This company runs an online marketplace for second-hand cars. It also operates multi-story car vending machines.
It’s not a good look when you announce a $2.2bn acquisition on the same day as job cut.
They are ij a big shift this month, 20%
It turns you that when you give US households thousands of dollars in stimulus checks they go shopping for cars.
One sure way to pop a bubble is to turn off the stimulus and Jack up interest rates.
Carvana is in trouble, debt is high & they’re still loss-making.
Yep, although directors are actively buying stocks. Seems like they still believe in this business
I am happy with current movement, you know
I bet you are, What a wild day! +26% is insane.
I’ve opened my first short position in almost a year on Carvana despite it already being down almost 95% as I believe it will be at or near $0 in the near future as the macroeconomic environment batters the used car market.
Concern is growing over rising repossession rates and I believe they have much to rise as the entire automotive market has been supported by an unsustainable credit cycle akin to housing in the 2000s that is now being unwound as rising interest rates evaporate vehicle equity which has been used as the backbone of most consumer financing growth.
Carvana has never posted a positive quarter of operating cash flow (not even during the pandemic boom!), let alone free cash flow (which is more accurate given the surprising capital intensity of its business model). Stunningly, it has burned through $8.3b since going public. More pressingly, it has only ~$1.2b cash after its’ deal with ADESA went through (which I’ll mention later). If they managed to reduce burn I believe they would still need to raise again within 12 months or begin selling real estate, further reducing profitability: they have a capex budget of $350m for the next 4 quarters and reducing burn to that of the depths of the pandemic still results in spend of several hundred million.
To purchase ADESA, a US car auctions business, Carvana sold $3.3b in unsecured bonds at a rate of 10.25% in April, of which $2.2b was used for the purchase. ADESA generated EBITDA of only $100m in 2021 (a boom year), meaning Carvana’s interest bill just to purchase this business will be roughly twice its cash flow.
Even worse, this debt sale has tapped out Carvana’s financing options, having only been rescued by Apollo throwing a last minute $1.6b lifeline. Any future deals will have to be at higher rates still, and worst of all for shareholders, convertible to equity.
The capital structure now consists of approximately $7.6b in total debt and $4.4b in equity. There is no way out of this hole for Carvana without significant restructuring and further pain for the share price.
Additionally, I see serious governance concerns and conflicts of interests between Carvana and it’s former parent DriveTime, increasing regulatory risk.
I agree that ADESA deal was a mistake, especially with current global economy state
As for me, the worst situation regarding Carvana now is not debts, but disappointed customers
Absolutely, I only hear bad things about Carvana. I don’t believe online car buying is a durable idea in any case so I would have shorted others like Cazoo too but they just raised enough to extend their runway to 2024.
There is a ceiling price for how much people are willing to pay for 2nd hand cars without seeking them. It doesn’t matter that many don’t know what they’re looking at you can’t beat sitting in a car before you agree to pay $XXX a month / $XXXX outright.
I’d love to know what their gross margin is per car, I can’t imagine it’s very high.
Seems like market satisfied with the report. I am surprised, actually
Both earnings and revenue missed widely. There was a short squeeze, in line with general market movements and my short, like many others, was liquidated. I’ll be re-entering at some point as nothing has changed fundamentally with the business. In fact its even worse than I suggested: gross margin dipped, debt pile is actually $8.6b, and even analysts expect another $3b in burn before breakeven. That would put them out of pocket for almost $1.6b. No wonder its getting desperate.
I am really disappointed that I already sold & fixed the profit
This is an example of a business that was happy to capture territory by using investors’ money to discount the true cost of their service. There is a reason that the used car business hasn’t been scaled before. I don’t really short stocks, no account to do it with, but this would be high on my list.
I’ve decided to buy it again, hope it will be at least 15% better
I don’t hold it or have any views on it, but came across this which some might find an interesting read: Carvana: The Masterclass Scheme | The LongVol
Haha seems like it was a mistake