2023 | 2024 | ||||||
Price: | 51.00 | EPS | -1.48 | -1.10 | |||
Shares Out. (in M): | 207 | P/E | NM | 42.5 | |||
Market Cap (in $M): | 10,557 | P/FCF | NM | 25 | |||
Net Debt (in $M): | 5,390 | EBIT | -66 | 350 | |||
TEV (in $M): | 15,947 | TEV/EBIT | NM | 45 |
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Long Carvana
I wrote most of this before the Fed’s pivot and Carvana’s massive move up in the last few sessions. Nonetheless, the business and the stock still remains attractive on a long-term basis. The stock has been re-priced in 2023 to reflect a bankruptcy/dilutive restructuring event that did not end up occurring. There is significant additional value to be created from scaling the best business model in auto retail.
Carvana has created the low-cost platform for buying, inspecting, reconditioning, and selling used cars. It already enjoys significant advantages in unit economics which will continue to grow over time. This is an ideal market for a low-cost operator to compete in and to win market share across multiple dimensions. Carvana’s economic advantage translates into significant customer value, including price/value, quality, convenience, selection, and more.
Carvana today is analogous to American Tower in the early 2000s: both had/have high fixed cost structures, high financial leverage, and significant solvency concerns from the investment community amidst a pullback in growth and worsening macro conditions. Conceptually, Carvana today is analogous to a one tenant cell tower, but it has a growth opportunity far beyond the incremental tenancy that a fixed network of cell towers can generate over time.
With the company’s recent focus on operational efficiencies, it is essential to look at the company with fresh eyes – free from legacy opinions and impressions from any prior era. Additionally, Carvana’s balance sheet has been restructured to give the company ample time and opportunity to implement and execute its significant efficiency improvements which are leading to superior variable costs per unit, enabling smoother and more profitable growth in the future.
Used Auto Economics
Used cars are commodity-like, trading in pretty tight value ranges in local geographies. Two 2018 Toyota Camry’s with 30-35k miles and the same trim will be priced similarly in the used market, generally +/- $1,500. For an iBuying platform at scale, pricing stability and predictability is extremely important, and the used car market has those attributes the vast majority of time. Used car spreads are a function of (a) inventory acquisition price, (b) the selling price, and (c) the cost to recondition a vehicle and transfer it to a customer. (a) and (b) are highly dependent on prevailing market trends, while (c) is dependent on the dealer. We believe Carvana has vertical capabilities that translate into superior performance across all three dimensions.
Carvana has built a used car retailing platform consisting of:
This platform, running at ~30% utilization (i.e. will only get better at higher utilization) and <1% market share, already achieves cost per unit advantages vs. the field of tens of thousands of used car dealers in the country.
Used car transactions have pretty standard components of gross profit:
Depending on a dealer’s capabilities and business mix, total GPU per retail unit tends to range from $2,500 to $5,000. Excluding wholesale GPU, which Carvana includes in its “non-GAAP GPU” metric, Carvana generated normalized GPU of about $5,200-5,300 in the two most recent quarters. I normalize this for exceptional gains on loan sales, inventory adjustments, and other factors. These recent GPUs can be decomposed into:
~$2,600 of retail GPU
~$2,200 of Finance & Other GPU
+$500-600 of D&A related to ADESA and other D&A included in COGS.
= $5,200-5,300 GPU
It also generates gross profit from its wholesale operations, but since those are unrelated to retail sales, we should bucket them separately since most other dealers do not have wholesale auction operations. Using Carvana’s calculation, non-GAAP total GPU is closer to $6,000 per unit.
Despite carrying a cost base for capacity well above current volumes, Carvana already is generating superior unit economics to other dealers in the market. The chart below shows where it currently stands in asset utilization.
Source: Carvana
Carvana has idle capacity that can be “spun up” relatively easily by hiring and training additional workers in inspection, reconditioning, and transportation roles. Most new hires at Carvana do not require prior training. The standardized workflow, equipment, and processes make it easier for employees to onboard and train easily, and can ramp to being fully productive within a short period of time. Carvana’s model does not require fully trained mechanics to conduct every function in the IRC workflow, the product of which is a more efficient and cheaper inspection and reconditioning process.
Why Does Carvana Have Better Unit Economics?
This is the most important question to determine if Carvana can be a differentiated market leader in an industry that has commodity-like pricing dynamics. Carvana’s vertically-integrated platform allows it to operate the entire value chain with owners economics rather than relying on third-party vendors to help with logistics, transportation, inspection, reconditioning, loan origination, and more. In fact, a significant element of Carvana’s transformation over the last 12-18 months has involved fully in-sourcing all its critical functions, eliminating the use of “band-aid” third-party vendors it had been using for transportation, logistics, inspection, and reconditioning during its growth-oriented phase. The vertically integrated economics of in-sourcing allow Carvana to “produce” a used car at a significant cost advantage that I estimate to be $1,200-2,600 per vehicle, depending on circumstances. Additionally, its size and scale generate better pricing on multiple fronts, and its ability to acquire ~80% of inventory directly from consumers creates structural cost advantages for its inventory acquisition teams.
The chart below shows my estimation of the differences in costs for each major component in the used car production chain.
Of course, these costs can vary by unique vehicle, but taken together as a platform, Carvana has significant advantages. Carvana uses large, centralized IRCs to “mass produce” used cars with better economies of scale than smaller players.
I believe its purchasing power and Sell to Carvana business unlock another >$500 of cost advantages on top of its production cost advantages.
If Carvana can source and recondition cars more efficiently than others because of its “mass production” scale, superior processes, and vertical in-sourcing, the fundamental question for Carvana is if the last- and middle-mile logistics and transportation links in the operational chain are so expensive to operate that the model is uncompetitive vs. brick-and-mortar dealers.
Let’s look at two examples to illustrate the differences between transactions:
Total gross total variable costs of $1,697, with net variable costs $1,550 or thereabouts.
Total gross variable costs of $1,550, net also $1,550.
Both scenarios involve roughly the same net costs, but when adjusting for advertising and other customer acquisition costs, the company would prefer to scale the second type.
The transportation and logistics costs relative to Carvana’s variable cost advantages position Carvana to be more profitable than competitors in most of the country because of its proximity to supply and demand centers – particularly after integrating ADESA. The map below shows Carvana’s pervasive infrastructure near important population centers. Green icons are Carvana locations, while yellow and orange ones are ADESA locations.
Source: Carvana, ADESA, internal estimates
Carvana’s vertical capabilities and broad reach create a variable cost advantage which allows Carvana to invest in growth and the customer value proposition to win share aggressively in a stable end market. It can turn many knobs to optimize different attributes to gain share, including:
A faster/better/cheaper company operating with structural advantages in a large commodity-like industry can generate scaled economies shared which should translate into significant market share gains over time. As Carvana scales, it will further leverage its fixed costs and generate capacity for additional value to be shared with customers and/or to be invested into growth-oriented areas (inventory growth, advertising, etc.). Carvana’s superior value proposition and customer experience should allow it to grow rapidly and “get filled first,” within the limits of its labor and asset capacity.
Prior to 2023, Carvana had been building its platform while scaling volume simultaneously, resulting in many inefficient band-aid solutions to continue growing and creating significant obfuscation of the company’s underlying operational leverage. The company also over-invested in growth initiatives and in customer value to stimulate significant volume growth and share gains. After taking a breather on growth (partially due to market forces, partially due to changing operational focus) for the last 18 months, the platform benefits that Carvana has built are now more evident than ever. Its investments in proprietary software and systems and systematic standardization of processes, workflow, and more makes Carvana similar to Amazon with its fulfillment, logistics, and delivery platform. It has invested focus, time, and resources on building the most scalable used auto platform in the industry, and in doing so it’s been preparing for the next leg of growth.
Carvana’s hard work on implementing operating efficiencies leads me to believe that at each volume interval, Carvana will be more profitable than previously expected. Operating through 2022 and 2023 forced the company to become significantly more systematic and standardized across all elements of its operating platform which will make future growth easier and more profitable.
In the future, there are numerous avenues for Carvana to extract value from the market using 1P and 3P inventory of all types, serving the market as the scaled delivery, logistics, transportation, and reconditioning platform to add value to end customers, fleet owners, dealers, and OEMs over time. This is analogous to Amazon creating a scaled fulfillment platform for 1P inventory, and then opening it up as a service to 3P sellers.
Balance Sheet and Liquidity
Most readers will assume Carvana is on a delayed path to insolvency because of its -99% stock decline from 2021 to 2022, because of its debt restructuring in mid-2023, and because of where its bonds are currently trading. While it surely won’t be easy to convince skeptics, let’s walk through the balance sheet and liquidity in some detail.
First, it’s worth walking through how cash cycles through the company.
Holdco debt exchange
Prior to the debt exchange, Carvana had $5.725 billion of bonds outstanding across five maturities ranging from 2025 to 2030. It had real estate and other secured assets that could have been used to issue additional debt senior to the existing bondholders, which proved to be a strong negotiating chip. Ultimately, a debt exchanged was consummated which accomplished the following:
In effect, Carvana and its lenders made a deal to trade its senior secured borrowing capacity for a cash interest holiday for two years. The PIK interest option allows creditors to let the face value accumulate to 97% of the exchanged notes, which would simultaneously give Carvana more runway to generate operating cash flow. It gave the company and its creditors much more flexibility to continue executing the operational transformation that has already shown significant progress, resulting in industry-leading unit economics. With the model proving itself out and the company on the cusp of returning to growth mode, it would be surprising if Carvana didn’t call these notes early via cash on hand and/or refinancing at significantly lower rates.
We believe Carvana will continue to generate adjusted EBITDA going forward and will manage the business for improving EBITDA as volume scales, i.e. its investments in customer value and/or growth will not overwhelm the contribution from new units. There may be a temporary setback in EBITDA/unit when the company transitions from efficiency mode to growth mode and some costs are recognized before the associated full revenue and gross profit benefits are realized, but we expect there to be a gradual increase in EBITDA per unit as fixed costs are leveraged. There should be a nice counterbalancing effect of investing in growth initiatives/customer value, offset by fixed cost leverage. Fixed overhead expenses peaked around $2,000/unit and were ~$1,800 last quarter. As volume ramps, this line should generate significant operating leverage. Additional efficiency gains in variable functions should translate into growing EBITDA per unit as volume ramps.
Comparing American Tower in 2002 to Carvana in 2023
Carvana’s fact pattern echoes with American Tower’s near-death experience in the early 2000s. It’s worth studying the similarities since both companies share many attributes.
In 2002, AMT was on the verge of bankruptcy. Its stock fell from $56 in early 2000 to a low of $0.60 in October of 2002, a -99% decline. Today, cell towers are recognized as one of the world’s greatest businesses. Each tower is a wonderful local monopoly with great unit economics that benefits from a tailwind of mobile data growth at nearly zero marginal costs. But in the early 2000s, AMT’s balance sheet and an abrupt slowdown in growth and change in the macro environment nearly crushed the company.
As we can see below, the company generated significant growth in revenue and EBITDA from 1996 to 2001. Its fortunes turned in late 2001 and 2002 when carriers started to pull back on wireless capex, leading American Tower to reduce significantly its tower development activities and resulting in total revenue (but not site rental revenue) to slow dramatically. This was a costly hiccup in growth for a company with high operating leverage and high financial leverage (about 8x), which was used to finance the construction and acquisition of its assets. These factors, plus a significant decline in telecom-related assets, triggered a significant drawdown in AMT’s stock price.
AMT had spent significant capital building its portfolio of towers and was not generating free cash flow, i.e. it was not yet self-sufficient. Interestingly, if we isolate the site rental business, it was easy to see the quality of the business in 2002 when network expansion slowed. Incremental site rental gross margins were 85% in 2002 vs. 2001, demonstrating the leverage in the financial model when expansionary investments slowed.
Like AMT, Carvana pursued a significant growth strategy in its early days and has used significant debt and equity capital to fund the development of its platform and its early gains in market share. Similar to AMT, when we can see the financial leverage inherent in the model when growth slowed and the cost structure adjusted to a new environment in 2023.
Carvana is in a scenario that is highly analogous to the cell tower industry 20 years ago.
The breakeven point for capacity-based businesses often communicates the quality of those businesses. For airlines, breakeven points are at high load factors, generally above 80%. For cruise lines, they are in the 35-40% range. For cell towers, it is 20-25% (i.e. the first tenant). For Carvana, we can infer from recent results that its breakeven point is in the 20-25% range. There should be tremendous profitability down the line as utilization increases.
Valuation and Conclusion
There is a recursive feedback loop in the business such that a profitable Carvana will generate lower costs of capital, more growth, and more free cash flow that will deleverage its balance sheet and feed back into lower cost of capital, more growth, etc. In other words, assuming our analysis of Carvana’s superior unit economics holds, the future balance sheet will be completely different from what we see today.
Carvana required significant capex and operating losses to build its verticalized asset base and its strong brand in the market. Its balance sheet is backward-looking, i.e. it was the cost to build the apparatus and to become the recognized e-commerce leader in auto retailing. What we care about is forward-looking, i.e. it is what can be achieved now that the apparatus has been built.
If we look at the interplay between fixed and variable costs as Carvana grows, I believe the company should be able to achieve profitable growth such that EBITDA per retail unit will exceed $2,000 per retail unit at 1.5 million units and >$2,500 per retail unit at 3m units. As such, Carvana should be able to generate >$3 billion of EBITDA on its current asset base, with minimal incremental capex, and >$7.5 billion of EBITDA on its current asset base after investing $1 billion of incremental capex to expand its ADESA facilities, as disclosed during the acquisition process.
Ultimately, we believe Carvana can generate over $10 of FCF/share at 1.5 million units and roughly $30 of FCF/share at 3 million units. As such, we believe Carvana is trading at roughly 5x medium-term free cash flow and less than 2x long-term free cash flow. Additionally, once the model is proven to be profitable and Carvana’s platform is overpowering smaller competitors, there is no reason for Carvana to stop at 3 million units, which is only about 7.5% of total market share in the US used car market.
The company is on the cusp of accomplishing enough operational efficiencies to return to growth. High operating leverage companies that are under-earning due to low utilization rates should trade at “growthy” multiples, and I expect Carvana to follow suit once it shows that it can grow profitably. Once it returns to growth, with the lowest variable costs per unit in the industry, Carvana should be able to optimize its investments in customer value and/or growth expenses to generate significant profitable growth in the years ahead and completely reconstitute its balance sheet. We believe this is an AMT-like situation that is hiding in plain sight because owning Carvana has been a fire-able offense for the last two years. This is a great opportunity for those willing to look at Carvana with fresh eyes.
Finally, Carvana is analogous to AMT except that it has the ability to keep expanding its footprint and capacity over time, whereas the tower land grab in the US and NIMBYism has severely limited TAM expansion for the tower industry which is a key barrier that enabled the local monopoly dynamics to evolve over time. Carvana is not operating a network of local monopolies; rather, ultimately it should operate a powerful platform that has nationwide monopoly-like power, with positive feedback loops throughout the value chain to consumers and for shareholders which further enhance its market leadership, scale advantages, and operating capabilities.
Company returning to growth mode profitably while generating strong unit economics and growing EBITDA/unit. Should be visible within 6-12 months.
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# | AUTHOR DATE SUBJECT |
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96 | |
Ohhhhhhhh mama! Ernie has done it again! | |
95 | |
I think based on today's AA data. 115k is definitely on the table. I think they do $400 and guide to similar ebitda for 4Q and then crush that guide | |
94 | |
This is the time series of job openings that I have YTD. Tracked roughly every week, though there were some gaps mid-year. Obviously openings are not a perfect indicator since we don't know the pace at which they are removing listings, but I think they've been maintaining a pretty steady pace of hiring based on the stats from LinkedIn's weekly job listings (past week was 150, peak was 271 in early July post July 4, average since July has been 135). As for Q4, even though Q4 tends to be seasonally weaker for unit economics, higher operating leverage from q/q unit growth should be a nice offset. If alt data is correct about ~115k run-rate units, I would expect EBITDA to grow q/q from Q3 unless they really start to lean heavily into variable costs ahead of a seasonally strong Q1. For 2025, I think the y/y should be driven by more normal seasonal q/q patterns. If they do exit 2024 with 115k units in Q4 and labor/infrastructure ready to go, it wouldn't surprise me to see 125-135k in Q1 and then continue to ramp q/q through the year from there. I would be surprised if unit growth were <35% in 2025.
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92 | |
I'm getting closer to 9.9k on unit sales +increase in inventory. Hence the 515k translation makes sense to me, which is about 25% higher than last year.
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91 | |
Yes, with production I mean basically (gross) inventory additions. How many units they could sell assuming sufficient demand and no changes in inventory If you don‘t have this number directly, you can take unit sales + increase in inventory. And I have my own scraper, which is +-1-2% vs. Yipit | |
90 | |
Totally fair point - are you getting the production figure from Yipit? When you say production I assume you mean cars that have gone through the reconditioning process and are ready for listing. | |
88 | |
I think the more pertinent question is where are people for 4Q? I am at a similar EBITDA of ~$395-400mm. I have units accelerating - which is what the AA data says, it's unbelievable really they're tracking at 57% unit growth in the most recent week and >50% this quarter. However, GPUs are seasonally down sequentially 3Q to 4Q. Finance GPU also might give back some of the outsized loan sales volume from 3Q. Scale might help a bit, and of course there could be upside from further process improvements. But, that's where I'm at.
And even more pertinently, what is everyone's unit growth assumption for 2025? At this stage it's a bit of a dance between growing supply in a measured manner, and generating sufficient demand (which there likely is), but I am "conservatively" at 25% unit growth next year. Wondering if this is too aggressive or do people have higher numbers in their models? We should also see used car industry volumes improve as rates start to fall and quite frankly just mean reversion from a cyclical low of ~36 million units vs. the LT average of 40 million.
Thoughts?
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87 | |
Simple math is 8k higher units * $4k incremental margins per unit = $32 million, with an additional $15 million better finance GPU from favorable economics on securitization. So should be $45mm higher give or take or ~$400 million. | |
86 | |
I think they will stick to the rough algorithm of $3,400 normalized EBITDA per unit + ~$5,000 incremental EBITDA per unit. I doubt they've given much value back to customers yet, so that $5k might be a few hundred dollars higher, especially since the inventory in Q3 will have more fully captured the rising fundamental gains over the year, and because they continue to make fundamental gains. They grew units about 8k q/q, so that algorithm would translate into about $385M of EBITDA, all else equal. That is probably the right range, plus or minus. Gun to my head, I think it'll be higher than that on a normalized basis (excluding differences in loan sale timing and other exceptionals). It feels like they started to lean into growth later in Q3. If that's true, Q3 may represent the last of the big gains in unit economics. With these economics they can generate far more value from reinvesting the aggregate additional fundamental gains and gains from fixed cost leverage back into volume growth. I think they'll grow units q/q in Q4 and prepare the organization for a strong seasonal ramp in Q1. | |
84 | |
Only just saw this and was definitely a buying opportunity. Ally was referencing 2022 vintage loans - 2023 vintage loan performance has improved. CVNA doesn't hold loans on its balance sheet except for a very small sliver of securitized deals. Hence doesn't have the same exposure. CVNA tightened its loan standards in 4Q23 due to rising delinquency rates. Those rates have stabilized and actually started to come down now. Hence you are seeing them post higher finance GPU as spreads are in their favor. All-in all, clearly a buying opportunity and they are in a good position.
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83 | |
I think it would make lots of sense for CVNA to conduct business in the new car market eventually - especially to help new entrants like Chinese EVs but also for any domestic EV startups that make it through to scaled production. Carvana's robust front-end capabilities (bringing significant customer traffic, integrated loan origination and insurance offerings, etc.) and its scaled middle- and last-mile capabilities would let OEMs seamlessly plug in and originate sales and send units through the system to end customers really efficiently using the marketplace model that already exists at Carvana (for Hertz, other dealers, etc.). For Carvana, they'd said those units are accretive to EBITDA/unit and of course they are capital light and don't consume any IRC capacity. If an OEM wanted to get national distribution quickly, Carvana using Carvana would be a great option.
Feels like a matter of when, not if. | |
82 | |
petritxolbcn - seconding johny88's question from a while back - what do you think about CVNA's positioning re: being able to quickly and cheaply open the floodgates on Chinese EVs?
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81 | |
How do you guys think about the ALLY commentary on auto delinquencies? Stock selling off. Does this slow CVNA sales in 2H 2024? perhaps a buying opportunity? | |
80 | |
Why do you all think the stock has basically not moved since pre earnings despite posting a blockbuster quarter, and a nice setup for another beat and raise in Oct/Nov? On my numbers we are now trading at 18x EBITDA! | |
79 | |
They outlined about $500 of incremental improvements from existing projects that they've worked on, going forward that are yet to be realized. They're already going to be around $3k of EBITDA in 2024. Additionally they showed you in the investor letter further improvements in advertising/overhead leverage, and of course leveraging their infrastructure that can support 3x the size of the business today.
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77 | |
Hi CaptainAyub, I'd love to see that happen as a shareholder. The 800k cars number seems achievable in '27. Can you briefly show us how you bridge to the 4k/car ebitda number from the current number. Where do you see the biggest improvement? If we estimate that the average selling price of a car is around 20-22k we are talking about almost 20% EBITDA margin based on the 4k number, which is double the mid point of the long term guide given a few years ago. Again, I would love to see that happen but don't know whether we can get there in '27. | |
76 | |
Agree with the petrito post above i will simplify my answer. you will want to own Cvna for the next 2/3 years as a decent medium to long term timeframe/setup. i think in 2027, they do 800k cars i think they get to $4k EBITDA per car at $3.2bn ebitda this should still trade at 30x given it would only be 2% of an incredibly fragmented market. that gets you to a roughly $450 stock price. in 2.5 years. | |
75 | |
They are showing mature-level unit economics while they're operating at <40% of capacity on a run-rate basis. It's pretty incredible and I think it would be unwise to assume the economics must step backwards as they continue to ramp up growth. I think margin %s are less relevant than the spreads in this business and can be misleading. For example, if ASPs were to rise $5,000, margins would go down because the spreads would be similar on a higher revenue number, but GPUs likely would go up marginally (from better loan sale economics). The inverse is true as well, whereby deflation is marginally hurting GPU, but it has the effect of benefiting margin %s due to smaller top line numbers. With deflation hitting used cars, this is happening today to some degree. I think the incremental EBITDA/unit paves the way pretty clearly for future profitability, although they are improving so rapidly it's hard to know where they will stabilize. If we adjusted for tighter than expected days to sale and for excess finance GPU, normalized GPU is probably more like $7,000. There are probably some more gains to be extracted there based on Ernie's commentary, but let's say they don't get them or they give them back to customers. Then, if you look at the variable opex that they disclose, they reported $2,301 in Q2. I think they expect that to improve as well, but let's say they don't get any of that, or that the gains go straight to customer value. Extrapolating forward from Q2's numbers, that's $4,700 of incremental EBITDA per unit, starting from a base of $3,400 of EBITDA per unit . Sample math: $3,400 @ 400k run-rate = $1,360m EBITDA If units are 600k next year, that's $1,360m + $4,700 x 200k = $2,300m EBITDA And so on. Views on valuation largely will depend on your view of future growth. Will they grow at 15-20%, or will they stay in this 30-40% range y/y even as comps get tougher? My view is that they seem to be managing the business to grow units roughly in the +10-15k range q/q, adjusted for seasonality (higher Q1, lower Q4). It seems like they are comfortable running in this range while still going after "fundamental gains" pretty aggressively. Growing this way leads to some pretty decent near- and medium-term growth scenarios that generate EBITDA numbers that make the stock look quite cheap. $2-2.5b of EBITDA in 2025 doesn't seem out of bounds. However, clearly the Carvana team is executing with a level of ambition that far exceeds normal, linear-like modeling assumptions. Before long, I suspect they will turn their attention from producing "gaudy" unit economics to driving gaudy growth. They have significant unused capacity in the system and huge expansion opportunities, and they aren't the type to just sit on those. This team is not content with 20% growth when they can 8x their run-rate volume with $1.5B of additional success-based capex. Spending $1.5B to add 2M more units is the biggest no-brainer ever with the economics as they are. With current economics, that 2M units = $9.4B of incremental EBITDA. If these economics hold and they do have the best business model, the best customer experience, by then the biggest brand, and the best value to customers in the industry, why shouldn't they sell 2M, 3M, 5M+ cars? The longer-term numbers get pretty big, but of course the IRRs are highly sensitive to timing. | |
74 | |
Ayub-and original poster...just amazing. maybe broadening yxd question, how are you thinking generally about valuation here? thank you | |
73 | |
Adding my congrats to this great call. GM is now above long-term management estimate set a few years ago. Does anyone have a view on what the real ceiling of GM could be? | |
69 | |
Hopefully not i think bar is 290+ 300 and sequential guide up works
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68 | |
What do people think is priced into this earnings release? Obviously the entire buy side is way above the street. Does the stock go down if they do $300m in EBITDA and guide to Q3 better than Q2? | |
67 | |
Agree with your analysis bud Alternative Alpha has them up amongst the highest sales days this week, inventory been ramping up, September usually bigger than July/Aug and I think 110 is in sight. I wouldn't model $350 personally, but to answer both your questions, I'm at: 2Q: $297 3Q: $328 | |
66 | |
Q1 EBITDA normalized for loan sales was more like $242M. Add 10k units q/q at $4k incremental EBITDA per unit (last quarter they had $6800 GPU and $2500 variable costs per unit, so $4300) = $280M-ish. To that we add fundamental gains + 5-10 fewer days to sale and deltas in pricing/advertising. $100 of fundamental gains + $75 of less depreciation from fewer days to sale = $175 x 102k units = $18M. Puts $300M in reach, and I wouldn’t be surprised if it’s higher than that. More interesting is the Q3 guide. Hiring has ramped hard in IRCs post July 4th weekend and volume is starting to respond, even though it’s still early. Feels like Ernie has given the signal to start growing again. Probably will be >110k units if the acceleration continues, and applying math similar to above would suggest Q3 EBITDA in the $350M range. Not sure why consensus expects a q/q decline and only $223M of Q3 EBITDA, but they might beat that by >50%. If so, the street needs to reset numbers higher in a big way. | |
65 | |
$3450M revenue at 8.5% margin = $293M EBITDA For revenue I used unit growth and price change (assuming non-vehicle revenue has grown analogously). For EBITDA 8% from last Q (assuming they would not have undersold loans) + more operational improvement + some op. leverage + perhaps some overselling loans. I would not be shocked if margins were even higher given all the additional gains that they want to pursue aggressively. Also the color from the William Blair conference where Garcia mentioned all the current projects that each one seems very reasonable, but when you add them add this leads to „gaudy numbers“. What is your best guess? | |
64 | |
What do we think is the EBITDA number they will print tomorrow? $275? $300? $325?
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63 | |
While it is likely a few years early, I just wondered what additional business lines/services CVNA might add in the future. The most obvious one to me is selling new cars from e.g. a Chinese EV OEM with no US presence. CVNA has the brand and website traffic plus delivery infrastructure to pull this off. | |
62 | |
I‘m fully aware of the spare capacity and agree that right now it’s unlikely that they need to give up unit economics for growth. The point about reinvestment was regarding the long(er) term, once the „convenience + $1000 cheaper“ might not be enough anymore to sustain> 30% growth rates. Perhaps they will never need to pull this lever, it does however give me great confidence that they have this option and can therefore very likely sustain very high growth rates for many years. | |
61 | |
While I agree with your KMX point I think you misunderstand the growth trajectory from here. They do not need to and will not "reinvest economics" to grow units. They have tons of capacity on reconditioning, like you mention, and have the manpower to process far more units. They are being measured in their growth because they don't want to mess it up like last time where they got hit by COVID/ADESA/Rates. Anyway, long winded way of saying, they can grow units without giving up on profitability. They likely do $7k in GPU and $3k+ in EBITDA/unit going forward. If you look out to 2027, they could very easily do 800k units, so you're looking at ~$2.5bn of EBITDA. Given the superior business model as you state, and highly fragmented market where even at that level they will be ~2% of the market, they have several years of growth. Wouldn't be surprised if this trades on 30x EBITDA for a long time.
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57 | |
No it's simpler than that. It's because the data continues to be good on units. They will likely do $300mm of EBITDA this quarter. |
Are you sure you want to close this position CARVANA CO?
By closing position, I’m notifying VIC Members that at today’s market price, I no longer am recommending this position.
Are you sure you want to Flag this idea CARVANA CO for removal?
Flagging an idea indicates that the idea does not meet the standards of the club and you believe it should be removed from the site. Once a threshold has been reached the idea will be removed.
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