Carvana Co. (NYSE:CVNA) is accelerating the move away from dealerships, powered by a digital, vertically integrated model as credit worries fade and demand remains resilient.Needham's Mackenzie Holleran reaffirmed a Buy on Carvana with a $500 target.She said Carvana leads the shift from traditional auto retail through a digital-first, data-driven, capital-efficient, vertically integrated model.That approach, she says, delivers a cleaner, more compelling buying experience than incumbents and should create me ...

Core Insights - Amazon is expanding into the used car market by partnering with Hertz to sell its rental cars, which could significantly benefit Hertz and enhance Amazon's emerging automotive retail business [2][20] - The partnership poses a potential threat to traditional car dealers, as Hertz can sell directly to consumers at retail prices, bypassing auctions and reducing the supply of used cars available to dealers [10][15] Group 1: Amazon's Strategy and Market Position - Amazon has seen a remarkable revenue growth of 38,000% since its inception, and its entry into the automotive sector is seen as a natural extension of its retail capabilities [1] - The company is currently acting as a listing service for dealers rather than holding inventory, which allows it to leverage its e-commerce platform without the complexities of traditional car sales [6][22] - Amazon's digital advertising revenue reached $56.2 billion in 2024, indicating a strategic focus on high-margin businesses that can utilize consumer data for targeted advertising [6][7] Group 2: Hertz's Transformation and Market Dynamics - Hertz is undergoing a critical transformation after emerging from bankruptcy in 2021, with significant investments from activist investors like Bill Ackman [4][5] - The company has approximately 560,000 vehicles in its fleet, with a strategy to sell off cars after 18 to 20 months of rental, which aligns with Amazon's retail model [7][20] - Hertz's ability to sell directly to consumers allows it to avoid auction fees and achieve better pricing, which could disrupt traditional auction markets where dealers typically source used vehicles [15][16] Group 3: Impact on Traditional Dealers - The partnership between Amazon and Hertz could lead to a reduction in the number of used cars available to dealers, as rental companies may increasingly sell directly to consumers [10][17] - Dealers currently acquire about 20% of their used vehicle stock from auctions, and a shift towards direct sales could constrain their supply [16][19] - The used car sales contribute significantly to dealership profits, and losing access to rental cars could impact their ability to retain customers for service and parts, which are crucial for profitability [28][29] Group 4: Industry Evolution and Legal Challenges - The automotive retail landscape is evolving rapidly, with companies like Amazon and Carvana gaining traction, which may have downstream implications for traditional dealers [32] - Franchise laws in the U.S. protect new car dealers from direct competition with manufacturers, but digital companies are challenging these norms, as seen with Tesla and other emerging brands [30][31] - The increasing competition from rental companies and digital platforms could reshape how used cars are sold, necessitating adaptation from traditional dealerships [25][26]

Core Insights - Hertz has announced a partnership with Amazon Autos to sell pre-owned vehicles online, aiming to enhance its retail operations and profitability [1][3] - The initiative allows customers to browse thousands of used Hertz vehicles on Amazon, complete purchases online, and pick up vehicles at Hertz locations [2][5] - This partnership marks a significant expansion for both Hertz's car sales business and Amazon's automotive offerings, which previously focused solely on new vehicles [3][4] Company Strategy - Hertz's strategy includes increasing its digital retail presence and making its used vehicle inventory more accessible, aligning with its broader goal to boost retail operations [5] - The company is focusing on fleet management, revenue optimization, and cost efficiency as part of its "Back-to-Basics Roadmap" turnaround plan initiated after its bankruptcy during the Covid-19 pandemic [6] Market Performance - Hertz reported its strongest-ever quarter for retail vehicle sales in Q1 of this year, indicating positive momentum in its sales operations [6] - The Rent2Buy program, allowing customers to rent a used car before purchasing, has also gained traction and is set to expand to over 100 cities [7]

Financial Performance & Growth - Group 1's 2021 revenue reached $13802 million, a significant increase from $10852 million in 2020[9] - Adjusted EPS in 2021 was $3502, compared to $1806 in 2020, demonstrating substantial earnings growth[9] - Adjusted free cash flow for 2021 was $656 million, up from $426 million in 2020, highlighting strong cash generation[9] - From 2020 through 1Q22, the company repurchased approximately 15% of its outstanding common shares, totaling $4059 million[34] Strategic Initiatives & Market Position - Group 1 completed $25 billion in acquisitions in 2021 and $550 million year-to-date in 2022, indicating a focus on growth through strategic acquisitions[10] - The company's digital platform, AcceleRide®, experienced 77% year-over-year growth in units sold in FY21, showcasing the success of its digital retail strategy[10] - Parts & Service contributes approximately 45% of total gross profit, emphasizing its importance to the business model[28] - U S same store used retail units grew by 15% on a year-over-year basis in 2021, outperforming the industry[34] Geographic Focus - Texas locations generated 40% of 4Q21 total new vehicle unit sales, highlighting the importance of the Texas market[25] - Group 1 is the 1 auto retailer in Texas, capitalizing on the state's strong economic growth and business climate[27] Real Estate Strategy - As of December 31, 2021, Group 1 owned approximately $17 billion of gross real estate, representing 64% of dealership locations[37]