Digital Transformation Will Unlock Online Vehicle Auction Growth

Key Takeaways

• AI-driven products, digital transformation, and strategic partnerships are expected to boost ACV's workflows, margins, and market share well above industry expectations.
  
• Expansion into new business lines and high-margin verticals positions ACV to outpace physical incumbents and drive longer-term, diversified revenue growth.
  
• Structural shifts in mobility, competitive pressures, regulatory changes, and costly investments threaten ACV's auction volume, profitability, and prospects for sustained growth.

Catalysts

Provides a wholesale auction marketplace to facilitate business-to-business used vehicle sales between a selling and buying dealership.

• Analyst consensus expects AI-driven pricing and inspection to support higher auction volumes and take-rates, but this likely understates the impact: as ACV rolls out cutting-edge products like Project Viper, Virtual Lift 2.0, and real-time guarantee offerings across its national footprint and within dealer service drives, these tools could transform core workflows industry-wide, unlocking structural step-changes in conversion rates, ARPU and long-run operating margins far beyond current forecasts.
  
• While analysts broadly foresee expanded recurring revenue from dealer partnerships and high-margin SaaS/data products, ongoing market traction with the largest dealership groups and platforms like Amazon could lead ACV to become the default digital infrastructure for wholesale and consumer-to-dealer used vehicle sourcing, positioning the company to command premium network-driven pricing power and meaningfully elevate its SaaS/data revenue mix and profitability faster than peers appreciate.
  
• The accelerating shift to digital retailing and wholesale, along with growing regulatory and consumer expectations for real-time data transparency and vehicle condition traceability, sets ACV up to capture an outsized share of transaction growth as offline incumbents lose relevance-this ongoing digital transformation directly supports sustained multi-year topline and market share gains well above industry averages.
  
• ACV's investments in its greenfield remarketing centers and the commercial wholesale platform are unlocking not only expansion into adjacent business lines, but also enabling ACV to out-compete physical auction incumbents on speed, coverage, and transaction efficiency, which should accelerate share gains, drive premium fees, and create substantial operating leverage, benefiting both revenue growth and EBITDA margins over time.
  
• Leveraging its industry-leading data, inspection infrastructure, and AI capabilities, ACV is positioned to extend beyond auto auctions into adjacent high-margin verticals such as insurance, fleet management, vehicle reconditioning, and pricing as a platform, opening major untapped long-term revenue streams and driving structurally higher earnings power than reflected in current valuation.

ACV Auctions Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on ACV Auctions compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming ACV Auctions's revenue will grow by 24.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -9.1% today to 10.5% in 3 years time.
• The bullish analysts expect earnings to reach $141.1 million (and earnings per share of $0.77) by about September 2028, up from $-64.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 44.5x on those 2028 earnings, up from -29.4x today. This future PE is greater than the current PE for the US Commercial Services industry at 25.7x.
• Analysts expect the number of shares outstanding to grow by 2.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.03%, as per the Simply Wall St company report.

ACV Auctions Future Earnings Per Share Growth

Risks

• Accelerated adoption of autonomous vehicles could reduce accident rates and overall vehicle turnover, which would lead to a smaller pool of cars available for auction and put downward pressure on ACV's transaction volumes and long-term revenue growth.
  
• The shift towards Mobility-as-a-Service (MaaS) and lower individual vehicle ownership over time may cause the wholesale used vehicle market to shrink, curtailing ACV's addressable market and limiting opportunities for sustained revenue and earnings expansion.
  
• Intensifying competition-including the entry of major digital players and OEMs into wholesale auctions-can force ACV to offer greater incentives and lower prices to retain share, which may compress net margins and adversely impact earnings quality.
  
• Heavy investment in technology and physical infrastructure for new initiatives (such as greenfield remarketing centers and AI-driven products) without corresponding transaction volume growth could lead to persistent high operating expenses, constraining profitability and net income despite stated margin targets.
  
• Tighter environmental regulations and emissions standards may render significant portions of the used vehicle inventory unsellable in key markets, shrinking auctionable inventory available to ACV and posing long-term risk to both revenue and cash flow stability.

Valuation

• The assumed bullish price target for ACV Auctions is $27.5, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ACV Auctions's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $27.5, and the most bearish reporting a price target of just $11.5.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $141.1 million, and it would be trading on a PE ratio of 44.5x, assuming you use a discount rate of 7.0%.
• Given the current share price of $10.98, the bullish analyst price target of $27.5 is 60.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.