It’s definitely not good for an auto dealer to lose their license when that license is needed to be an auto dealer. Especially not in a State as big as Florida. Would not be good for their future guidance.
1 Like
Does this stem from an objection from legacy dealers?
Otherwise how can you run afoul of something like licensing in such a business friendly state like Florida.
If the spreads start to tighten up on the chain I am going to be Put shopping.
1 Like
I’m likely getting out of CVNA puts today. The news I was expecting never showed up Monday and the Market is continually pushing this stock higher.
It’s unlikely that where my position is that I’ll expect it to touch that price again. There is a number of reasons not to like Carvana, but it seems the potential is all the company needs to see its stock price see 200 again.
It really all depends on if it tries to run again.
1 Like
So Carvana is retaining their dealer’s license in Florida for now. Even though they did not complete all of the registrations, the Florida DMV has decided to not proceed in pulling their license due to the fact that Carvana has reduced the numbers of their unregistered vehicles, and that Carvana has agreed to no longer sell a vehicle until the actual title is in their hands. This could still prove problematic for them though since they are now at the hands of the DMV, auctions, etc for receiving those titles which could drastically delay their sales.
3 Likes
Saw you talking about this on TF earlier tonight and wanted get this back on the radar.
Checking into CVNA a bit as I’m still long term bear on these guys, for background I’ve been in the business for 20 years with a successful dealer group and I’ve managed a Toyota store for the last ten. I’ve been in the business my whole damn life and it’s been very good to me. Yes I think these guys offer a much needed disruption to the industry BUT what the market hasn’t priced in is the amount of capital and willingness to adapt on the dealer side which has an equal amount of force in my opinion. Don’t get me wrong they’ve grabbed a pile of used market share but I’ve always questioned if they can do so profitability (shame on me for not looking into puts a long time ago) and they’ve yet to prove that and I think will always struggle to do so as auto retail is a unique business model and I think a good reference for this is look at Zillow attempting to get in the real estate business. The way they do business and making things more convenient has a cost and with the razor thin margins of auto retail and those must be passed along to the consumer and only so many consumers are going to adapt to that model and be willing to pay the substantial premium when buying a car is one of the last remaining “negotiable” purchases still in our economy. I’m in the Midwest and yes it’s conservative but people aren’t willing to pay thousands more to have the car delivered versus driving ten miles down the road and Carvana doesn’t have this figured out, I think their valuation is extremely inflated due to covid and they are in for a big fall which will start showing it’s head around the upcoming ER.
You can look above for some of the headlines on their failure to legally sell vehicles because they didn’t have a clear title and this is a BIG issue and if not managed properly can get you into a corner like it has done for them. I’m sure with some processes they’ll get that fixed in time but have probably underestimated how much capital that ties up as Ridn2lo mentioned above with slowing up their sales.
Below is short interest info from the bot, there’s 2.5B that agrees with me or at least does at an average share price of $188.50 but I don’t think they’re going anywhere.
For reference here’s EW but it doesn’t show much and isn’t the most reliable but note the 3.53B revenue estimate.
Here’s revenue data from Nasdaq’s site (I’m sure I’ll find better places in time just working with Google for now) both annual and then the quarterlies for 2021. When you look at the quarterly revenue for 2021 and where EW reports out it would total approximately $12.59B for FY 21 which is solid growth over 2020 but as you can see from the quarterly data ER growth has slowed down substantially for the last two quarters and appears to be on track to do the same in Q4. The economy and used vehicle sales have been at record highs (along with record prices) for the last year but things are about to tame down a bit with the supply chain starting to see correction in 2022 and beyond along with some potential headwinds with pricing right now and interest rate hikes throughout the year. I still think demand will be strong but I’m uncertain they can maintain the growth that they’ve experienced over the last five years and total revenue is starting to show that.
I feel as though the company is overvalued compared to many of it’s peers and the growth isn’t there, this is another Covid boom stock as it was about $110 per share before the covid dump but I also felt it was overvalued at that time. Some of the extremely successful public auto groups operate at low P/E’s and I just feel like CVNA has a lot of hot air in it from Covid.
Went a bit more in depth than I intended but I plan to take a put position at some point just undecided on timing.
4 Likes
Was browsing the news sites and came across this article where a man bought a car from carvana and not only was it reported stolen by Hertz, but it’s been in an obvious accident and they didn’t repair everything. Obviously none of that was disclosed to the buyer!
https://www.foxbusiness.com/lifestyle/colorado-man-carvana-vehicle
5 Likes
CVNA misses on EPS and barely beats on revenue. Then they announce they are buying Adessa auction house in an all cash deal of over $2 billion. Haha, best of luck to them. If this thing doesn’t cliff dive today I’m going to be shocked.
2 Likes
Took a look into their financials, comparing Q3 and Q4:
- Vehicle inventory went from $2.3B in Q3 to $3.1B in Q4 (we don’t know how many cars they have in inventory)
- Short-term revolving facilities went from $455M in Q3 to $2B in Q4
- Net cash from operating activities went from ($1.4B) in Q3 to ($2.6B) in Q4
Yet … the car sales over the last three quarters haven’t changed that much.
So it looks like they’ve drawn down ~$1.5B in their short term credit facility to build up inventory and buy Adessa. And not like they are anything close to cash flow positive.
Best case scenario is they go to the market to raise more money, and worst case is inventory and debt overhang catches up faster than sales can bail them out? Will be interesting to see how market responds to this.
4 Likes
after reading the transcript, i’m gonna look to play a small position in puts. Q1 guidance looks like shit due to omicron and they’re taking out $3.2B in debt to finance the ADESA acquisiton.
earnings transcript: https://seekingalpha.com/article/4490250-carvana-co-cvna-ceo-ernie-garcia-on-q4-2021-results-earnings-call-transcript
Questions I have:
they’re saying Q1 will be severely effected by Omicron and cold weather that messed up logistics and created huge backlogs. but seem to think that a normalization will occur in 2022. essentially cleaning up logistics and backlogs in my industry is a nightmare but my experience is in more perishable goods. that they claim a lot of this is weather related, does long-term weather forecasts play into this trade?
they don’t finance their cars. this is done through third-party to offset risks. good for them but also a huge loss in revenue. how do increases in rates effect their business?
the $3.275B ADESA acquisition is going to be financed through debt with an additional $1B earmarked for improvements. on the call they said that the dealer-to-dealer title processing has some benefits and they expect ADESA to continue to operate like they always have. this is something Ridn2lo has stressed is the Achilles heel for their business. is it bullish for them to realize not to mess with a good thing and maybe they can learn something from ADESA’s title processing operations?
some highlights for me:
Now, I’d like to turn briefly to the current environment. Starting in the late fourth quarter, we, like everyone else, were hit pretty hard by the Omicron variant. At different points in time, we had up to 30% of our people in various operational teams simultaneously called out. It is obviously very difficult to deal with in any system. But in systems that relay on changed activity like our inspection centers and our logistics network, it is even more difficult. This led to the most severe logistics network constraints we have seen in our history.
While we are largely out of the Omicron wave, it takes time to work out of our backlogs, and this year’s severe winter storms have slowed our progress. Today, we remain severely constrained, but we’re working hard to work through it as soon as we possibly can. These constraints, paired with the recent rapid appreciation of vehicle prices as well as rapid increase in interest rates, have colluded to make this a challenging time. While this has undoubtedly been complex operationally, as our team has in the past, they are rising to the challenge. We’ve managed to grow our inventory available to our customers. We’ve grown our operational capacity to handle more volumes throughout our operating groups in anticipation of alleviating our logistics constraints and in anticipation of tax season and we have made changes to the mix of cars we are purchasing and reconditioning to help our customers find more affordable cars despite the car pricing environment.
Retail GPU increased by $230 in Q4, primarily driven by an increase in the percentage of retail vehicles sourced from customers, partially offset by higher reconditioning costs and higher wholesale acquisition prices.
Wholesale GPU increased by $441, driven by gains in buying vehicles from customers and wholesale market appreciation. Other GPU increased by $516, driven by strong finance execution and higher industry-wide vehicle prices on average loan as an additional impact.
In Q4, EBITDA margin was negative 2.5%, including a 0.6% impact from one-time items, an improvement of 1.4%, reflecting gains in both GPU and SG&A leverage. We ended the year with $2.3 billion in total liquidity resources, giving us significant flexibility to execute our plan.
Today, we also announced that we have signed a definitive agreement to acquire ADESA’s U.S. physical auction business. The acquisition is expected to close in the second quarter of 2022 and will be financed with $3.275 billion in committed debt financing to fund the $2.2 billion purchase price and an additional $1 billion in improvements across the 56 sites. Upon development of these 56 sites, we are expected to unlock approximately 2 million units of incremental annual production capacity at full utilization.
We expect the first quarter to be impacted by supply chain challenges brought on by the Omicron variant and severe winter storms and the recent rapid increase in short-term interest rates. We expect these effects to have a significant impact on Q1 total GPU and SG&A per retail unit sold, leading to an expected EBITDA margin loss in the mid single-digit range.
I’ve been seeing more price target reductions than increases from analysts this morning.
1 Like
yes, sorry, you’re right. meant to say it’s a PT that’s higher than current price. big green candles on low volume right now. might just wait till after open and let things settle down. what do you think, bb?
This stock continues to baffle me. @ 153.10 in AH or 21.46% up.
Holy crap its up 42% from Thursday morning… all because they acquired Adesa?
It will fall, but I guess that fall is going to come later. There is no reason CVNA should have gone up. This is probably a lot of institutional buying that aren’t experiencing the behind the scenes aspects of the auto sales industry. Spending $2 billion for Adessa is a terrible investment in my eyes, but I guess some see it as positive future guidance even though numerous analysts have lowered their price targets for it. If they see a return on buying Adessa, it will take a while. Most car dealers are moving away from buying from auctions due to the insane fees associated. And most dealers fucking hate Carvana. So with them now owning the auction, I feel dealers will be even less likely to buy through them. Especially with the constant negative press they receive from what they sell to retail buyers.
3 Likes
Interestingly, the folks they bought Adessa from - KAR Auction Services ($KAR) - saw their market cap go UP by 38% after the deal was announced, so market also thinks KAR is much better off without Adessa.
Yet CVNA prices still went up. Perhaps what is fueling the increase is the fact that they did grow revenue by ~129% YoY to $12.8 billion, and have done a good job at improving both gross profit per unit and their net income margins.
Profitability could be around the corner, and yet for $12.8B in 2021 revenue, they are valued at $20B. So one could take the view that they are undervalued.
We might have to give them an earnings season (or two) to see if will actually be able to generate synergies from the Adessa purchase, while managing the Q3 vs Q4 inventory and debt increase and the increased cash burn.
1 Like
Their valuation will be even more interesting when the used car bubble pops and those revenue numbers they’ve seen over 2021 dwindle down. I strongly believe that if the used car market had remained stable rather than get the boost it did from the pandemic, Carvana would not have seen the growth/expansion they were surprisingly able to pull off over the course of the year. Also add in the factor of selling vehicles constantly without properly registering them and selling vehicles that were damaged to customers helped line their pockets even more. Manheim, ACV, Backlot, Copart, etc are honestly some of the more popular auctions. A fair amount of dealers I know didn’t even use Adessa prior to this acquisition. And a lot of them like I said are starting to rely more on trade-ins and buying from private party rather than go through auction because the fees from these auction houses are insane. It will be interesting to see how this pans out for them. But my money is on “not well”.
2 Likes
Also baffled by the whole Carvana earnings. Seeing as they have had an influx of negative PR as of late and missed EPS significantly. Yet their share price shoot up today is really odd.
First of as someone who knows first hand the ups and mostly all ups of the 2021 auto industry. Sure inventory was down but PVR ( per vehicle retail) gross was wayyyy up. In turn total overall profit was out best year in the 58 years we have been in business 9 stores of all different brands new and used. Every single one of them had record 2021.
On to the Adesa purchase for most non automotive people these seems like some large scale opportunity which I think is why it drove price action upwards. However, adesa is far behind in the automotive wholesale industry to Manheim a Cox automotive product that dominates the wholesale market and really has its hand in all aspects of automotive wholesale and retail. Autotrader, Kelly blue book manheim auto auction, vauto inventory management. Adesa auctions are relatively smaller especially in current times. A majority of the manufacturers utilize manheim for the company car/buyback late model auctions.
I also could see a major challenge to CVNA from brick and mortar dealers in court and out for a conflict of interest and in turn Adesa lose many dealer customers. Frankly whether it’s good or bad dealers hate Carvana and Adesa makes its money from dealers and needs buyers and sellers.
The news is going to continue to come out in opposition to carvana and fheir business practice and I’d expect at some point a rapid fall from their already over elevated share price. Also good points ny everyone above.
1 Like
Just saw this article on Bloomberg:
If you don’t have bypass paywalls, here’s an archived copy: https://archive.ph/WSdF7
How Apollo’s Last-Minute Twist Salvaged Carvana’s Debt Sale
- Apollo ended up with about $1 billion of the total financing
- Pimco, Franklin also swooped in with large orders for deal
1 Like