No more watching from the sidelines for Carvana
With over 16,000 thousand cars sold since it put its foot in the online car re-sale market back in 2013, Carvana is one of the big players on the US front. Carvana is a Phoenix-based online marketing platform that distributes second-hand cars to buyers all over mainland USA.
The company, with its unique business model, announced its imminent public market debut on Monday. Carvana (Pending: CVNA) plans to sell off at least 15 million in shares, with an option of up to 20 million for insiders. It ranges its stock at $14 to $16 per share, racking up 225 million in revenue raised from the IPO at the midpoint. The company is expected to make its first issuance in the week of April 24th, with BOFA Merrill Lynch, Citi Bank, Deutsche Bank and Wells Fargo Securities as its lead managers.
Carvana might not be the only online car-selling platform to thrive in the US, but it is unique in its operations, making it a safe bet for an IPO launch. For one, unlike platforms such as Cars.com which connect buyers and sellers, Carvana acts like a buyer and a seller. Car.com will let sellers know that yes, there is somebody interested in their car and put the two parties in touch. On the other hand, Carvana buys used cars, refurbishes them then sells them off for a profit. Carvana customers don’t have to worry about warranty haggles or late deliveries. That’s because anytime you order a car from Carvana, it arrives within 24 hours. And there are vending machines to pick up your automobile from if you’re in a hurry and in the area.
The bad thing about Carvana is that it is in a market that is capital-intensive and has relatively low-profit margins. Take a look at the financials. In the last year, the company’s revenue stream jumped from 130.4 million to 365 million but the losses followed suit; from 36.8 million in 2015 to 93.1 million in 2016. Carvana’s IPO will do much to replenish its operating capital, but unless the company makes some significant changes to it model, it may likely end up like its peer Beepi.
Beepi was a used-car online sales website much like Carvana. Because of its massive spending bases, the company ended up having to merge with Fair.com because of its dire financial straits. Even with its IPO coming up and the optimistic atmosphere of the current market, Carvana will probably have to learn a few lessons from Beepi if it wants to grow its continuing domination of the market.
The first lesson for Carvana will be to manage its funds wisely. Beepi was a profitable business but spent exorbitant amounts on cashing money-back guarantees. Carvana could give quality services to avoid this. Similarly, Beepi purchased cars, which wasn’t part of its original business model. In that case, sticking to the plan should do Carvana some good.
Secondly, Beepi was edged out of the market because it was too similar to other product providers. With the formation of partnerships such as the Amazon-Chrysler deal for distribution in Italy, Carvana must capitalize on its more unusual business model and innovate with the incoming cash flow from the IPO in order to stay relevant. It pays to innovate.