Carvana Co. (CVNA 2.88%) delivered a strong second quarter to investors on August 8, 2018, with explosive growth figures compared to the prior year in many financial metrics. The company continues to expand its vision of changing the way people buy cars without a traditional dealership and replacing it with an online retail platform and delivery or pick-up options. Right now, business is good, and if you like growth, here are some takeaways from Carvana's second quarter that should interest you.
We all like growth
For young companies such as Carvana, it's all about the growth, and its second quarter didn't disappoint. The company put double-digit increases to shame with retail units sold increasing 111%, compared to the prior year's 22,570 units. Total revenue was similar, with a 127% increase to $475.3 million. This result wasn't one-of-a-kind, either: Through the first-half of 2018, Carvana is on pace to track its fifth consecutive year of triple-digit revenue growth -- that's growth investors enjoy owning a part of.
Total gross profit's jump was even more impressive, at 206%. To be fair, this growth -- and we'll touch on its expanding network in a second -- isn't cheap, and its net loss also increased 32% to $51.3 million. That expanding net loss didn't shake investors' confidence, as the stock shot up when the markets opened Thursday morning.
Carvana's growth wasn't limited to its financials. The company recorded a 142% growth in monthly unique visitors (MUV) to its website. Comparing its 142% MUV growth to its 111% retail growth, it suggests that demand and interest for its online services outstrips its supply. If you like growth, and investors do, Carvana's second quarter posted incredible growth in retail units, revenue, total gross profits, and its online MUV, but let's look at its expanding footprint, which has helped power those increases.
Expanding reach
During the second quarter, Carvana launched nine new markets, making its total 65 as of June 30, 2018. What's more, two of those markets were in significant population areas: New York City and the San Jose bay area. That had an impact on the U.S. population Carvana serves with its markets; at the end of the first quarter of 2018, it reached 45.8%, which moved up significantly to 52.8% at the end of the second quarter. You may have also seen a Carvana commercial showing the coin-operated vending machine delivery for the first time as it pushed national advertising. During that advertising push, it opened four of its signature vending machines in Charlotte, Washington, D.C., Orlando, and Phoenix.
Carvana's Houston vending machine. Image source: Carvana.
Another interesting tidbit many investors overlooked was that Carvana secured a site near Indianapolis, Indiana, for its fifth inspection and reconditioning center (IRC), and construction has already started. This will expand on the company's ability to inspect and recondition units by 50,000 vehicles a year capacity. Beyond adding capacity, this move will also help the company cut down its transportation distance from acquiring a vehicle, inspecting it, and redistributing it for retail for its midwestern markets -- a glance at the footprint below will show how an Indianapolis IRC will help fill a gap in the Midwest.
Image source: Carvana's August 8, 2018, second-quarter presentation.
Emerging opportunity
Currently, Carvana generates most of its business selling used vehicles, but that leaves opportunity for the company to grow and expand its business model. Management noted that it's focusing more on creating a better way for consumers to sell or trade a car, in addition to its legacy business of selling used cars to consumers. The young business segment is still in early development, but management was optimistic about results in the second quarter. Carvana's vehicles purchased directly from consumers, rather than at wholesale auctions, for example, increased 264% compared to the prior year's result, and 92% compared to the first quarter of 2018.
The revenue isn't easily trackable, so it'll be difficult for investors to follow this development in the near term (other than paying attention to management's comments during quarterly reports) because after Carvana purchases a vehicle from consumers, it will either sell the vehicle at wholesale auction, sending revenues to its wholesale business, or sell it through its retail business, which would go through its retail gross profit. Management did note that during the second quarter, 11% of retailed vehicles were sourced from consumers, compared to only 6% during the previous quarter. Investors will want to keep abreast of management notes on this emerging opportunity, because if it proves more lucrative to buy vehicles from consumers, and/or foster a vehicle trade environment, it could be a fantastic long-term opportunity for its overall business growth.
Ultimately, it was a strong quarter from Carvana, especially if you dig past the bottom-line loss and understand that the cost of its expansion was justified by its explosive growth figures. If management continues to execute on its playbook for entering new markets, expect more growth in the near term -- and investors love growth.
