Carvana

Valuation Date: 02/03/2020 Recommendation: Sell

Current Price: $79.25 Exchange: NYSE
Target Price: $64.33 Ticker: CVNA
Sector: Consumer Cyclical Industry: Internet Retail

Business Description
Carvana buys and sells used cars using an E-commerce platform. The company was originally
founded as a subsidiary of Drivetime in 2012, but eventually spun off and became an
independent online used car sales provider in 2016. Carvana currently operates in 146 markets.
Historically, customers in this industry would find cars for sale in newspapers or from their local
dealership in their town. With the advance in internet security and usage, customers are turning
to the internet to purchase their vehicles and find the lowest purchase price. Carvana believes
their competitive advantage in the industry comes from their differentiated shopping experience,
proprietary financing technology, efficient logistics network, scaled used vehicle infrastructure,
and scaled driving powerful network effects.
Differentiated Shopping Experience
Carvana has developed the Roundhouse photo booth and hotbox, image transitions, and image
annotations in order to give their customers a better shopping experience. Essentially, customers
are able to access a 360° degree view of the potential car they are shopping for. If the specific car
isn’t near the consumer, Carvana will subsidize $200 off any airfare in order to allow the
customer to purchase the vehicle. Every car sold by Carvana comes with a 100 day/ 4,189 mile
“Worry Free Guarantee” and a 7-day money back guarantee.
Proprietary Financing Technology
By using the vertically-integrated dealer-lender model, Carvana does the work of both the lender
and the dealer which provides an opportunity to capture economic benefits. These benefits
include lower lender costs by eliminating dealer relationship management costs, automation of
potential underwriting tasks with a shared technology platform, and an increase in visibility for
the vehicle itself and their customers attributes. Much of the existing loan securitization, which
makes up about 52% of total GPU, performed by Carvana is still shrouded in mystery, however.
Efficient Logistics Network & Scaled Used Vehicle Infrastructure
In order to meet the long term production goal of 2+ million vehicles sold per year, Carvana
wants to focus on building a pipeline of inspection and recondition centers (IRCs). The 8th IRC
is currently being built in North Carolina while another 5 more sites have been identified as

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potential locations. The goal of these centers is to provide a decrease in logistics expense and an
increase in the potential amount of retail units sold. For more information, please see Appendix I.
Scaled driving powerful network effects
In Q3 of 2019, Carvana opened 9 new markets to increase their total to 146 markets. This
increased their population coverage to 66.9% of the United States car market. The long-term goal
is to be able to achieve 90%-95% market coverage in the United States, a more ambitious goal
that the 80% penetration Carvana previously desired. This long-term goal seems possible as
Carvana continues to expand. Their revenues in existing markets are greater than their costs,
which will fund the expensive new market developments.

Industry Overview
The Used Car Industry
The traditional used car industry is a highly competitive and fragmented industry with a large
number of brick and mortar dealerships. According to IBISWorld, the industry had $117.9
billion in revenue which produced a $2.4 billion dollar profit. The industry has grown on average
3.7% annually from 2014-2019 (Used Car Dealers in the US, 2019). This growth has largely
originated from an increase in disposable income for customers and an increase in potential
financing options. Due to the large amount of new competition stemming from the online retail
entrance into the industry, margins on vehicles have slowly decreased for everyone involved in
the used car industry. In 2018, KPMG released “Will this be the end of car dealerships as we
know them?” which assessed if automakers and dealer partners needed to rethink the future of
retail. It predicts that the net margins before tax will become negative in 2040 if the status quo is
kept in the industry (Appendix A). Possible success factors for continued traditional dealership
methods include reliable maintenance centers for their inventory, a large selection of reliable
inventory, and the ability to offer their customers financing option.
To enhance their inventory selection, Carvana increased their total cars purchased from
customers by 249% from Q3 of 2017 to Q3 of 2019. While expensive to increase inventory
levels, Carvana believes that sales will increase due to customers having a wide selection.
Online Used Car Dealer Industry
The online used car dealer industry has focused on changing and revolutionizing the used car
buying process. Advanced big data analytics and digital platforms with information on individual
vehicles have proven to be a competitive advantage compared to brick and mortar used car
dealers. Despite the fragmentation, the industry is highly competitive, and the competition is
increasing rapidly Online used car retailers have been fighting against negative drivers such as
the inability to offer test driving and dealership servicing. In fact, Mckinsey & Company named
the inability for individuals to conduct in person inspections and test drives as the biggest
barriers to their market expansion (Used cars, new platforms: Accelerating sales in a digitally
disrupted market, 2019). While in-person inspections and test drives potentially help the sale of
vehicles, they also prove to be expensive for traditional car dealers due to labor costs. By
avoiding various expenses involved with having a physical store location, online car dealers have
been able to gain market share by offering their vehicles at a cheaper price point. In case the

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customer doesn’t like the vehicle they purchased, online car dealers such as Carvana offer a
money back guarantee.
Risks
While consumers are purchasing advanced features on vehicles and increasing their spending
generally, many consumers may not be able to afford the vehicle they are purchasing. In terms of
consumer spending, it seems that individuals have decreased their purchases of vehicles in 2019.
In fact, Bloomberg recently released “The Next American Car Recession has already started”
which detailed the overcapacity of U.S. carmakers equivalent to 10 factories (Naughton et al.
2019). With a decrease in production, customers could see a decrease in inventory options which
would decrease car sales in general.

It is also a possibility that customers may not be able to pay their existing loans that they
received from the online used car retailer. In fact, financing is often more profitable than the sale
of the actual vehicle, pushing the industry to increase their offerings of risky financing.
According to a 2020 survey from the American Bankers Association, 2.43% of borrowers with
auto loans were at least 30 days overdue. Moreover, research firm J.D. Power found that
dealerships make twice as much profit on the financing side compared to the sale on the vehicle
(Add-On Services Emerge as Car Dealers Profit Generator, April 2019). The used car industry
will have to continue to monitor who they give loans and make sure they aren’t sacrificing long
term financial sustainability for short-term profit with a market at high levels of delinquency.

Competitive Positioning
Competitors
Since the online car dealers industry is so fragmented, no specific company holds a superior
competitive position. The main competitors for this industry include CarMax (NYSE: KMX),
AutoNation (NYSE: AN), and Penske Auto Group (NYSE: PAG). Competitors are expected to
have difficulty entering the market because of high initial costs and competition.
CarMax (NYSE: KMX) is the largest used automotive retailer and started in 1993. CarMax
currently has over 200 stores and more than 25,000 employees across the nation. In 2018,
CarMax sold 721,512 used retail vehicles. To strengthen its competitive positioning in the
market, CarMax is releasing the complete roll out of the omni-channel experience. This goal of
this roll out is to provide a consumer with the ability to shop anywhere and at anytime. It
integrates CarMax’s three types of customers: those who want to complete the entire transaction
online, customers who want the flexibility to shop online and in-store, and customers who want
to complete the entire transaction at the physical dealership. Without any brick-and-mortar
dealerships, Carvana loses out on potential customers not willing to purchase a vehicle online
unlike CarMax.
AutoNation (NYSE: AN) was founded in 1996 and operates 319 new vehicle franchises from
233 stores located in the United States. Stores are predominantly in the Sunbelt region and
metropolitan markets; in fact, 62% of total retail new vehicle sales was generated from stores in
Florida, Texas, and California. Used vehicle sales account for approximately 26% of total
revenue.. In 2018, AutoNation sold 548,561 total vehicles. In comparison, Carvana sold 94,108

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total vehicles. AutoNation also has a partnership with Waymo and has an existing strategic
investment in Vroom in order to advance its offerings to their potential customers. Vroom is an
online used-vehicle retailer and was acquired as a way to increase their market share.
Penske Automotive Group (NYSE: PAG) is the second largest automotive car dealer in the
United States with more than 27,000 employees. In 2018, Penske sold 282,542 used vehicles,
more than double Carvana’s vehicle sales. Used vehicle sales make up about 35% of revenue
generated by the company. A major distinction between Carvana and Penske Automotive Group
is that Carvana is only focused on the United States while Penske Automotive Group is a global
company.

Investment Summary
We initiate coverage of Carvana with a sell recommendation. Our underperform rating devices
from Carvana’s costly business model in an increasingly competitive Internet auto retail
industry. Despite a unique car-buying experience, Carvana operates in a struggling climate to a
target market decreasingly interested in car ownership. We believe that Carvana is poorly
positioned to reach stable profitability, even following Carvana’s goals of 15-19% gross margin
and 8-13.5% EBITDA margin. Financial and multiples analysis show Carvana as overvalued in
the market, and our DCF model proposes a target price of $64.33, an 18.8% drop from the
current price.
Reasons for Sell Recommendation
Our primary reason for our sell recommendation lies within Caravan’s struggle for profitability.
Carvana prides itself on providing a unique purchasing experience; a single Carvana vending
machine costs five million dollars to construct and around $10,000 a month to maintain. Couple
this investment with a massive stake in inventory and the desire for more Inspection and
Reconditioning Centers (IRCs), Carvana’s costs, specifically selling, general, and administrative
costs (SGA), are simply too massive to reach profitability for years.
The economic standing of the United States also poses a serious risk for Carvana. Our team
assumes that the US is currently in the late stage of the business cycle, heading towards a
contractionary (or even recessionary) period. Consumer discretionary industries, such as
automobiles and retail, perform very poorly in the late and recessionary stages. The reason for
the poor performance in these stages occurs due to credit tightening and pressure on earnings for
businesses and families, implying that Carvana faces a tough business climate ahead. For
example, as a result of the 2008 financial crisis, CarMax and AutoNation both saw decreases in
used car sales between 2008 and 2009; Penske Automotive Group saw only a very slight
increase, around 0.2%. Essentially, Americans refrain from purchasing cars, both new and used,
when the economy slows, which would drastically affect Carvana, a company built on the
excitement of its high growth rates.
Millennials, Carvana’s target market, have a lesser desire for car ownership than any generation
previous. Shifting priorities, rising living costs, and the emergence of rideshare, and
telecommuting options have millennials looking elsewhere for transportation. In the United
States, adults between the ages of 20-39 constituted just 7.93% of car ownership in 2019 despite
constituting approximately 36% of the total population according to Statista Research. With

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competition in the industry high and increasing, Carvana is fighting for a small segment of the
overall population that does not seem as interested in buying cars as the generation before it.

Valuation
In order to best value Carvana, we used a DCF valuation (Appendix D), EV/Sales, and Price-to-
Sales comparables (Appendix E) to get an estimate of the intrinsic stock price. We used a
terminal growth rate, after our 2024 forecasts, of 4%. With Carvana likely approaching 95%
market penetration in year 2024-2025, we believe they will still have some market share to gain
and therefore we wanted to account for that in a perpetual growth rate just above inflation. Based
on Carvana’s current cost of debt and equity, their WACC is 11.94%. Despite a relatively similar
rate of growth to most of its competitors in the few years before each company reached
profitability, Carvana’s Price-to-Book ratio and EV/Sales ratios show a clear overvaluation. For
more information, see Appendix E. Due to the findings of our DCF and the overvaluation of key
multiples, we initiate CVNA at underperform with a DCF-derived price target of $64.33.
Cohort Profit Analysis
Figure 1: Carvana Projected Market Expansion
Moreover, our team created a profitability
model by cohort. In its 2019 Q3 Letter to
the Shareholders, Carvana highlights the
company’s “strong unit economics” and
further examines selling, general, and
administrative (SG&A) costs per unit
broken down by cohort. A cohort, as defined
by Carvana, encompasses all of the
individual markets and facilities opened
within that year. During our interview with Figure 2: Cohort Profitability
Carvana, our team learned that Carvana’s
markets reach approximately 67% of the US
population with a goal to reach 95% of the
population in the next five years. Currently,
Carvana operates in 146 markets, and
extrapolating that figure to reach 95% of the
population, Carvana would need to expand
to over 207 markets. We have documented
this expansion in the following table,
following the expansion through fiscal year
2024.
From there, our group used estimated the
gross profit per unit (GPU) and SGA per unit costs based on the markets outlined above. Our
group used the gross profit rates established by the above DCF model, taking into consideration
market expansion over that time. Our team derived weighted gross profit per unit (GPU) model
and a weighted SG&A per unit. Based on this waterfall analysis, we concluded that it would take
Carvana until 2022 to reach profitability on a per unit basis.

Financial Analysis

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The financial analysis of Carvana explores critical measurements within the auto retail industry
and compared Carvana with three of its largest public competitors, CarMax (KMX), AutoNation
(AN), and Penske Auto Group (PAG). Some of the calculations that we will examine include
profitability/return analysis, the cash conversion cycle, and a cash flow review. To properly
analyze Carvana’s financial state, we compared most of our values to Carvana’s competitors in
the years before they reached profitability.
Profitability
Figure 3: Profit Analysis
It is important to start any talk about profitability
by mentioning the fact that Carvana has yet to
turn a profit three years after its initial public
offering (IPO) unlike its competitors; Penke
turned a profit three years after its IPO in 1999,
and CarMax turned a profit two years after its
IPO in 2000. Carvana’s profitability is much
worse than CarMax’s or Penske’s in the years
before these companies turned a consistent
profit. This indicates that Carvana is not close to
profitability.
Figure 4: GPU Driver Analysis
When examining Carvana’s current gross
profit, one of the more striking aspects is
Carvana’s reliance on improved loan
monetization for their increase in Total GPU.
Our research team found this concerning for
two primary reasons. The first is the lack of
transparency surrounding the gain on sale
calculation. Carvana touts its financing
capabilities for its customers, but our team
found a lack of transparency about how these
loans are monetized and on how gain on sale is
calculated. Secondly, our team was concerned with the sustainability of loan securitization as a
driver of total GPU. The opaque nature of Carvana’s loan securitization makes it impossible for
our research team to determine the trajectory of loan securitization, which presents a serious risk
for Carvana as the company looks to increase gross margin between 15 and 19% long term.
Furthermore, return on assets (ROA) reflect the company’s struggle to generate profit from its
investment in assets. ROA is an important ratio in the retail industry because they rely heavily on
inventory to generate sales. Inventory is easily the largest asset on Carvana’s balance sheet, a
staggering 42% of its total assets in 2018. The chief competitor to Carvana today is CarMax. Our
research team compared Carvana (between 2015 and 2018) to CarMax (between 1996 and 1999)
and found that Carvana’s ROA is significantly worse than CarMax’s was during a similar period

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of time for the two companies. This proves that Carvana struggles more than its chief
competition on gathering a strong return on its assets.
Overall, Carvana’s profitability and return metrics show the company to be struggling relative to
its top competitors. Gross and profit margins lag far below the competition, and ROA has been
both negative and volatile within an industry
that reports a more positive and stable ROA. Figure 5: ROA Comparison
This suggests that not only is Carvana less
profitable, but it is also potentially more volatile
than its competitors, heightening the risk of the
investment.
Figure 6: ROA Comparison
Inventory Turnover
Carvana’s business model revolves around its
vending machine and its vast selection of used
vehicles available to customers. Our research
team discovered that Carvana’s inventory
turnover tracked far below many of its top
competitors, as much as three times less than
its chief competitor, CarMax. During our
interview with Carvana, our team asked
specifically about Carvana’s inventory strategy
and inventory turnover shortfall. The
spokesman answered with three components
that contribute to inventory turnover: inbound/outbound transportation, cycle time through the
IRCs, and customer choice.
Figure 7: Inventory/Sales Comparison
Carvana views customer choice as out of its
control, so it is unlikely to fix this issue.
Carvana’s massive inventory may be a
significant obstacle against its poor inventory
turnover. Compared against CarMax and
Penske in their run-ups to profitability, Carvana
holds a dramatically higher level of inventory
relative to sales. In 2018, Carvana held 21 cents
of inventory for every dollar of sales while
Penske held 13 cents per dollar of sales and
CarMax held just two cents per dollar in 2000.
This remarkably higher rate of inventory is a
primary reason behind Carvana’s inability to sell vehicles as quickly, enhancing the case that
Carvana’s business model is too costly.
Lastly, in terms of transportation, Carvana already touts an efficient delivery system of 5-15 days
outside of existing markets, which is ahead of most of its competitors. Carvana did express a
desire to reach economies of scale within its IRCs, but during our interview with Carvana, the
leadership explained that the IRCs are already constructed specially to process vehicles quickly.
Our team finds it implausible that Carvana will be able to upgrade its IRCs in a way that doubles

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its inventory turnover, and thus, finds it highly unlikely that Carvana, with its current strategy,
can reach the level of inventory turnover of many of its competitors.
Cash Flow Review
When looking at Carvana’s statement of cash
flows, Carvana’s operating cash flows have
been both negative and declining since 2014.
Negative operating cash flows imply that Figure 8: CVNA Operating Cash Flows
Carvana does not bring in as much cash as its
spends as it sells cars online. In the few years
before it reached profitability, CarMax posted
positive (and growing) operating cash flows,
from 1995 through 1998.
Figure 9: CAPEX/Sales Comparison
Upon a closer review, our research discovered
that Carvana spends massively on capital
expenditures relative to the company’s revenue.
In its run-up to profitability, CarMax posted a
CAPEX/Sales ratio about 2.75% lower each
year than Carvana has thus far in its existence.
CarMax turned its first profit in fiscal year 2000,
yet Carvana doesn’t seem to be anywhere near
the same level of CAPEX/Sales. Carvana has
also been far less effective in its capital
expenditures. Our team compared the growth in Figure 10: Effectiveness of CAPEX
sales to the growth in CAPEX spending
between CarMax and Carvana. In the four years
before CarMax turned a profit, the company
posted an average of approximately 4% in sales
growth for every 1% in CAPEX growth; over
the past four years, Carvana is averaging about -
1% sales growth per percent growth in CAPEX.
Carvana is spending more and not reaping the
same revenue benefit, further supporting the
notion that Carvana’s business plan is too costly
when measured against its competitors.

Investment Risks

Unable to Meet Profitability with Slower Revenue Growth

Carvana is facing stress because the company has not reached profitability since its spin-off in
2016. During the past three years, the net loss has significantly increased from $93.1 million in
2016 to $254.7 million in 2018. Although the company plans to expand, the revenue generated
from developments and expansions may not meet investors’ expectations due to the slowing
demand for used cars and related products and services from Carvana’s target market, weakness

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in the automotive retail industry, and decline in global financial conditions. Furthermore,
Carvana’s non-operating expenses will continue to grow as well.

Uncertain Supply on Desirable Vehicles

Although Carvana acquires used vehicles from multiple sources including wholesale auctions,
retailers and customers, there is still no assurance on the supply of certain desirable vehicles. The
supply of desirable vehicles is heavily affected by the competition from other vehicle dealers.
CarMax is one of the nation’s largest operators of wholesale vehicle auctions. Carmax can block
and purchase many of the available vehicles as CarMax expands. Furthermore, Carvana
evaluates vehicles by its proprietary algorithm to predict the mechanical soundness, consumer
desirability and relative value in the future. There is a potential risk that Carvana underestimates
desirability and relative value, weakening their price points and operating strategy.

Relation with Garcia Parties and DriveTime

As discussed above, Carvana is mainly controlled by Garcia Parties. Due to the potential
competition in market share between the Carvana and DriveTime, we cannot trust that Garcia
Parties’s decision will always benefit Carvana’s growth; there is potential risk that Garcia Parties
block the profitable opportunities from Carvana to benefit DriveTime. More Information about
risks, please see Appendix H for more discussion.

Corporate Governance

Executive Officers

Carvna’s current executive officers (Appendix B) include CEO (Erine Garcia, III), CFO (Mark
Jenkins), COO (Benjamin Huston), CBO (Ryan Keeton), CPO (Daniel Gill) and VP (Paul
Breaux). Carvana’s chief officers have strong backgrounds in finance, technology, and law.
However, none of the chief officers has any previous experience in overseeing the planning,
development and execution of an organization's marketing and advertising initiatives. Since
Carvana is planning for massive market expansion and an advertising campaign favorable to
millennials, the results from their marketing plan are essential to their growth. We believe that it
will be necessary to have a Chief Marketing Officer in their top management to build the overall
marketing strategies for the company’s market expansion, which Carvana currently lacks.

Board of Directors

The board of directors consists of six members: Ernie Garcia III, Michael Maroone, Neha Parikh,
Ira Platt, Dan Quayle, Greg Sullivan (Appendix C). The directors seems very suitable with the
company’s growth especially with Neha Parikh’s strong background of product development and
customer relationship marketing. We believe that Mrs. Parikh’s work experience in Expedia
would help the board to direct the marketing strategies more effective. However, Garcia Parties
holds 95% of the voting power of Carvana’s outstanding capital stock. They have the power to
directly elect the Board members, change the composition of the Board and pursue acquisitions.
Their interests in enhancing their investment might conflict with Carvana’s stockholders’
interests in the future. Meanwhile, there is no limit on Garica Parties to engage directly or

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indirectly in Carvana’s business activities. One of the Garcia Parties, Ernest Garica II is the
chairman of the board of directors and controlling shareholder of DriveTime, one of our
competitors in the industry. Garcia Parties might pursue acquisition opportunities that aren’t
complementary to Carvana’s business model and block potential profitable opportunities from
Carvana due to the potential conflict of interest. Furthermore, during our interview with
company representatives, our research team was discouraged by the lack of a clear separation
between Carvana and DriveTime. When asked about the relationship, the representative stated
there wasn’t a relationship while claiming that DriveTime still offered subsidies to Carvana.
Please see Appendix F for more discussion.

Compensation
The Compensation and Nominating Committee is responsible for evaluating the performance of
chief executive officers and named executive officers. The compensation of the executives are
provided with a mix of base salary, annual incentive plan, and long-term incentive program
(Appendix F). Base salaries are determined by a combination of factors including the scope of
responsibilities, individual performance and experience, the individual’s potential for making
contributions to future company performance, and competitive pay practices.
The Compensation and Nominating Committee provide award for the long-term incentive
program based on the time-based stock options, time-based restricted stock units, and
performance-contingent restricted stock units. Detailed description and objectives are listed in
Appendix F. This compensation structure successfully addressed the compensation of executives
with the long-term and short-term profitabilities and operational performance.

Conclusion

According to our valuation and considerations on its investment risks, our target price for
Carvana is $64.33, which is significantly lower than the current stock price of $79.25. Our
primary reasons for a sell recommendation lies within Carvana’s expensive business model, the
competitive yet risky industry within this economic climate, and the questionable relationship
between the senior leadership of Carvana and DriveTime. We initiate a sell recommendation.

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APPENDICES

Appendix A* - Used Car Industry Current and Futures

*Information provided by KPMG

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Appendix B - Executive Information for Carvana

POSITION NAME INFORMATION

Co-founder of Carvana.
Ernie B.S. in Management Science and Engineering from Stanford University.
CEO
Garcia, III Previously held financial and management positions in DriveTime Automotive Group, Inc.
from January 2007 to January 2013.
Ph.D. in economics from Stanford University and a B.S.E. from Duke University in
Mark Mathematics and Civil Engineering.
CFO
Jenkins A professor in the finance department at The Wharton School of the University of
Pennsylvania before join Carvana.
Co-founder of Carvana.
J.D. from Harvard Law School and a B.A. in American Studies from Stanford University.
Benjamin
COO Prior to joining Carvana, Mr. Huston co-founded Looterang, a card-linking platform that
Huston
enabled personalized deals to be automatically administered through consumer credit or
debit cards.
Co-founder of Carvana.
Ryan B.A. in English and American Literature and Language from Harvard University.
CBO
Keeton Previously held principal position at the Montero Group, a strategic consultancy firm, from
2010 to 2012.

CPO Daniel Gill Holds a degree in Biology from Stanford University.

Previously worked in both enterprise software and consumer internet businesses.
J.D. from Harvard Law School, a B.A. in Plan II Honors from The University of Texas at
Paul Austin, and a B.B.A. in Finance from The University of Texas at Austin.
VP
Breaux Previously practiced law at the Houston, Texas office of the firm Andrews Kurth LLP (now
Andrews Kurth Kenyon LLP) from 2008 to 2015.

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Appendix C - Board of Directors Information for Carvana

POSITION NAME INFORMATION

CHAIRMAN Ernie Co-founder of Carvana.

BOD Garcia, III B.S. in Management Science and Engineering from Stanford University.
Financial and management background.

MEMBER Michael
B.S. degree in Small Business Management from the University of Colorado Boulder.
BOD Maroone
Management background.
B.S. from The University of Texas at Austin and an MBA from the Kellogg School of Management at
Northwestern University.
MEMBER Neha
Marketing background.
BOD Parikh
Previously worked on driving brand marketing activities, overseeing financial plans and operations, and
leading merchandising, business development, and partner marketing globally.

MEMBER
Ira Platt B.A. degree from Emory University and an M.B.A. from Duke University.
BOD
Finance background.

B.A. degree in Political Science from DePauw University and a J.D. from the Indiana University Robert
MEMBER Dan H. McKinney School of Law.
BOD Quayle 44th Vice President of the United States of America from 1989 to 1993.
Extensive experience in the areas of government, foreign relations and private investment.
B.B.A. degree in Finance from the University of Notre Dame and a J.D. from the University of Virginia
MEMBER Greg
School of Law.
BOD Sullivan
Finance and law background.

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Appendix D - DCF Valuation

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Appendix E* - CVNA Comparison to Competitors of P/B ratio, EV/Sales ratio, and Revenue
Growth in the Year Before Each Company Reached Profitability

*Information provided via the Bloomberg Terminal

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Appendix F - Executive Compensation

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Appendix G - Carvana Units Sold 2016 - 2018

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Appendix H - Other risks

Uncontrollable risks
Even the operation model works successfully, there are still many facts that cause the company
to lose money in sales. These sales are unpredictable and uncontrollable, such as changes in
general market, economic and political conditions in the United States and global economies or
financial markets, including those resulting from natural disasters and terrorist attacks. Since
Carvana holds majority of its inventory in six states, any economic downturn or severe weather
conditions will adversely affect Carvana’s revenue.

Relied Too Much on Unpredictable Efforts

Although Carvana provides large variety of products and services, most of its revenue comes
from the sale of used vehicles. The revenue from used vehicle sales is heavily related to the
marketing and branding efforts. Carvana has to invest millions of dollars on advertising to
increase brand visibility to attract more potential customers. If the marketing campaigns are not
successful as they expect, they might be unable to recover their marketing cost and have an
adverse effect on their growth, operations and financial conditions.

Relation with Third Parties and Network Challenge

Carvana’s sale of used vehicles relied heavily on advertising, the relationship with third party
platforms is essential to its business. Carvana’s business model is dependent on the online search
engine, vehicle listing sites, lending generators, automotive finance partners and social network
sites to drive traffic to its website. Most of those platforms are uncontrollable to Carvana. There
is a potential risk that the negative things happen on those platforms will lead to a decrease in
customer base. Also, Carvana collects sensitive data provided by customers. If Carvana fails to
protect those data, it will hurt Carvana’s reputation and adversely affect the company’s business.

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Appendix I - Next Markets for Carvana to Enter Into

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