Can Carvana Keep Going After Last Week's 40% Pop?

The company behind used-car vending machines soars after posting blowout results in its first report since its springtime IPO.

Rick Munarriz
Rick Munarriz
Jun 12, 2017 at 9:12AM
Technology and Telecom

You never get a second chance to make a first impression, and Carvana (NYSE:CVNA) came through with flying colors in its first big test as a public company. The potentially disruptive online retailer of used cars soared 39.6% last week, moving higher after a strong first quarter as a public company. It was the biggest gainer among New York Stock Exchange listings for the week. 

Carvana's growing base of outlets sold 8,334 vehicles during the quarter, resulting in a 118% surge in revenue to $159.1 million. Its net loss also more than doubled to $38.4 million, or $0.44 a share, but that checks in as $0.28 per share on an adjusted basis. Analysts were bracing for an adjusted deficit of $0.29 a share on $157.7 million in revenue, and Carvana is just getting started.

Guidance for the current quarter calls more heady growth. Carvana expects to clear 10,000 to 10,500 units during the second quarter. The $193 million to $203 million in revenue it's targeting is well ahead of the consensus of $184.3 million that analysts were settling for just ahead of the report.

Carvana's outlook for the entire year is also impressive. It's eyeing revenue of $850 million to $910 million, a 141% surge at the midpoint from the $365.1 million it delivered on its top line last year. 

A car being delivered by Carvana's fleet.

Image source: Carvana.   

Fender vendor

Carvana was a dud coming out of the IPO gate two months ago. Underwriters priced the offering at $15 a share, only to see the stock tumble a whopping 26% on its first day of trading. The market was basically scoffing at the model. Cars purchased online can be picked up at what are now nearly two dozen outlets, where vehicles are dispensed out of gargantuan multi-level vending-machine towers. The market sees that and thinks showmanship is trumping near-term profitability.

The stock had fallen into the single digits in recent days, making it a broken IPO even after last week's nearly 40% pop. However, Carvana's triple-digit revenue growth and its outlook that calls for top-line growth to accelerate through the balance of 2017 is going to find jaded investors giving the concept a second look. 

The automated vehicle-dispensing towers may seem over-the-top, and the process of inserting huge coins to get the process going is definitely hokey, but it's all part of drumming up the brand and making a used-car purchase more exciting. Folks can also sidestep the theatrics and just have the vehicles delivered to their driveway. 

Carvana isn't the company selling secondhand vehicles online, of course. Most dealers have an online presence, but they typically involve having to come in for hours of deal-sealing. Carvana is trying to set itself apart through customer-centric features including seven-day test drives, online quotes for trade-ins within a couple of minutes, and 360-degree virtual tours of all its inventory. 

Baird analyst Colin Sebastian chimed in following the report, encouraged by Carvana's robust outlook and a strong showing in some of its newer markets. Sebastian reiterated his "outperform" rating, and his $15 price target matches the IPO.

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Shares of Carvana still have that new-stock smell, but the ability to blow expectations away in its first report as a public company is a great way to win its way back into investors' fancy.