Carvana Co. had a strong showing in the final quarter of 2023, surpassing Wall Street’s profit expectations and expressing optimism for further earnings improvements. Despite facing challenges like high interest rates and inflation in the used-car market, the online retailer’s shares climbed as it defied the odds.
In its latest update on Thursday, Carvana revealed that its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) reached $60 million for the fourth quarter, outpacing analysts’ estimates of $58.6 million. However, revenue fell slightly short of expectations, coming in at $2.42 billion.
Carvana’s success comes after a year of streamlining operations and reducing debt, although it anticipates continued cash burn this year. The company still grapples with significant interest payments due to its debt burden, which necessitates careful cost management.
Despite these challenges, Carvana saw a significant increase in gross profit per unit, soaring to over $5,500 from $3,022 in 2022, indicating its ability to navigate market disruptions effectively.
According to Freedom Capital Markets analyst Mike Ward, while Carvana is positioning itself well to weather pricing disruptions, concerns remain regarding its cash burn rate. Ward predicts the company will use up $1.7 billion in cash this year and the next.
Following the earnings announcement, Carvana’s shares surged by 20%, with Ward suggesting that short sellers covering their positions may have contributed to the rally. However, the stock had experienced a 1% decline year-to-date as of Thursday’s close.
With a net debt of $5 billion, reduced by over $1 billion, Carvana faces substantial interest payments totaling $632 million, up from $486 million the previous year. This translates to a cost of $2,000 per vehicle sold last year.
Although Carvana reported a net loss of $728 million, excluding a one-time gain from debt extinguishment, the company remains optimistic about its profitability. It expects first-quarter adjusted EBITDA to exceed $100 million, signaling confidence despite ongoing economic uncertainty.
To mitigate financial strain and resume growth after a challenging expansion phase, Carvana has implemented cost-saving measures and debt restructuring.
In summary, Carvana’s resilient performance in the face of market challenges underscores its adaptability and commitment to long-term growth.
