Carvana Is Still Junk
Carvana Co. (NYSE: CVNA) shares soared more than 50% as it made a new forecast for its financials. This does not change the fact that it has a flawed business and too much competition. (These are the worst business ideas in America.)
Carvana said its EBITDA would be $60 million in the quarter about to end. The analysts’ consensus forecast was that the figure would be a loss of $6 million. Caravan also said its gross profit per vehicle sold would be over $6,000. The figure was $4,303 in the first quarter. As The Wall Street Journal pointed out, Carvana did not guide for net income or loss. Its string of losses, a major reason for concern about the company, has been listed as one reason Carvana might not survive as an independent public corporation.
Carvana also stated, “Loans sold or securitized quarter-to-date total approximately $2 billion, compared to $1.3 billion sold or securitized quarter-to-date as of May 4th, 2023.” The quality of these loans has been questioned, which makes the news a good omen.
Another problem Carvana faced was criticism of the quality of its sold cars. Whether this is true is a matter of opinion.
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While Carvana’s stock rallied, it is still down 91% in the past two years, according to Yahoo! Finance. That means the recent show of confidence by Wall Street is extremely limited.
Finally, Carvana cannot escape its first-quarter results. The company had a net loss of $286 million, which added to the losses of the previous four quarters. Revenue fell from $3.5 billion in the same period a year ago to $2.6 billion.
Carvana faces two other major challenges. The first is that the used car market is unusually competitive. The largest competitor is car dealers, who have tens of thousands of locations. The other is that a rapid rise in used car prices has started to cool.
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