Carvana Drives Share Surge Despite Revenue Miss

Carvana (NYSE: CVNA) shares experienced a rollercoaster ride as the company delivered mixed results for its fourth-quarter performance, coupled with promising projections for the future, leaving investors with a blend of optimism and confusion.

The stock initially soared by as much as 33% in after hours trading after Carvana reported worse-than-expected earnings, with fourth-quarter adjusted EBITDA hitting $60 million from $2.4 billion in sales. The surge was also despite the company reporting a large Q4 revenue miss, baffling some investors.

Earnings per share stood at loss of $1.00, slightly lower than the loss of $0.97 recorded in the same period last year. These figures fell short of analyst expectations, with revenue missing by 4.76% and EPS by 5.26%. Retail vehicle unit sales totaled 76,090, slightly below the average estimate of 76,591 based on six analysts’ forecasts.

For the full year, revenue fell by 21% to $10.8 billion, while net income totaled $150 million, the latter of which is largely related to a gain on debt extinguishment.

Despite the results, Carvana remains bullish about its prospects, expecting to sell more units in 2024 than in 2023. The company forecasts adjusted EBITDA for the first quarter of 2024 to be “significantly above” $100 million, stating that it is seeing strength in its business thus far in the quarter.

“2023 was an exceptional year for Carvana, where our deliberate focus on efficiency and profitability drove fundamental business improvements that not only led to our best-ever financial results but also increased customer [satisfaction] throughout the year,” said CEO Ernie Garcia.

Analysts’ opinions on Carvana’s future trajectory diverge. Sharon Zackfia of William Blair raised the stock rating to Buy, foreseeing accelerated growth in retail units sold and increased profits. Conversely, Mike Ward at Benchmark cautioned about the company’s high leverage, anticipating a rise in net debt for the coming years, rating shares as Sell with a $26 price target.

The disparity in analyst sentiments is reflected in the broader market, where only 9% of analysts rate Carvana shares a Buy, well below the S&P 500 average. The average price target stands at $46, signaling a range of expectations regarding the stock’s performance.

Carvana’s journey during the COVID-19 pandemic marked a period of increased demand for used cars amidst global chip shortages affecting new car production. However, challenges arose in clearing inventory acquired at higher prices, compounded by decreased consumer spending due to inflation and normalization of new car production.

Information for this briefing was found via Reuters, Barron’s, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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