Shares of Carvana (NYSE:CVNA) stock have accelerated higher by about 1,000% this year, surprising investors across the board. At the beginning of the year, CVNA stock traded for less than $5 per share. Today, those shares are worth about $50.
The online used car retailer recently reported its second-quarter earnings ahead of schedule, which it called its “best quarter in company history.” Quarterly revenue tallied in at $2.97 billion, beating the analyst estimate for $2.59 billion by an impressive 14.7% but falling by roughly 24% year-over-year (YOY). Carvana’s loss per share of 55 cents also came ahead of the analyst estimate for a loss per share of $1.15. While still unprofitable, profitability did improve, as total gross profit per unit was $6,520, up by 94% YOY.
Why CVNA Stock Is Up 1,000% in 2023
Along with earnings, Carvana also announced a massive debt reduction of over $1.2 billion. The debt agreement — made in collaboration with a group of note holders that represent over 90% of the total principal amount of existing senior unsecured notes — will see the company “eliminate more than 83% of Carvana’s 2025 and 2027 unsecured note maturities.” The agreement will also lower Carvana’s cash interest expense by more than $430 million per year for the next two years.
So, how has Carvana turned itself around to gains of 1,000% this year? The company previously laid out a plan with three key steps. The first step was to achieve positive adjusted EBITDA. During Q2, the company reported adjusted EBITDA of $155 million, up from an adjusted EBITDA loss of $216 million last year and a loss of $24 million last quarter.
Step two was to achieve material positive unit economics. Positive unit economics involves analyzing and improving the revenue and cost of goods sold per unit. Carvana’s total retail units sold during the second quarter was $76,530, down by 35% YOY. However, as highlighted earlier, total gross profit per unit was a record-high $6,520.
Finally, step three involves a return to growth after completing steps one and two. In a letter to shareholders, CEO Ernie Garcia and CFO Mark Jenkins explained that step one was completed during Q2. The pair stated that Carvana’s goal is to now complete step two before eventually moving on to the growth phase.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
