Carvana (NASDAQ:CVNA) stock fell 14% overnight after reporting earnings that missed estimates and a bleak outlook.
Sales at the used car chain, with cars stored in towers that look like vending machines, fell to $2.492 billion, from $2.650 billion a year ago. The company also reported a loss of $283 million, $2.67/share, compared with a loss of $32 million, or 38 cents/share, in 2021.
Carvana blamed higher interest rates, which raised buyers’ costs even though used car prices came down. The rise in rates has also cut into its profits from selling loans to outside investors, once a primary source of revenue.
Has Carvana Hit a Dead End?
Carvana stock is now down 95% from where it started in 2022, at nearly $221/share.
Carvana promised a revolution in car buying, a centralized single-price online store, with car deliveries direct to customers on tow trucks. But the pandemic made it hard to get inventory, and the fading of the pandemic has made its elevated sales costs matter.
Other used car dealers like AutoNation (NYSE:AN) also reported down quarters, but these were pre-announced and AutoNation is down just 6.2% on the year.
Carvana grew out of DriveTime, a 132-store used car chain owned by the father of Carvana CEO Ernie Garcia III. The Garcias controlled 85% of Carvana’s stock in February. When Carvana had inventory problems last year, it got cars from DriveTime.
In good times, Carvana was a “disruptor” that disposed of the gas-powered fleet of Hertz Global (NASDAQ:HTZ) and had its own “dealer network,” an online market it pitched to smaller dealers. General Motors (NYSE:GM) even launched a Carvana clone called CarBravo, built around its own dealerships.
I warned about Carvana in February, noting the conflicts of interest with DriveTime and operational problems which had its business licenses threatened or suspended in 11 states.
CVNA Stock: What Happens Now?
Even with the most recent haircut, Carvana is still worth $2.2 billion, one-fourth of its annual revenue. AutoNation, by contrast, has a lower price-to-sales ratio and is profitable. The same is true for CarMax (NYSE:KMX), its other primary competitor.
It seems Carvana and CVNA stock still have further to fall.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.