Is Carvana in money trouble?
Carvana's debt grew, including the debt-funded ADESA deal, and its stock became the most shorted in the country as fears of bankruptcy and a creditor fight grew. The stock lost nearly all of its value in 2022, causing some to speculate bankruptcy may be ahead.
Feb 22 (Reuters) - Carvana (CVNA. N) , opens new tab reported its first-ever annual profit on Thursday, helped by its pact with bondholders to cut its outstanding debt by $1 billion, sending the used car retailer's stock up by a fifth in after-hours trading.
Carvana is at a key inflection point in 2024 as it looks to control costs. The company has done a great job of stabilizing its finances and growing its market exposure, as shown by its successful efforts to pay down its debt. But now that it's avoided bankruptcy, it faces a more challenging road to long-term viability.
EBITDA or no EBITDA, Carvana is still expected to lose money on the bottom line this year. It's actually expected to keep losing money for the next three years. And at $8.3 billion in market cap, Carvana stock costs a staggering 56.5 times projected 2027 earnings.
Full Year and Q4 2023 Highlights
In 2023, Carvana sold 312,847 retail units for total revenue of $10.771 billion while demonstrating significant progress on its path to profitability, including: Record Total Gross Profit per Unit (“GPU”) of $5,511 ( +$2,489 YoY) and record Non-GAAP Total GPU of $5,984 ( +$2,647 YoY)
Carvana's financial position was also exacerbated by its high debt levels. As revenues began to decline and interest rates began to rise, servicing this debt became increasingly challenging. The company's credit rating was downgraded, making it difficult to raise additional capital through debt.
Management expects stronger sales volumes through 2024, along with higher adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) compared to 2023. That guidance has likely boosted the stock, with investors signaling confidence in the company's strategy.
In the past five years, revenue increased at a compound annual rate of 40.7%. It's anyone's guess what the growth rate will be in the future. But let's just say Carvana can capture 5% of the total market by 2033. That would imply an annual unit volume of 1.8 million cars -- nearly six times higher than 2023's total.
CVNA Stock 12 Month Forecast
Based on 15 Wall Street analysts offering 12 month price targets for Carvana Co in the last 3 months. The average price target is $66.82 with a high forecast of $90.00 and a low forecast of $45.00. The average price target represents a -6.47% change from the last price of $71.44.
The used car dealer's survival isn't certain, but with $4 billion in liquidity to tap, the company should be able to live to see another year. Though gross profit narrowed in the third quarter, it was still positive, showing the company can generate a gross profit even when used car prices are declining.
Will Carvana ever recover?
And the company's stock price recovered to a more realistic valuation in 2023, surging to over $55 on the announcement of the debt restructuring. Carvana reported a third-quarter profit and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of over $1 billion greater than in 2022.
The future is uncertain
Carvana appears to show no signs of slowing down. Even this year, the stock is up 51%. It's easy for investors who have been on the sidelines to want to jump in and ride the momentum. Management expects retail units sold to rise in the current year compared to 2023.
Carvana reported its first-ever annual profit on Thursday, helped by its pact with bondholders to cut its outstanding debt by $1 billion, sending the used car retailer's stock up by a fifth in after-hours trading.
However, it has a 4.3 stars out of 5.0 through Trustpilot from over 9,000 reviews. Positive reviews praise the easy process of selling your car, stating that payment and pickup are a breeze. Many also noted that Carvana paid more than other online offers they received and much closer to full market value.
Largest shareholders include Morgan Stanley, Vanguard Group Inc, Spruce House Investment Management Llc, BlackRock Inc., CAS Investment Partners, LLC, Greenoaks Capital Partners Llc, Jane Street Group, Llc, Price T Rowe Associates Inc /md/, Exor Capital LLP, and Susquehanna International Group, Llp . Carvana Co.
Carvana Total Long Term Debt (Quarterly): 6.273B for Dec. 31, 2023.
Carvana over the last 18 months aggressively restructured its operations and debt amid bankruptcy concerns to pivot from growth to cost-cutting. The efforts thus far have been successful, propelling Carvana's stock last year from less than $5 per share to more than $55 to begin 2024.
Key Takeaways:
Both Carvana and CarMax advertise no-haggle pricing, but Carvana offers a seamless selling process that helps it come out ahead in our rankings. We give Carvana the edge over CarMax as a car selling website. Our team rates CarMax just slightly ahead of Carvana for its car buying services.
In at least four of the counties where it does business, it began delivering cars to customers without first obtaining all the required licenses.
Are there any requirements my trade-in must meet to be accepted? Carvana will accept your vehicle if it is newer than 1992, the odometer is in working condition and we are able to safely drive the vehicle. We'll also accept vehicles where the registration has expired (except for California).
Why is Carvana stock dropping 2024?
Higher interest rates and softer conditions in the used-car market dealt a serious blow to Carvana starting in 2022. The negative trends continued last year. The business reported a 21% decline in revenue and a 24% drop in cars sold.
JPMorgan Chase & Co. and Citi are the most recent investors. Carvana has acquired 3 organizations. Their most recent acquisition was ADESA on Feb 25, 2022 .
Carvana over the last 18 months aggressively restructured its operations and debt amid bankruptcy concerns to pivot from growth to cost-cutting. The efforts thus far have been successful, propelling Carvana's stock last year from less than $5 per share to more than $55 to begin 2024.
