Carvana (CVNA 45.00, +3.18, +7.60%), which offers an online platform for buying used
cars, is trading higher today after reporting Q4 earnings results last night.
CVNA reported a non-GAAP loss of $(0.55) per share while revenue jumped 120.6%
yr/yr to $584.8 mln. Both results were below market expectations.
The stock is higher mostly because of some bullish guidance for 2019. CVNA expects retail unit sales of 160-165K, which represents +70-75% growth. Revenue is expected to be $3.4-3.5 bln, up 74-79%.
The key metric that stands out to us is the 2019 guidance for total gross profit per unit (ex-Gift) of $2,450-2,650. That's a sizable increase from $2,133 in 2018 and it shows progress on CVNA's mid-term goal of $3,000. The Gift is referring to shares being gifted to employees from the CEO as the company has hit the 100-market milestone. Also, CVNA expects EBITDA margin ex-Gift of (5.5%) - (3.5%), an improvement from (9.9%) in 2018.
Also, CVNA has been aggressively opening in new markets, with 50-60 market openings planned in 2019, that's up from 41 market openings in 2018. CVNA plans to have US population coverage of at least 65% by the end of 2019.
Of note, CVNA recorded triple-digit growth in Q4, as retail units sold increased to 27,750, up 105% from 13,517 in the prior year period. Its growth in Q4 was broad based, driven by gains across its markets nationwide. CVNA also saw substantial gains in its business of sourcing cars from customers in 2018. Total vehicles acquired from customers grew by 229% in 2018 vs. 2017.
Wholesale units sold, which are primarily sourced from customers, increased by 132% to 15,125 in 2018 from 6,509 in 2017. Similarly, retail units sold sourced from customers increased by 376% 2018 vs. 2017.
The Q4 results were another positive step for CVNA. While revenue/EPS was a miss, the operating metrics kept improving and showed that the company is moving to profitability. The market is looking at 2021 being the first year that CVNA is profitable on a full year basis. From a broader perspective, while the progress has been pretty good thus far, it will take time to see if Carvana's model is going to be successful over the long term. We have had our doubts about this business model, but as CVNA grows in scale, the outlook is getting brighter.
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