Carvana Implodes

Carvana, the ruined used car company, missed earnings estimates badly. The situation was among the most well-covered by the business media this earnings season. The news, however, is worse than it seems. Carvana may not survive as an independent public corporation. It is falling apart at a breathtaking speed.

Morgan Stanley offered the most brutal takedown. It said Carvana might drop to $1. It has already fallen about 95% this year to $9. CNBC reported, “Nearly all aspects of the Carvana’s operations declined from a year earlier, including a 31% decrease in gross profit to $359 million.”

Carvana’s revenue did not drop much from the same period a year ago, but the bottom line was terrible. Revenue in the third quarter a year ago was $3.5 billion, which dropped to $3.4 billion this year. Carvana lost $508 million. Carvana’s balance sheet shows it has $316 million in cash and cash equivalents. That barely leaves a margin for any future losses. And these losses are virtually guaranteed.

Ernie Garcia, III, Chairman and CEO, insulted investor intelligence by saying, “In the third quarter, we made some of the most significant operational progress we have ever made as a company.” In light of all the bad news, the statement hinted at a level of progress as Carvana disintegrated.

Carvana’s hurdles will only get worse. Car loan rates have soared due to the Fed’s action to fight inflation. Many Americans simply cannot afford a car, whether new or used. Data show that the average age of a car on the road has hit 12 years. People have decided to keep their decade-old cars, undermining auto industry sales.

Carvana cannot overcome the drop in used car prices. As new car inventories grow, people will turn less and less to used models.

Finally, in the shadow of a recession, many Americans will not make expensive purchases.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Carvana is almost out of time and nothing will work in its favor.

Sponsored: Find a Qualified Financial Advisor

Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

Source: Read Full Article