Carvana
stock was under pressure on Wednesday even after the used-car retailer shared a positive update on its future profits.
The company (ticker:
CVNA
) said it now expects gross profit per unit, or GPU, to come in above $5,500 for the current quarter, which ends in September. It had said earlier that the metric would be above $5,000. The consensus call among analysts tracked by
FactSet
is for a per-vehicle profit of $4,948.44.
Carvana also said it expects adjusted earnings before interest, taxes, depreciation, and amortization—or Ebitda—above $75 million for the current quarter, beating expectations of $46.4 million. It previously only said that it expected a positive value for adjusted Ebitda.
Still, toward market close on Wednesday, the stock was down 3% at $42.68 after gaining some 8% as the market opened. It has surged 861% this year.
The sell-off on Wednesday could be driven partially by the general pessimism on growth stocks.
Nasdaq Composite
fell as much as 1.3% on Wednesday versus the the
Dow Jones Industrial Average
‘s 0.7% decline or the
S&P 500
‘s 0.8% fall as investors moved away from growth names such as
Upstart Holdings
(UPST), and Carvana itself.
Carvana also didn’t update its outlook for retail units sold. In the current quarter, it expects them to match the second-quarter total of 76,530, which was a decrease of 35% year-over-year.
Carvana investors recognize that the loan business is partially responsible for the improved outlook. After providing car loans to buyers, Carvana packages the debt and sells it to investors, and it has been playing catch up in that part of the business as the company shifted the timing of sales in the fourth quarter. Management on Wednesday said that in the current quarter, it expects to sell roughly $300 million to $500 million more in loan volumes, reducing the prior build up.
The company has made changes over the past 18 months. Discussing the updates at a
J.P. Morgan
conference, Chief Financial Officer Mark Jenkins cited the company’s progress in managing inventory, lowering costs in the inspection centers and logistics network and buying more cars from customers, a lower-cost method versus buying from auctions, as some of the sustainable factors boosting the GPU.
In the June quarter, Carvana reported a record GPU of $6,520. It benefited from selling a higher volume of car loans, as well as from an accounting adjustment. In the fourth quarter, the company took a charge against earnings as vehicle prices declined nationwide, reducing the value of its larger-than-normal inventory of cars. It added back some of those charges, effectively improving the gross profitability metric, in the first and second quarters.
Carvana said in a footnote to the Wednesday update that the outlook for the third quarter assumes no significant effects from how it values its inventory.
Analyst Daniel Imbro from the financial services firm Stephens said in a research note that Carvana’s recent update looks solid and is in line with what the company’s financial model predicts. He and 14 other analysts rate the stock at Hold, or the equivalent. Imbro told Barron’s earlier this month that there is substantial uncertainty in the used-car market and that he would need to see a significantly higher number of cars sold to change his view.
Wall Street analysts have become more pessimistic about Carvana as the stock has continued its remarkable gains. Last month, four analysts, including those at Jefferies and RBC Capital Markets, downgraded the stock to Sell from Hold. Two rate it as Buy and six have it at Sell.
Write to Karishma Vanjani at [email protected].
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