ACV Auctions (NASDAQ:ACVA) Beats Q4 Sales Targets But Stock Drops
Online used car auction platform ACV Auctions (NASDAQ:ACVA) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 34.8% year on year to $159.5 million. On the other hand, next quarter’s revenue guidance of $182.5 million was less impressive, coming in 2.9% below analysts’ estimates. Its GAAP loss of $0.16 per share was 11.1% below analysts’ consensus estimates.
Revenue: $159.5 million vs analyst estimates of $155.8 million (34.8% year-on-year growth, 2.4% beat)
EPS (GAAP): -$0.16 vs analyst expectations of -$0.14 (11.1% miss)
Adjusted EBITDA: $5.62 million vs analyst estimates of $3.87 million (3.5% margin, 45.3% beat)
Management’s revenue guidance for the upcoming financial year 2025 is $775 million at the midpoint, missing analyst estimates by 1.2% and implying 21.6% growth (vs 32.5% in FY2024)
EBITDA guidance for the upcoming financial year 2025 is $70 million at the midpoint, below analyst estimates of $81.53 million
Operating Margin: -16.2%, up from -22.6% in the same quarter last year
Free Cash Flow was -$11.19 million, down from $12.58 million in the previous quarter
Marketplace Units: 183,497, up 39,498 year on year
Market Capitalization: $3.60 billion
“We are very pleased with our fourth quarter results, with revenue and Adjusted EBITDA above the high-end of our guidance range, along with continued margin expansion. ACV's leading market position resulted in additional share gains and strong revenue growth in the quarter. Our expanding suite of dealer solutions gained further market traction and we executed on initiatives to support our commercial wholesale strategy,” said George Chamoun, CEO of ACV.
Company Overview
Founded in 2014, ACV Auctions (NASDAQ:ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.
Online Marketplace
Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, ACV Auctions’s sales grew at an impressive 21.1% compounded annual growth rate over the last three years. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers, a great starting point for our analysis.
ACV Auctions Quarterly Revenue
This quarter, ACV Auctions reported wonderful year-on-year revenue growth of 34.8%, and its $159.5 million of revenue exceeded Wall Street’s estimates by 2.4%. Company management is currently guiding for a 25.3% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 23.8% over the next 12 months, an acceleration versus the last three years. This projection is healthy and indicates its newer products and services will spur better top-line performance.
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Marketplace Units
Unit Growth
As an online marketplace, ACV Auctions generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Over the last two years, ACV Auctions’s marketplace units, a key performance metric for the company, increased by 17% annually to 183,497 in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.
ACV Auctions Marketplace Units
In Q4, ACV Auctions added 39,498 marketplace units, leading to 27.4% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating unit growth.
Revenue Per Unit
Average revenue per unit (ARPU) is a critical metric to track for online marketplace businesses like ACV Auctions because it measures how much the company earns in transaction fees from each unit. ARPU also gives us unique insights into a user’s average order size and ACV Auctions’s take rate, or "cut", on each order.
ACV Auctions’s ARPU growth has been decent over the last two years, averaging 5.4%. Its ability to increase monetization while effectively growing its marketplace units demonstrates the value of its platform.
ACV Auctions ARPU
This quarter, ACV Auctions’s ARPU clocked in at $869.30. It grew by 5.7% year on year, slower than its unit growth.
Key Takeaways from ACV Auctions’s Q4 Results
We were impressed by how significantly ACV Auctions blew past analysts’ EBITDA expectations this quarter. We were also glad it expanded its number of units sold, leading to a revenue beat. On the other hand, its full-year revenue and EBITDA guidance fell short of Wall Street’s estimates. Overall, this was a softer quarter due to the outlook. The stock traded down 6.6% to $19.25 immediately following the results.
ACV Auctions’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
