Can Carvana (NYSE: CVNA) Shrug off Amazon Competition?

Carvana's stock (NYSE: CVNA saw its shares climb 5.30% to $185.42 on an otherwise downwards day for markets on Thursday. The company are a leading e-commerce platform for buying and selling used cars, and one that has had an amazing couple of years.

The turnaround in fortunes from the start of 2023 has been a true success story, with a gain in stock price of more than 4,100% in not much more than 2 years. Now in the midst of a 35% pullback, the stock has seen increased interest following BofA's commentary on Amazon's recent move into the used car space.

Bank of America (BofA) has underlined that Amazon Auto's foray into the automotive sector does not directly compete with Carvana's business model. Amazon Autos' general manager Fan Jin announced their intentions to sell used cars online but without offering delivery or reconditioning services—a significant distinction from Carvana's full-service approach. This move, accented by BofA, suggests that Amazon may be more of a competitor to third-party listing services such as TrueCar and CarGurus rather than to Carvana's end-to-end sales model.

Despite Amazon Auto's gradual entry into the market, analyst firms remain optimistic about Carvana's position. BofA has kept a ‘Buy' rating on Carvana shares, with an established price target of $220, citing “multiple reasons” why Amazon's strategy poses no direct threat to Carvana's business. The firm also notes lower attachment rates for warranties and service contracts among Amazon's dealer partners, reinforcing the idea that Carvana's offerings are distinct and potentially more appealing to consumers seeking comprehensive service options.

Carvana, with a significant online presence and pronounced customer-centric buying experience—including vehicle acquisition, inspection, financing, and after-sale support—continues to solidify its stance as an innovator in the automotive sales industry. This is further substantiated by the firm's internal surveys indicating customer's growing readiness to buy cars online, something that Carvana has been capitalizing on since its inception.

Based in Tempe, Arizona, Carvana operates within the Consumer Cyclical sector, expressly focusing on auto & truck dealership activities. Founded in 2012, the company has rapidly grown into an industry force, reshaping how consumers buy used cars through its proprietary online platform.

With no dividend yield and a payout ratio at 0.0%, the company directs its earnings back into growth initiatives, mirrored in its total revenue of approximately $13.67 billion and net income to common of $210 million. Institutional investors hold a dominant share of Carvana's stock, with an insider ownership of about 1.42% and institutions holding 94.21%.

The company's bullish market stance is also reflected in the analyst consensus, which maintains a ‘buy' recommendation with a mean price target of $268.16.

Despite new players like Amazon Autos entering the domain, Carvana's unique position in the market appears resilient. The company's comprehensive service suite, strong financials, and leading market presence, bolstered by a generally positive sentiment and outlook from analyst firms, position Carvana for continued growth, even amidst a market landscape that welcomes incremental online buying normalisation.