Carvana comes down to earth
The Great Carvana Rally now sounds more like a dot on the radar.
Shares of the online car retailer soared on Thursday, closing 56% from the previous day after announcing that it expects to post adjusted EBITDA of $50 million in the current quarter , thanks to better profitability of sales per car.< /p>
For Carvana, the gains were a welcome turnaround. The company, which once had stock prices as high as $360 in 2021, had seen a steady decline into mid-single digits. However, despite surpassing $25 per share on Thursday following its earnings update, shares of Carvana closed at $19.07 today, erasing much of its recent gains.
> what changedCarvana's debt and declining earnings, along with the positive response it has received from industry analysts, have overshadowed the company's upbeat earnings forecast. There were also concerns that the company's adjusted profitability result was a one-time affair.
Other comments echoed what TechCrunch wrote yesterday: Carvana's increased profitability was due to lower revenue. Based on current numbers, Wall Street analysts expect Carvana to report revenue of $2.57 billion in the second quarter and $2.63 billion in the third quarter. These numbers compare poorly when placed alongside second and third quarter 2022 revenue results of $3.88 billion and $3.39 billion, respectively.
Carvana is a highly leveraged company, with long-term debt of over $6.5 billion at the end of the first quarter. With gross profit of a few hundred million per quarter at the current account and negative operating cash flow of $66 million in the first quarter of 2023, the company has a tough road ahead of it.
A little historyCarvana was launched in 2013, billing itself as the "first comprehensive online automotive retailer". At the time, co-founder Ernie Garcia III said the company had reduced the physical overhead associated with traditional dealerships, replacing them with "user-friendly technology" and providing 360-degree interior and exterior views of its inventory.
Carvana embraced brick-and-mortar retail spaces in 2015, albeit in a novel way, via multi-storey “car vending machines.” In the years that followed, Carvana secured billions in equity and debt financing, and bought a few startups, namely Car360 and Adesa. Despite everything, the company has not yet recorded a real profit.
Certainly, better profitability per sale and improved adjusted earnings for the second quarter are welcome, as evidenced by the initial reaction of investors yesterday. However, it is unclear whether Carvana's long-term trajectory has changed enough to warrant repricing of the entire fabric. Cooler, or more cynical, heads seem to have prevailed today.
Yet Carvana, at around $19 a share, is worth almost a third more than it was before its latest news. It's a win for the company, no matter how you slice it.
The Great Carvana Rally now sounds more like a dot on the radar.
Shares of the online car retailer soared on Thursday, closing 56% from the previous day after announcing that it expects to post adjusted EBITDA of $50 million in the current quarter , thanks to better profitability of sales per car.< /p>
For Carvana, the gains were a welcome turnaround. The company, which once had stock prices as high as $360 in 2021, had seen a steady decline into mid-single digits. However, despite surpassing $25 per share on Thursday following its earnings update, shares of Carvana closed at $19.07 today, erasing much of its recent gains.
> what changedCarvana's debt and declining earnings, along with the positive response it has received from industry analysts, have overshadowed the company's upbeat earnings forecast. There were also concerns that the company's adjusted profitability result was a one-time affair.
Other comments echoed what TechCrunch wrote yesterday: Carvana's increased profitability was due to lower revenue. Based on current numbers, Wall Street analysts expect Carvana to report revenue of $2.57 billion in the second quarter and $2.63 billion in the third quarter. These numbers compare poorly when placed alongside second and third quarter 2022 revenue results of $3.88 billion and $3.39 billion, respectively.
Carvana is a highly leveraged company, with long-term debt of over $6.5 billion at the end of the first quarter. With gross profit of a few hundred million per quarter at the current account and negative operating cash flow of $66 million in the first quarter of 2023, the company has a tough road ahead of it.
A little historyCarvana was launched in 2013, billing itself as the "first comprehensive online automotive retailer". At the time, co-founder Ernie Garcia III said the company had reduced the physical overhead associated with traditional dealerships, replacing them with "user-friendly technology" and providing 360-degree interior and exterior views of its inventory.
Carvana embraced brick-and-mortar retail spaces in 2015, albeit in a novel way, via multi-storey “car vending machines.” In the years that followed, Carvana secured billions in equity and debt financing, and bought a few startups, namely Car360 and Adesa. Despite everything, the company has not yet recorded a real profit.
Certainly, better profitability per sale and improved adjusted earnings for the second quarter are welcome, as evidenced by the initial reaction of investors yesterday. However, it is unclear whether Carvana's long-term trajectory has changed enough to warrant repricing of the entire fabric. Cooler, or more cynical, heads seem to have prevailed today.
Yet Carvana, at around $19 a share, is worth almost a third more than it was before its latest news. It's a win for the company, no matter how you slice it.
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