What happened
Shares of Carvana (CVNA 0.29%) plunged 17% as of 10 a.m. ET, after the leading e-commerce platform for buying and selling used cars online reported disappointing fourth-quarter results that highlighted its struggles throughout 2022.
So what
Carvana, once known for consistent and impressive double-digit growth by most metrics, posted substantial 23% and 24% declines in retail units sold and revenue, respectively, during the fourth quarter.
Carvana's fourth-quarter loss checked in at $7.61 per share, much wider than the prior year's fourth-quarter $1.02 per share loss, and worse than analysts' estimates of a $2.18 per share loss.
Carvana's rough year was driven by inconsistent automotive industry supply chains and rising interest rates that caused used cars to become less affordable. Further, because the company had entered 2022 prepared for growth, before switching its priorities to profitability and cost-cutting, it carried excess costs that drastically hindered its financial results.
Now what
While the broader automotive market remains complicated amid rising interest rates and supply chain disruptions, Carvana's problems are much more precise: It has to focus on profitability to ease its cash burn.
By the second quarter of 2023, management hopes to reduce SG&A costs by over $1 billion, compared to the first quarter of 2022. Management also hopes that the fourth quarter was the bottom of its gross profit per unit (GPU), and that the metric will rebound to levels over $4,000. Carvana's total GPU declined $2,347 to $2,219 during the fourth quarter.
Carvana is running out of time to convince investors it can curb its cash burn, reduce inventory, and improve profitability before it needs to raise capital, or worse, restructure its business.
