Used Cars in Vending Machines: Carvana's Revenue Jumps, but Loss Widens

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Carvana Co. (NYSE: CVNA), which sells used cars online and delivers them via distinctive "vending machine" retail facilities, reported on Aug. 8 that its net loss in the second quarter widened to $38.9 million, or $0.28 per share, from $18 million a year ago.

That wider loss came despite a big year-over-year gain in revenue, as Carvana spent aggressively on its plan to expand rapidly across the United States.

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Carvana earnings: The raw numbers

Carvana's quarter in a nutshell

Carvana's story is all about expansion right now. The company, which sells used cars online and offers customers the option of picking them up from one of its distinctive "vending machine" sites, is using the proceeds of its initial public offering to fund new brick-and-mortar retail sites, or what it calls "markets," across the U.S. Carvana opened seven new markets during the second quarter, bringing its total to 30 markets as of June 30.

Carvana said that it had increased its spending on national advertising in the second quarter to support its rapid expansion. It also announced the acquisition of Carlypso, a start-up focused on bringing "big data" analytical techniques to used-car inventories.

Carvana as an investment

Carvana went public on April 28, 2017. Its offering was priced at $15 per share, but it opened on the New York Stock Exchange at just $13.50. The stock had a bumpy ride in its first weeks on the market, but jumped after Carvana released a good first-quarter earnings report in June:

Carvana has an intriguing opportunity: With the U.S. new-car market likely past its cyclical peak, and average new-car transaction prices near all-time highs, there's a good chance that demand for used cars will pick up over the next couple of years. Meanwhile, right now, used-car prices are down thanks to a glut of just-off-lease vehicles coming to auction. The upshot: It's arguably a good time to be expanding and building inventory, ahead of a potential jump in demand.

That said, as with any fast-growing emerging company, cash burn is a concern that potential Carvana investors will need to evaluate. The management team doesn't have an extensive track record -- but on the other hand, Carvana's distinctive branding and customer experience could help it stand out and find significant growth.

Looking ahead: Carvana's guidance, and a few words from its CEO

Carvana provided updated guidance for the third quarter. It expects:

  • Retail unit sales of between 11,500 and 13,000, up 129% to 159% from the third quarter of 2016
  • Total revenue of between $225 million and $255 million, an increase of 128% to 158% from the year-ago period
  • Total gross profit per unit between $1,625 and $1,725
  • EBITDA margin of between negative 14% and negative 16%

On the second-quarter conference call, CEO Ernie Garcia explained why the company's third-quarter guidance includes wide ranges:

Carvana also reiterated its prior guidance for the full year. It still expects:

  • Retail unit sales between 44,000 and 46,000, up 135% to 145% from 2016
  • Revenue of between $850 million and $910 million, up 133% to 149% from 2016
  • Total gross profit per unit of between $1,474 and $1,575
  • EBITDA margin of between negative 14% and negative 16%
  • Openings of 16 to 18 new markets, bringing the total at year-end to between 37 and 39

Long story short: It'll be a while before shareholders see profits, but Carvana remains on track for big sales and revenue growth in 2017.

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John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.