Analysts: Carvana future still up in the air

Carvana struggled in 2022. Plagued by a weakening used-vehicle market, its stock plummeted 98 percent, erasing almost $37 billion of market capitalization.

Garcia said in November that the company was no longer the investor “darling” it had been during the pandemic.

“We’re now back to a place where we’ve spent most of our lives, and I think, honestly, it’s a comfortable place to be,” Garcia said. “I think it’s what we’re used to, and it’s sort of easier to stay focused and build. It’s easier to get motivated when people don’t believe in you than when people do.”

Mounting financial losses, a plunging stock price, nervous creditors and regulatory roadblocks in several states had the online used-car giant on the ropes as it entered 2023, facing doubts about its ability to survive without major restructuring amid a used-vehicle market in decline.

After soaring to a market valuation of up to $60 billion in 2021, the retailer had charted an aggressive growth strategy for 2022, expecting strong used-car demand to carry over from the previous two years. When that didn’t happen, Carvana became entrenched in cost-cutting mode, posting an annual loss of $1.6 billion in 2022. Meanwhile, its large debt load loomed and its business model floundered.

A reduction of growth initiatives and inventory size in early 2023 saw the company sell fewer cars but ultimately perform better, with improved total per-vehicle profit and a slimmer net loss.

That trend continued in the second quarter. Carvana sold 76,530 vehicles — even fewer than in the first quarter — but gross profits per vehicle improved again, climbing to $6,520, nearly double what it was in the second quarter last year.

Carvana is facing tough competition, not only from traditional car dealerships but from other online companies such as Cars.com, TrueCar and CarMax.

On the bright side, Michael Ward, an analyst for Benchmark Co., wrote that Carvana has maintained a competitive advantage in brand recognition.

William Blair analyst Sharon Zackfia said that in the long term, the company’s business model has merit.

“We continue to believe value exists in Carvana’s customer-friendly, digitally enabled model, as evidenced by continued market share gains notwithstanding the difficult industry backdrop,” she wrote. On the other hand, Carvana’s historic failure to make a profit and the challenging macroeconomic environment continue to be risks, she said.