CARY, N.C. -

Carvana has seen strong growth in vehicle sales.

But the company has also been buying a lot of vehicles from its customers.

On the topic of selling, Carvana showed solid fourth quarter sales and revenue growth and strong 2019 overall revenue, as well. The company completed its sixth consecutive year of triple-digit revenue growth. In the fourth quarter, Carvana sold 50,370 retail units for an increase of 82%.

But a good portion of Carvana’s fourth quarter 2019 financial results conference call and shareholder letter highlighted the topic of buying, or Carvana’s vehicle purchasing activity.

The company reported that it sourced 43% of its retail units sold from customers, and that was up from 17% in fourth quarter 2018 and up from 31% in the prior quarter.

“The biggest development in the business this year was our significant progress in buying cars from customers,” Carvana wrote in its quarterly letter to shareholders.

Carvana founder and chief executive officer Ernie Garcia expressed that news more emphatically during the Feb. 26 conference call.

“This is potentially the most remarkable progress we’ve made in any area of the business in any year,” Garcia said.

2019 purchases from customers: A 231% increase

Elaborating on the topic, Garcia said Carvana’s car-buying activity showed the “fundamental power of the brand,” along with the technology and the infrastructure the company is building.

“And while there are short-term costs associated with expanding that business so quickly, it sets us up very well to achieve our long-term goals,” he said.

In 2019, Carvana bought more than 104,000 cars from customers.

That was a 231% yearly increase.

The fourth quarter showed the same trend, with total vehicles acquired from customers growing by 247%. Carvana bought 68% as many vehicles from customers as it sold to them, the letter stated.

Growth in vehicles acquired from customers also diversified the company’s vehicle selection and improved acquisition prices.

Carvana chief financial officer Mark Jenkins discussed the trends in terms of combining total retail units sold with stand-alone vehicle purchases. By that measurement, Carvana transacted with more than 256,000 customers, which was a 138% increase.

He said the “exponential growth” of Carvana’s activity in buying cars from customers meant the company had to make adjustments. Buying cars from customers brought a rapid fourth quarter increase in inventory diversity. That required Carvana to adjust its approaches in areas such as bidding, pricing, marketing, staffing and reconditioning.

“While these adjustments led to some transitional costs, these costs were small compared to the enormous magnitude of the opportunity in front of us to change the way people sell cars,” Jenkins said.

He continued, “Buying cars from customers also brought the significant benefit of increasing the selection of cars available to customers on our website.”

With the help of customer-sourced cars, Carvana’s inventory diversity saw an increase of almost 50%, he said. That increase in diversity meant reduction in the average selling price of Carvana vehicles, and Jenkins said Carvana expects that to continue.

Jenkins also noted that Carvana is investing in technology for buying cars from customers and that the company is “expanding our head count to support that business.”

Garcia told conference call participants that Carvana hosted its first “analyst day” in November 2018.

The company covered various topics on that day, and plans for buying cars from customers was one of them.

Carvana saw car-buying from customers as an important area of focus that would improve the company’s access to inventory and would also cut costs, which would bring its long-term unit margin goals in much clearer sight, Garcia said.

“We knew we had a very strong foundation to build on top of,” he said.

He continued, “All the assets we’re building to deliver cars to customers are the same assets necessary to perform the reverse transaction in a whole new way, which we believed customers would love as much as they love buying cars from us.”

But the company did not know exactly how many cars it could buy from our customers and “how long it would take us to make significant progress,” Garcia said. At the time, only 16% of the cars Carvana sold had been purchased from other customers.

The company implemented “an ambitious long-term goal” to source 38% to 52% of the cars it sells from customers. Four quarters later, in fourth quarter 2019, the company hit the 43% mark of cars sold that it sourced from customers.

“Using our brand, transaction technology and logistics network to buy cars from our customers is cutting additional cost out of the system and giving us a new way to give even more customers their first Carvana experience,” the company wrote in its letter to shareholders.

Carvana provided additional detail on its activity in buying cars from customers. A few days after the earnings report, Carvana released what it described as “the first-ever online car buying analysis in the industry.” The analysis showed that customers sold Carvana “everything from economy to muscle cars” and also listed the top five cars that Carvana customers are selling or trading in. The Honda Civic came in at No. 1, followed by the Ford Mustang, Honda Accord, Honda CR-V and Ford F-150.

Strategy: 250 markets is the goal

In a news release accompanying the earnings report, Garcia said Carvana in 2019 showed “the highest organic growth of any automotive retailer in U.S. history.”

Visitors to the Carvana website now have a choice from about 35,000 cars, Garcia said during the conference call. That is up from about 7,500 when the company went public three years ago. The company expects to serve about 250 markets and three quarters of the U.S. population by the end of the year. That is up from 21 markets and one fifth of the population in the fourth quarter of 2016.

“We are well on our way to becoming the largest and most profitable automotive retailer to selling 2 million-plus cars per year and to achieving our mission of changing the way people buy cars,” Garcia said.

Additional insights: Don’t count the sedan out

More on Carvana’s “first-ever online car buying analysis in the industry”: In a news release accompanying the analysis, Garcia said the company has “amassed a wealth of data” from the 177,549 cars it sold online in 2019.

One of the various online car-buying trends in the analysis was that sedans accounted for 41% of total purchases from Carvana in 2019.

“Who says the sedan is dead?” Carvana wrote in the report.

In written responses to questions from Auto Remarketing, Carvana chief brand officer and co-founder Ryan Keeton expanded on that and more of the report’s findings. Keeton said that in 2019, 46% of the company’s customers were millennials. Those millennials “gravitated toward sedans,” Keeton wrote.

“So that is a likely driver of the demand,” he wrote.

He continued, “In fact, we saw millennials were five times as likely to purchase a sedan as baby boomers.”

Generation X, according to the report, purchased more pickup trucks than any other generation in 2019.

Additional portions of Carvana’s online car buying analysis highlighted the millennial factor. The company noted that millennials love buying everything online.

Keeton expanded on that, stating Carvana has heard the “chatter that millennials don’t want to own cars and were going to shift to ride-sharing services.”

“But based on what we are seeing, they are buying cars. They are just doing it differently,” Keeton said.

Millennials and other groups like the Nissan Altima. In the online car buying analysis, Carvana listed “Top 5 Cars Carvana Customers are Buying.” The Altima came out on top, followed by the Honda Civic, Nissan Sentra, Hyundai Elantra, and Chevrolet Equinox.

Explaining the popularity of the Altima, Keeton said that model has been historically one of the top-performing vehicles in the country.

“So, we think purchase preferences are in line with the average car buyer,” he said.

The analysis even reported the favorite day of the week to shop for a car online. Carvana sees the most site traffic on Monday evenings. The company reports that traditional dealerships see the most traffic on Saturdays.

Carvana customers, on the other hand, “are ditching the dealership and spending weekends with family and friends,” the analysis states.

“We believe that customers would rather shop online at their leisure during the week, rather than waste hours haggling at multiple dealerships during the weekend,” Keeton said.

He continued, “And generally speaking, we saw more site traffic during the week.”

Carvana also discussed its 360-degree photo technology in the analysis, and Keeton said customers are using the feature “to know exactly what they are buying.”

“They had the ability to experience multiple vehicles inside and out … both with a vehicle’s doors open and closed … and zoom in at every angle to inspect any imperfections that are present, if any,” Keeton said.