"That said, their base was relatively small and their gross margins are still just shy of the average dealer. They will plateau because we are talking about used cars here and not books, videos, shoes, or groceries. There aren't any suppliers to muscle (like Amazon did to theirs). There aren't any sales tax advantages over the existing marketplace (like Amazon exploited for years). And, there aren't any used car factories that can ramp up production for Carvana."
So while I will agree with you that the margins will never reach book or shoe levels, Carvana's business model doesn't require 50% margins to get to profitability. If you look at this last quarters performance, reaching 2k gpu, and understanding they have made statements about getting to 3k by year end, the margins will eventually be on par, if not slightly ahead of other dealers.
"The used car market in America is one of the most efficient markets around. Between tens of millions of annual transactions, traditional auctions, transparent online retail pricing, and dealer pricing tools, there really are relatively few "inefficiencies" to be exploited."
When you factor in the operating costs (particularly real estate and personnel) of Carvana in a given market vs the traditional dealer or even CarMax is where you should start to see fairly significant inefficiencies in the market.
"Moreover, I predict Carvana will always have to spend heavily on the most expensive marketing - that is, the name recognition ads they currently run. Unlike the Chevy dealer I drive by everyday, Carvana simply won't be top-of-mind for most in-market consumers without it. Unlike Amazon, no one is shopping at Carvana.com every week (as 85% of Amazon's Prime customers do SOURCE)."
If you think the Chevy dealer, simply because you drive by it everyday, is somehow front of mind as you begin your car shopping process today is laughable. Will they need to advertise, yes, I would imagine they will. But as they scale they may actually have to spend less as they leverage national ad spends versus what they have done most recently, locally and regionally.
I know there has been a fixation on comparing Amazon with Carvana. It's oversimplified and perhaps lazy. But just because they are not Amazon doesn't mean they will not be successful. But hey, continue your day trading with the stock, it should be a fun ride for you.
So while I will agree with you that the margins will never reach book or shoe levels, Carvana's business model doesn't require 50% margins to get to profitability. If you look at this last quarters performance, reaching 2k gpu, and understanding they have made statements about getting to 3k by year end, the margins will eventually be on par, if not slightly ahead of other dealers.
"The used car market in America is one of the most efficient markets around. Between tens of millions of annual transactions, traditional auctions, transparent online retail pricing, and dealer pricing tools, there really are relatively few "inefficiencies" to be exploited."
When you factor in the operating costs (particularly real estate and personnel) of Carvana in a given market vs the traditional dealer or even CarMax is where you should start to see fairly significant inefficiencies in the market.
"Moreover, I predict Carvana will always have to spend heavily on the most expensive marketing - that is, the name recognition ads they currently run. Unlike the Chevy dealer I drive by everyday, Carvana simply won't be top-of-mind for most in-market consumers without it. Unlike Amazon, no one is shopping at Carvana.com every week (as 85% of Amazon's Prime customers do SOURCE)."
If you think the Chevy dealer, simply because you drive by it everyday, is somehow front of mind as you begin your car shopping process today is laughable. Will they need to advertise, yes, I would imagine they will. But as they scale they may actually have to spend less as they leverage national ad spends versus what they have done most recently, locally and regionally.
I know there has been a fixation on comparing Amazon with Carvana. It's oversimplified and perhaps lazy. But just because they are not Amazon doesn't mean they will not be successful. But hey, continue your day trading with the stock, it should be a fun ride for you.
