What happened
Shares of Carvana (CVNA +6.74%) soared 13.2% in the month of August, according to data provided by S&P Global Market Intelligence, after the online car seller missed analyst expectations on the top and bottom lines, but sold more vehicles than the prior quarter or year-ago period, and is making progress on its cost-cutting initiatives.
Virtually all of Carvana's gains were made in one day based on its second-quarter results, surging 69% at one point, and then spending much of the rest of the month trading lower.
Image source: Carvana.
So what
Carvana has struggled to adapt to changing car buyer preferences following the reopening of the economy. During lockdowns, the used car dealer saw business soar as consumers shopped for vehicles online instead of visiting showrooms. But once a sense of normalcy returned to daily activities, Carvana's business declined.
It reported a net loss of $439 million in the second quarter compared to a $45 million profit a year ago. It was an improvement, though, over the $506 million loss notched in the first quarter. Per-unit profits were also lower at $3,368 versus $5,120 last year, but they were also higher than the $2,833 recorded in the first quarter.
Carvana, however, did sell more cars in the period, selling 117,564 vehicles compared to 105,185 in the first quarter and 107,815 last year.
CEO Ernie Garcia III told investors Carvana was going through a period of adjustment and in May said it would be laying off about 12% of its workforce, or some 2,500 employees, in a bid to cut $125 million in spending.
NYSE: CVNA
Key Data Points
Now what
Wall Street was generally impressed with Carvana's performance despite the revenue and earnings miss, with RBC Capital Markets analyst Brad Erickson calling it "another messy quarter" for the used car dealer, but otherwise believing Carvana was starting to head in the right direction.
Although Erickson drastically slashed his price target for Carvana from $85 per share to $35 per share, he maintained his sector perform rating. Other analysts, like Brian Nagel at Oppenheimer, also cut their price targets, but Nagel's went from $220 per share to $100 per share. Carvana price targets are still all over the place with the consensus price at over $200 per share.
Carvana closed out the month of August at $32.99 per share.
