$CVNA - Q2 Earnings Outlook and Forward Results

CVNA earnings are coming up this Wednesday so figured it’d be a good time for some updated thoughts.

First off, Q2 results per

Alternative Alpha

1. Retail Units Sold: 101,632 (+33% YoY) (+11% QoQ)

   1. Expectations are somewhere in the low to mid 30’s I believe, but those are always out of date.

   2. The quarter was pretty consistently 30-37% YoY each week starting from 4/14

2. ASP: $24,162 (-3.5% YoY) (+1% QoQ)

   1. Not a meaningful move in either direction.

   2. Margins are MAYBE slightly down, but it’s hard to tell since a good chunk of sales in Q2 were EV’s (primarily Tesla Model 3’s, with many sourced from Hertz). Margins on Tesla’s are a bit murky due to rapid price depreciation from price cuts.

   3. Any metal margin losses (if any) are likely offset by continued fee gains/reconditioning improvements/inventory ramping being a benefit to wholesale.

3. Inventory started at ~28k and ended at ~34k.

   1. Inventory ramp is beneficial for wholesale GPU

   2. Inventory ramp is likely indicative of a growth mindset continuing into Q3 (more later)

4. Average delivery times were ~4.2 days and declined throughout the quarter

   1. Lower days to delivery means a better consumer value proposition and likely smoother delivery pipelines.

   2. Q1 2024 was 4.8 days and Q2 2023 was 7.6 days

Overall very clean results, acceleration in unit sales at what I’d guess are similar margins (best in class) is very conducive to EBITDA growth and thus a higher stock price, hence me adding at ~$100 as well as some earnings call options given the momentum during the quarter vs expectations. Whether the results are priced in at $130 or wherever it happens to trade is a different question.

Q3 Outlook:

Q3 thus far is doing something like the following:

1. Unit Sales: On track for maybe 110k this quarter, about 8k per week and ~+35% YoY and +8% QoQ

2. ASP: Similar to Q1

3. Delivery times: Down to 3.4 days from 4.2 in Q2

4. Inventory ~36k from 34k Q2 end.

My view is that Q3 is off to a great track despite the limited data. Sales continuing their strong pace and getting some more QoQ growth combined with further inventory ramp, delivery improvements, as well as record high job postings, leads me to believe that Q3 will look quite good as well. Carvana doesn’t necessarily guide aggressively historically, so this may not be super significant for earnings, but I wouldn’t be surprised if there’s commentary around growth/continuing to grow/growth investments popping up on this or the next earnings call.

While the liquidity question is (hopefully) answered by now narrative wise, it was still undetermined if CVNA would be able to rapidly grow given much of the stock appreciation occurred under negative or low DD growth. The Q2 and now Q3 resumption of >30% YoY unit growth combined with strong sequential growth and what appears to be significant growth investment, should solidify the narrative that CVNA is once again a growth stock. This is likely why the stock has done so well over the course of Q2 and early Q3 relative to peers such as KMX, as the outperformance is readily apparent in the alt data.

That being said, the relative weakness of the auto market absolutely can bite CVNA as we have seen previously. While possible, this is basically impossible to predict, so the market is largely trying to see what the knowable trajectories look like, which is a very pretty Q3 with further investment coming down the pipeline as they hire and continue to refine the reconditioning process.

Given recent rumors that KMX is doing lay-offs in home delivery, it seems like CVNA has “won” online used cars. Given online vehicle delivery is a secular trend, the valuation ascribable to the guaranteed #1 player that is growing like a week with great margins can get pretty high. On a “reasonable” multiple you could likely call the stock relatively expensive, however it’s easy to argue that something growing 8-11% QoQ with very high fixed cost and an end-state monopoly is likely worth much more than a reasonable multiple. I personally wouldn’t be surprised if we go towards the $150-200 range this year barring any hiccups which would be 15-20x 2-3 year forward EBITDA.

It also goes without saying that the debt problem basically doesn’t exist at current growth rates and they could easily raise enough capital without significant dilution.

Overall - Super positive on the Q2 results barring any random surprises. Q3 going nicely as well. Two things of note:

1. If you’d like to take a hand in estimating Q2 units and revenue for CVNA, you can do so at https://www.clarity-markets.com/predict

2. This time around we’re giving away 3 subs to Alternative Alpha to the top forecasters (and a little bit of money)

This article already has some pretty good clues for revenue and unit sales, so feel free to give it a whirl. The site will also be getting a massive face lift after this quarter so it doesn’t look like Indra and friends first Javascript project. Stay tuned on that.

As always, you can subscribe if you so wish. Free or paid is up to you and hopefully the content is worthwhile. Cheers.