After two years of intensive cost-cutting and efficiency enhancements, online used car retailer Carvana (CVNA, Financial) has released its third-quarter earnings report, surpassing all expectations and achieving record-breaking profits. The company's stock price surged over 19% in response to the news, marking a fourfold increase in value this year.
Carvana announced impressive third-quarter results, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) reaching $429 million. This figure significantly exceeds analysts' forecasts of $326.8 million and last year's result of $148 million.
Following the earnings announcement, Carvana's stock price soared by 19.29%, reaching $247.31 per share and bringing its market valuation to $51.18 billion. The company has projected that, provided stable conditions persist, its 2024 profits will substantially exceed previous top-end forecasts.
Just two years ago, Carvana faced the threat of bankruptcy, with revenues declining sharply due to rising interest rates and weakened demand from U.S. consumers. The company confronted high interest payments and looming debt maturities. Carvana's CEO Ernie Garcia, alongside banker Ken Moelis, negotiated with creditors in mid-2023 to secure a $1.3 billion reduction in overall debt, along with an extension for partial cash interest payments.
Garcia also increased his shareholding in Carvana, providing the company with breathing room to focus on cost-cutting in 2023. Throughout most of the year, Carvana has been downsizing operations, restructuring debt, and expanding its used car sales. The company has managed to reduce indirect sales costs per vehicle from $6,300 to under $3,800 in less than three years.
Despite the positive financial report, Carvana still faces significant risks due to its high financial and operational leverage. The company operates a small internal bank to facilitate and sell auto loans.
