Carvana sets industry record two years after bankruptcy fears

Carvana’s Q3 earnings beat Wall Street estimates, leading the company to lift its 2024 outlook “significantly above” its original forecast.

Driving the news: Carvana posted strong Q3 results on Wednesday, sending stock prices up to a 52-week high. In its shareholder letter, the brand said it expects the next quarter to be even better, with better sales and stronger earnings.

• The company generated total revenues of $3.66 billion (compared to the anticipated $3.45 billion) between July and September, up 32% year-over-year. Retail sales jumped 34% to 108,651 units.

• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reached an all-time high of $429 million, nearly triple its Q3 2023 results. Carvana’s EBITDA margins, at 11.7%, were an industry best, beating records previously set by any public automotive retailer.

• While net income declined 80% to 148 million, prior-year results were heavily inflated by debt reductions, making this a less useful metric.

Zooming in: Carvana’s results come after several years of challenges, which saw it struggle with lower sales and revenue declines that nearly bankrupted the company.

• The majority of the brand’s struggles occurred during the used car market crash in 2022 and 2023, a product of revived automotive manufacturing. This ended the pandemic-era squeeze on vehicle supply and resulted in a rapid decline in preowned pricing.

• Prior to the crash, Carvana and other e-commerce retailers purchased a surplus of inventory at high prices, not expecting values to decline so soon. Unable to sell its supply at the same price it had purchased it, the company sunk into debt, narrowly avoiding bankruptcy.

• While many expected the brand’s days to be numbered back in 2022, it appears to have made a dramatic turnaround, achieved through extensive cost-cutting and restructuring. With two months left to go in 2024, it’s already well on its way to beating 2023’s full-year results.

Bottom line: Carvana’s continued success proves many of its critics wrong, restoring faith in its business model. It also means that dealers must continue to contend with digital retailers in their sector, a competition that will help the industry grow and evolve.

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