Carvana Stock Skyrockets 37% After The Used Car Company Reported Record Profits, Best For Knowledge

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Carvana stock hit its highest point in roughly two years. Read full Article I hope you love it.

Carvana Stock News

Carvana Stock (CVNA 33.77%) reported its earnings results for the first quarter of 2024 last night, and the crowd went wild.

Shares of the used car “vending machine” company soared 34% through 10:20 a.m. ET on results that easily beat expectations. Instead of the $2.7 billion in sales that Carvana was expected to report, the company did $3.1 billion. And instead of losing money as Wall Street expected, Carvana earned a surprise $49 million profit.

Carvana Stock Q1 earnings

Well, it sort of earned a profit. In a laconic press release, Carvana boasted that it sold nearly 92,000 automobiles in Q1, up 16%, for total revenue of $3.1 billion (up 17%). Net profits did amount to $49 million, but only because the company recorded a $75 million “gain in the fair value of Carvana’s warrants to acquire Root common stock.”

Without that accounting correction, Carvana would have lost money.

That being said, a profit’s a profit, however one comes by it. Carvana also reported $235 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). That was quite a surprise, especially since even a very optimistic J.P. Morgan, in previewing Carvana’s results last month, thought the company would only do $180 million in EBITDA.

NET INCOME AND GROSS PROFIT SURGE (Carvana Stock)

But there were two other metrics that really stuck out for investors. First, the company reported a record first-quarter net income of $49 million. That’s compared to a net loss of $286 million in the year-before quarter. And second, the company’s gross profit per unit (GPU), which is the average of how much it makes off of each car sold, hit $6,432, an increase of $2,129.

“Competitively, we sit in a better position that we have at any point in our history,” CEO and chairman Ernie Garcia told investors Wednesday, adding that “the last few years have resoundingly proven just how difficult it is to build a business this complex, to drive it to scale, to achieve strong unit economics and to deliver high-quality customer experiences.”

The CEO touted the dramatic push to turn the company around, highlighting the reconditioning of vehicles for sale and efficiency measures.

WHAT NOW?

As for looking ahead, the two execs said the company is “now focused on our long-term phase of driving profitable growth and pursuing our goal of becoming the largest and most profitable auto retailer and buying and selling millions of cars.”

For its Q2, the company said that “as long as the environment remains stable,” it expects a sequential increase in its retail units year-over-year growth rate. Carvana also said that for now, it will focus on quarterly commentary instead of offering predictions for the full 2024 fiscal year.

Is Carvana stock a buy?

So you can see why investors are excited. It doesn’t hurt, either, that Carvana management said it expects both sales and adjusted EBITDA to continue growing in Q2, and indeed, throughout the year.

Still and all, investors shouldn’t make the mistake of thinking Carvana is now a profitable company. It isn’t. One-time accounting changes in warrant value aren’t something you can count on happening regularly in the future. Indeed, most analysts agree that despite today’s earnings beat, Carvana won’t report its first generally accepted accounting principles (GAAP) profit before 2027 at the earliest — and even then, its profit will be less than $0.50 per share.

At a current valuation of more than 250 times 2027 estimated earnings, Carvana stock is the opposition of cheap.