, and we're going to help them get that inventory,\" Chamoun went on to say.\nDigital auctions are good for sellers, since they avoid the cost of having their vehicle transported to Manheim, Needham's Pierce says. Buyers don't have to send anyone to the auctions and get to bid for cars from their desk. Plus, they can tie in ACV's platform with their own systems tracking inventory needs and vehicle condition.\n\"Over time, there's going to be no buyers in the room,\" Pierce said.\nACV Auctions Market Share, Technology Edge\nChamoun told the Goldman investor conference that ACV has a 9% market share among dealer-to-dealer auctions. On top of that, it also has about 1% share of the commercial wholesale market for used cars — about 7 million cars per year. These go to dealers from leasing companies, banks that have repossessed vehicles, and rental car companies moving used vehicles out of their fleet.\n\nThat market is a bit different, since commercial sellers don't generally have available lot space for these vehicles nor the facilities to recondition the vehicles for sale. ACV has a plan to acquire and build out a total of 40 locations nationally to compete in the commercial wholesale market, with 10 locations already in place.\nACV's strategy depends not just on offering a lower cost than competitors. It also has built leading technology and services to facilitate all aspects of used-car auctions, including transportation and financing.\nHowever, the most critical technological focus is on making sure that buyers can trust in the quality and price of used vehicles, including those that they don't inspect themselves.\nThrough its ClearCar AI-powered tools, ACV also enables dealers to offer the right price for potential trade-ins by consumers, who may be bringing their vehicle in for servicing. Chamoun told the Goldman conference that he sees a car's actual cash value, or ACV, becoming an industry-standard measurement.\nCitizen JMP's Jones noted that ACV has technology that can sense odors in a car. That includes odors from smoking, dog dander or mold from a vehicle that flooded.\nBucking The Used Car Slump\nPost-Covid, dealers struggled to get enough new vehicles to sell amid supply disruptions. Meanwhile, a jump in auto prices and higher financing rates meant fewer people were trading in their used cars.\nOn the Nov. 7 third-quarter earnings call, Chamoun noted that dealer used-car inventories are down by about 25%. That's a negative for the wholesale business.\nThrough the third quarter, ACV's auction platform has sold 559,511 cars this year, up 23% from a year ago. That amounts to $7.2 billion in vehicle transactions, or about $12,900 per vehicle.\n\"They're growing while the market is depressed,\" Jones said.\nACV Auctions: 'A Very Sticky Platform'\nMaking inroads with new business-to-business tools that interact with existing databases is very difficult. But ACV has done just that with the dealer community and will be hard to unseat, Jones said. ACV is \"a very sticky platform.\"\nNeedham's Pierce notes that auction markets are \"winner-take-most.\" They reward those with a broad, active universe of buyers and sellers.\n\"The digital transition is here\" for wholesale auctions, Pierce said. \"Why couldn't they double or triple their share?\"\nHowever, Pierce sees the ACV Auctions stock story as \"not at all\" well understood on Wall Street. That provides an opening for investors, he says.\n\"This is a stock that I think can double in the next two, three years,\" Pierce said.\nYOU MIGHT ALSO LIKE:\nJoin IBD Live Each Morning For Stock Tips Before The Open\nThese Are The Best 5 Stocks To Buy And Watch Now\nIBD Digital: Unlock IBD's Premium Stock Lists, Tools And Analysis Today\nHow To Make Money In Stocks In 3 Simple Steps","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2483737486"}