According to the report on used car dealers in the US published by IBISWorld earlier this year, the used car industry is estimated to grow 2.9% annually through the period 2012 through 2017 to $116 billion in revenues. The market has traditionally been dominated by physical dealership stores, but has, as of late, seen several online players as well. But not many of these have really managed to succeed. Carvana is one player who appears to be ready to test stock market appetite for a business model that has yet to turn in profits.

Carvana’s Offerings

Phoenix-based Carvana was founded by Ryan Keeton and Ernie Garcia in January 2013 as an online option for used car sales. But unlike other online used car websites that act as marketplaces to connect buyers with sellers, Carvana takes care of the entire end-to-end process of car sales. It has integrated into its platform buying, reconditioning, and financing auto sales to its customers. It follows a more capital-intensive approach of purchasing pre-owned vehicles directly from consumers, reconditioning them, and then selling them to the next buyer. Carvana believes that the model offers it better control over pricing and inventory of the vehicles.

It also offers a rather fancy and convenient car buying experience. Its platform allows buyers to conduct research and identify a vehicle, inspect using a proprietary 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase the vehicle, and schedule delivery or pick-up. The transaction time needed for the completion of securing financing to completing a purchase and scheduling a delivery online takes as little as 10 minutes on its platform. The buyer can elect to have the car delivered or can pick it up on their own. The delivery of the car can take as little as a day as Carvana uses its proprietary algorithm to optimize its nationwide pooled inventory of over 7,300 vehicles. For pick-up services, Carvana operates vending machines, which are steel and glass buildings that dispense the cars that the buyer has paid for. While the idea may appear strange to some, Carvana believes that the model helps it manage the cost of delivery.

Carvana’s Financials

Since being set up, Carvana has completed transactions on nearly 27,500 vehicles. As of December 2016, its in-house distribution network takes care of 21 metropolitan markets including Austin, Atlanta, Dallas, Pittsburgh, Washington D.C., and Nashville. The market expansion has also translated to revenue growth. Revenues have grown from $4.6 million in 2013 and $41.7 million in 2014 to $130.4 million in 2015. For the year ended December 2016, revenue grew 180% to $365.1 million. But it also continues to suffer losses. Losses grew from $36.8 million in 2015 to $93.1 million for 2016. Carvana expects losses to continue in the near future.

Carvana has raised $460 million from unnamed investors so far. Its last round of funding was held in August 2016 when it raised $160 million at an undisclosed valuation. Earlier last month, it decided to test the stock market by filing to list. It expects to raise $100 million, but valuation details are yet to be disclosed.

Carvana will find it difficult to obtain a good valuation for its business. High costs and low margins have driven players out of the market. Recently, used car sales platform Beepi, once a Billion Dollar Unicorn prospect, had to shut down and had to be sold for scrap. Beepi, however, was known for not being very cautious with its spending, and its spending habits ran it to the ground. Carvana, on the other hand, is already profitable in a few markets. Hopefully, going public will also ensure it remains careful about its spending habits.

Overall the car sales market is also evolving. Last year, for instance, Amazon tied up with Fiat Chrylser to sell cars online in Italy. In the US, Amazon still does not sell cars online, but its Vehicles page offers users the ability to conduct research and compare vehicles.

Carvana will have its work cut out if it wants to make a mark in the market.