ACV Auctions (ACVA) is a wholesale retailer for car dealers. Dealers can buy or sell a car via a virtual marketplace, in addition to using their tooling for appraising a car. This allows dealers to purchase any trade in, or make offers for retail cars when a person comes in for a typical inspection of their car.
Founded 2014 in Buffalo, New York the company IPO’d in 2021 at $25 a share, got up to $38 quickly, and now is at $22. Revenue was 69M the first public quarter, so while revenue has gone up about 2.5x, the stock price is down from that point. The company has 2,170 employees, cash balance of 288M and debt of 156M.
Some of bullish metrics and commentary,
- revenue 171M last quarter, +44% yoy
- vehicles sold 198k, + 32% yoy
- 11M vehicles sold wholesale pre-COVID, now currently 8M, but revenue tripled in that timeframe because ACV took marketshare with their digital transformation
- can demonstrate to sellers the better margins and returns using ACV
- fastest option in the industry to get paid on selling a car, fastest to delivery if using ACV Transport
- getting into the commercial side of the business, which is about another 10M or so cars, and this is just getting started
- interest from Europe on the product, plan to expand their in next year or two
Some more bearish concerns or notes with the company
- Manheim is the big competitor, privately held, broad suite of software they can offer dealers
- market for car wholesaling is down the past few years, although there is a fair amount of evidence this is temporary and poised for a rebound
- guide for next quarter is low although Q4 is their seasonally weakest quarter, and the strength of quarters generally goes Q1 → Q2 → Q3 → Q4 in order of strength
- metrics from their Q3 report, gross merchandise volume +17% yoy, offset a by a -12% decline in GMV per unit
- Q3 “retail front, sales were fairly muted in Q3. New retail sales increased 1% yoy” (I believe this refers to the general market, not their business)
The companies products include,
- ACV Delivery - they can deliver the car, and this service can be used even if not buying from ACV, for instance a purchase from Facebook or Craigslist
- ACV Capital - traditional financing options available, also an option to pay 45 days later with same terms while the customer can raise the money
- ClearCar - data driven tool to analyze cars and provide report
- ACV Max - premium listing for car selling, gets more attention, can be used for higher value cars
- ArbGuard - arbitrations services if the car does not meet standards or something unexpected happens
- ACV Copilot - like a virtual AI assistant helping the dealer through the process, providing insights on the car
- ACV Apex - premium reporting and inspection suite
Reviewing the past year of financials,
Revenue and yoy growth rates
119M → 118 → 146 → 161 → 171
13% → 21% → 22% → 29% → 44%
EBITDA
-17.1M → -23.8 → -11.1 → -8.6 → -7.2
Net income
-18.2M → -23.2 → -20.5 → -17.1 → -16
This past quarter they gave the following guides vs actuals,
Q3 revenue 158 - 162M → 171
adj EBITDA 6-8M → 11M
Q4 guide,
revenue 152-156M (28-32%)
adj EBTIDA 2-4M
The Q4 guide seems quite low until you factor in seasonality that the business experiences because past quarters has been about flat going Q3 to Q4. This is by far my biggest concern on the company that they guided down about 15M in revenue, although this seems like it’s going to be a layup for them to beat this number. I’m still looking to determine if sandbagging is typical on their guides.
Notes from the Q3 earnings call,
- record performance for ACV Transport and Capital
- tech roadmap to address the commercial wholesale market
- modest uptick to wholesale mix in Q3
- favorable market conditions, innovative marketplace investments driving dealer engagement
- 108,000 deliveries in the quarter
- AI optimized pricing achieved 95% lane coverage again last quarter
- revenue margin was 20%, also a record expanding 170 bps yoy and exceeding midterm target of high teens
- off platform transportation service is gaining traction with our dealer partners
- positioned to bundle ClearCara with ACV Capital to support dealing sorting strategies
- Q3 conversion rates were strong
- tech platform has advanced search, vehicle merchandising, AI enable pricing, flexible auction formats which deliver a best in class buying experience on the platform
- ACV MAX suite continues to gain traction
- demand for ACV’s vehicle appraisal technology is growing across a number of use cases
- market traction of ClearCar remains strong, targeting having over 1,000 dealers live by end of year
- 10% of revenue was driven by acquisitions, over-performance was driven by strong organic growth (they haven’t had an acquisition in the last year, referring to 2021/2022 I believe)
- adj EBITDA 11M was 3M or 38% above the high end of guidance range
- adj EBITDA margin improved 1000 bps vs last year
- strong high margin auction and assurance revenues with operating leverage
- auction/assurance 59% of revenue (+52% yoy), marketplace 37%, SaaS + data 5% (SaaS revenue just ramping up)
- adj operating expenses decreased 700 bps yoy
- operating cash flow increased 34M yoy
- 4th quarter guide reflects impact of hurricanes in Southeastern regions
- we are expanding our TAM and consistently taking share which will drive market growth
- 16,500 franchise dealers in incredible locations, 30,000+ independent dealers across county, all those dealers need to compete and they need solutions to buy cars from consumers
- looking at building solutions for these car dealerships that allows them to compete with Carvana and other “big box players”
- very careful on doing the right things for our dealer partners
- CEO, expects “true tailwind maybe going into 2026”
- Analyst, “nice upside on the volume in particular”
- CFO on outperformance, continued share gains, better than expected conversion rates in the quarter, really great performance in terms of our marketplace services offering
- still early stages on commercial, little over 5% of current revenue
- expanding TAM through commercial with the self inspection capability
- leveraging AutoIMS, integrating with back office systems, going well so far
- market conditions helped Q3, “definitely a lot of demand for used cars”
- team is making incredible strides on leveraging artificial intelligence on pricing lanes"
- there are some markets we are new and have only a few sellers, don’t have a lot of share there yet, still very early days
- autonomous driving are fine for business, whether the user was Uber or whoever, car will get sold eventually
- going globally will be an even more asset light model
- dealers currently have 30% less cars from lots than they need, going to take some time for market to get back to normal
- historically strongest in the Northeast, continue to gain share in East Coast, Texas is next highest region
- “we’ve been pulled into some markets in Europe, so you’ll probably hear us talk about that next year”, “very small stages this is where OEMs are pulling us in”
Notes from their last two conferences at Goldman Sachs and Citi,
- OEMs are increasing incentives on cars, good for market
- move into commercial may create some distortions on OpEx
- Manheim and ADESA (owned by Carvana) are competitors who have physical auctions, Manheim has about 70 during year, ADESA 30
- business is driven off of new and used retail sales
- completely different value proposition to both buyers and sellers on marketplace
- lower interest rates would be an unlock for used car demand
- wholesale prices are stabilizing, with conversion rates
- number of listings convert to an auction are quite strong, “all just positive green shoots”
- 85% of total car auctions go through physical auctions, still a lot of whitespace to go after
- 250 data points from custom inspection that ACV provides
- added new two hour auction format for cars 50k+ which helped drive conversion rates
- 80% of our buying are done by independent car dealers
- 20% of supply comes from very large independent dealers
- doing business with about 1/3rd of all franchise dealers
- dealers always keep a second partner to keep you honest
- average transport is about 500 miles
- average dealer is getting 5x as many buyers and 5x as many eyeballs, means more bids
- expanded into software categories, offering dealers a much more holistic set of solutions, becoming more strategic
- Apex solution is IOT enabled, put on car runs engine sound against other cars to find problem areas
- for junk cars there is a Red Light option, lighter inspection buy as is, dealers don’t want through inspection because will highlight too many issues
- ClearCar one of the fastest growing products in automotive, can present a customer coming in for a repair a real offer on their car, “that is what we’ll give you guaranteed”, big deal because a lot of inventory is very clean
- engaging at the C-suite level, pitching different story than pure wholesale, helping them get more inventory
- midterm target of 25% adj EBITDA margin, currently at 4%
- car market has been in headwind ever since IPO, however starting to see new car sales continue to go up, OEM incentives, and used car sales start to improve
- OEMs really trying to move cars with incentives, interest rates will play into affordability
- used cars are starting to add up in dealers lots, will drive wholesale sales
- 9% overall share across the country
- two sided marketplace, we’ve got the demand, turns some of sellers into buyers after using
- commercial cars 8M sold annually, about 5-6M of those need land, building software to accommodate these requirements
- incrementally releasing software, leveraging inspection capabilities
- we have lots of data from 1000+ rooftops
- built products around making better decisions with arbitration, inspection, and helping scale the business
- data model is incredible, building data moat, lots of product innovation centered around this moat
- number one priority is to help dealers buy more cars, franchise dealers need more cars, they didn’t have the right tools or process before
- they now have a tool that allows them to do what CarMax or Carvana do, huge breakthrough
- 90% of ACV transport auto dispatch
- Transport has gone from three years ago losing money to break even, to now 20% gross margin
- established an offshore presence in India, 100 folks there by end of year (not sure what these employees will be doing, but sounds commercial sales related)
Overall there is enough of a growing business with ACV Auctions to want to have a small position. I still have some doubts about the recovery of the car market and how much this business depends on macro. I will be looking to see how their next quarter lands to see if this is a business I hold short term or if there is more room for ACV to grow into a much larger business.