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After Carvana reported its October results, we updated our fair value. We moved our rating to Watch and raised our projections for how many cars the company can sell per year. We added its new partnership to sell new vehicles through dealerships and its shift toward plain GAAP financial reporting to what we track. We also adjusted our baseline for the percentage of each sale the business keeps as profit after that figure fell to 10% in the quarter.
Carvana has signed a partnership to become the official auto partner and jersey patch sponsor for the University of Arizona's men's and women's basketball teams. This is the first time the school has allowed a sponsor's logo on its jerseys. While this helps build brand awareness in a key home market, it is a routine marketing expense that does not change the company's financial outlook.
Source: Business Wire
BTIG maintained its buy rating and set a target of 82 dollars for the stock. This follows a quarter where Carvana showed it could grow its market share rapidly even in a flat car market. Other firms also adjusted their outlooks, bringing the average analyst target to 82 dollars, which is about 20 percent higher than the current price.
Source: BTIG
Carvana reported record revenue of about 8 billion dollars last quarter, beating analyst expectations. While earnings per share of 39 cents came in slightly lower than the 44 cents analysts expected, the underlying business is growing much faster than rivals. The company has now doubled its size in just two years, taking market share while traditional car dealers struggle to grow at all.
This growth is fueled by the company's logistics network and reconditioning centers, which allow it to process and deliver cars more efficiently as it scales. Management is aiming to eventually sell 3 million cars a year. Even with higher interest rates making car loans more expensive for customers, the company reached a 10 percent margin on adjusted EBITDA, a measure of core operational profit. This suggests the business is becoming more profitable as it gets bigger.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Management is consistently outrunning its own forecasts as sales volume grows at 40 percent. This suggests the business has built a scale advantage that is widening even as the broader car market stays flat.
| Expectation | |
|---|---|
| EPS | $0.38 |
| Revenue | $7.84B |