Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Is Carvana Making Money?

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The Carvana Co. (NYSE: CVNA) is shaking up auto sales with its car vending machines and fast delivery.

In fact, Carvana (CVNA) claims to have sold 177,549 vehicles online in 2019. Furthermore, Carvana claims Carvana.com offers 25,000 vehicles to customers. Carvana claims its year-to-year retail unit sales grew by 82% to 50,370 between 2018 and 2019.

Carvana attracts buyers with such features as a seven-day money backup guarantee, real-time financing, and delivery. To me, Carvana sounds like the perfect business for the coronavirus age because it eliminates the need to go to a car dealership.

Does Carvana Make Money?

Carvana (NYSE: CVNA) grows fast, but it is not making money. Carvana reported a -$89.73 million operating loss on 30 June 2020. The quarterly operating loss shrank from -$137.29 million on 31 March 2020 and -$99.12 on 31 December 2019.

However, Carvana’s quarterly gross profit grew from $138.42 million on 31 March 2020 to $150.21 million on 30 June 2020. In contrast, Carvana’s quarterly common net loss shrank from $-59.89 million on 31 March 2020 to -$40.83 million on 30 June 2020.

Yet, Carvana’s quarterly revenues grew from $1.098 billion on 31 March 2020 to $118.3 billion on 30 June 2020. Stockrow gave Carvana a quarterly revenue growth rate of 13.40% on 30 June 2020. The quarterly revenue growth rate fell from 45.41% on 31 March 2020 and 88.70% on 31 December 2019.

Carvana Loses Money

Carvana reported a negative quarterly operating cash flow of -$6.96 million on 30 June 2020. The quarterly operating cash flow fell from $88.71 million on 31 March 2020 and -$79.94 million on 31 December 2019.

However, Carvana (CVNA) reported a $221.25 million quarterly operating cash flow on 30 June 2020. The quarterly ending cash flow grew from $145.03 million on 31 March 2020 and $9.98 million on 31 December 2020.

Additionally, Carvana’s quarterly financing cash flow grew from $283.74 million on 31 March 2020 to $306.69 million on 30 June 2020. However, the same quarterly cash flow fell from $411.38 million on 31 December 2019.

I think the financing cash flow shows Carvana makes money from its auto-financing activity. I think Carvana could generate enormous amounts of cash from its financing scheme someday.

Notably, Carvana’s cash and short-term investments grew from $118.46 million on 31 December 2019 to $145.03 million on 31 March 2020 to $366.29 million on 30 June 2020. In contrast, Carvana reported a $42.40 million in cash and short-term investments on 30 June 2020.

Mr. Market Overvalues Carvana

I think Mr. Market overvalued Carvana (NYSE: CVNA) at $216.96 on 7 October 2020. Carvana’s share price exploded in 2020. Carvana started the year at $96.95 on 2 January 2020.

I think Carvana is not worth $222.70 or $96.95 because it reported $2.477 billion in Total Assets and $965.67 billion in long-term debt on 30 June 2020. Moreover, Carvana pays no dividend.

Why Investors need to Avoid Carvana

I advise investors to avoid Carvana (NYSE: CVNA) because it loses money and Mr. Market overvalues. Carvana’s price frightens me because I think people are only buying CVNA because they love the idea of Carvana. That sounds like a tech bubble company to me.

However, I think Carvana could make a lot of money someday in the future. Unfortunately, I believe that day is a long way off. Instead of buying Carvana, I recommend people watch its stock and buy a cheap automaker such asFord (NYSE: F).

I consider Ford a proven moneymaker that paid a 15₵ dividend on 2 March 2020. Ford is also cheap Mr. Market paid $6.89 a share for it on 2 October 2020.

By all means consider buying a vehicle through Carvana or its vending machines, but stay away from CVNA’s stock.