CARVANA CO. (CVNA) stock intrinsic value fair value estimate & owner earnings analysis

Carvana is an online used-car retailer. Customers shop, finance and buy on the website, and vehicles are inspected and reconditioned at company facilities and delivered by an in-house logistics network. In 2025 it sold 596,641 retail vehicles, up from 416,348 in 2024, and revenue rose to $20.3 billion from $13.7 billion. Retail vehicle sales were $14.5 billion, wholesale $4.1 billion and other revenue (including gains on selling customer loans and add-on products) $1.7 billion. Gross profit was $7,026 per retail unit in 2025 versus $6,908 in 2024. Through the first half of 2026, revenue was $13.8 billion versus $9.1 billion a year earlier and net income attributable to Class A shareholders was $560 million versus $399 million. How we measured earnings. We start from operating cash flow, remove swings in working capital (vehicle inventory, customer loans held for sale, receivables and payables), subtract stock compensation as a real cost, and subtract the capital spending needed just to stand still. On that basis owner earnings per share (counting the Class B units that can be exchanged into Class A shares, about 224 million shares in total) were about -$3.44 in 2020, -$2.10 in 2021, -$11.49 in 2022, -$1.08 in 2023, $5.02 in 2024 and $7.87 in 2025. Reported 2025 net income of $1.9 billion is not a useful guide: it includes a $2.8 billion tax benefit from recognizing tax losses as an asset, offset by a $2.2 billion charge for what the company owes under its tax receivable agreement. Part of the company's interest is paid in additional debt rather than cash ($182 million in 2025, $458 million in 2024); we treat that as a real cost of the debt and reflect it in the bear case rather than in the earnings level. The starting earnings level. Earlier years were a different business: operating cash outflows every year from 2017 through 2022, a $2.2 billion cash acquisition in 2022, and an operating loss in 2023. We therefore measure from 2024 onward, and take the middle of 2024 and 2025 at about $6.45 per share. That sits below 2025's $7.87. In 2025, owner earnings per share grew about 57%; we assume 0% growth in year 1 of the base case because that unit growth depends on winning customers in a competitive market, and operating cash flow was negative in every year from 2017 through 2022, so we do not count it. Recent quarters support keeping the level: first-half 2026 revenue and net income are both higher than a year earlier. Taxes and the tax receivable agreement. Carvana owes $2.3 billion under a tax receivable agreement ($1.7 billion of it to related parties), payable as tax savings are realized. Because past losses shelter taxable income, we expect ordinary taxes and these payments to rise as profits grow, so we charge for them: about $2.3 billion of payments spread over the first eight years, then ordinary cash taxes (about 18% of owner earnings) from year nine. Base case ($54.80 per share): owner earnings hold at about $6.45 per share for ten years, with the tax receivable payments and later taxes deducted, and after year ten decline about 10% a year as the earning power of a consumer retail model with a short profitable record fades. No growth is credited. Bear case ($7.30 per share): owner earnings settle near $1.00 per share, roughly one-third of the way between 2023's loss and 2024's profit, for ten years and then fade 15% a year. The named risks are the 2022 and 2023 losses (owner earnings of -$11.49 and -$1.08 per share), about $5.1 billion of debt at year-end 2025 including secured notes due 2030 and 2031 that pay part of their interest in additional notes, and net interest expense of $505 million in 2025. Tax receivable payments shrink in proportion but $2.3 billion is still owed. Bull case ($93.80 per share): owner earnings start at 2025's $7.87 per share, grow 8% a year for four years (well below the 2025 pace, supported by first-half 2026 revenue growth of about 52% and an inventory build already under way), then hold flat to year ten and fade 8% a year. The tax receivable payments are made over six years. What could make this wrong. If used-car margins or loan-sale gains fall back to 2023 levels, the bear case is closer to reality; if the 2025 level proves durable and unit growth continues, the bull case is. The tax receivable payments and the timing of taxes are our estimates from disclosed balances. Growth in vehicle sales, share gains and any margin expansion are excluded from every case except the limited bull growth described above. Margin-of-safety price: $22. Leverage, dependence on consumer credit and used-car prices, and a short record of profits call for a large margin of safety below the base case.