Carvana’s Stock Price (CVNA) Set to Make New High as Record Profits Continue Growth Story

Carvana's stock price (NYSE:CVNA) is looking set to open the trading session as a notable gainer, and a new 52 week high, with the extended hours pre-market session indicating a 19.07% uplift in the stock ~$248. With CVNA having already delivered 667.81% gains to holders over the past 12 months, the expectations for earnings were high, but the firm has delivered strongly once again.

The firm offered up their most profitable quarter in company history, with substantial increases in key financial metrics. The company has reported a staggering net income of $148 million and an adjusted EBITDA of $429 million, demonstrating their ability to generate profit and effectively manage operations. This record performance is a testament to Carvana's successful business strategy and strong execution in a competitive market.

To highlight the scale of the success on the quarter, EPS came in at $1.14, which was more than 3x the consensus expectation of $0.30, whilst revenue of $3.66B reflect almost a $200 million beat on the $3.47B the street was looking for. The growth story at Carvana continues to roll on.

During the third quarter, Carvana saw a remarkable 34% increase in retail units sold year-over-year, totalling 108,651 units. This rise in sales volume reflects the company's growing popularity and the effectiveness of its customer-first approach. Additionally, revenue rose by 32% to $3.655 billion, indicating a robust demand for Carvana's services and offerings.

One of the strategic initiatives that contributed to their success is the integration of reconditioning capabilities at five ADESA sites. This move has led to a reduction in shipping distances by an average of 300 miles per vehicle, which enhances unit economics and delivery times. By optimising logistics, Carvana is not only improving customer satisfaction but also strengthening its economic moat.

Carvana has reached a milestone by achieving an adjusted EBITDA margin of 11.7%, which surpasses the midpoint of its long-term financial model range. It's a clear signal that the company is not only growing but also improving its profitability, which is vital for long-term sustainability.

Despite these positive results, Carvana faces challenges related to inventory levels, which remain below the desired target. The company anticipates the typical fourth-quarter seasonality effects, such as lower used car demand and higher depreciation rates. To counterbalance these seasonal headwinds, Carvana plans to increase its advertising spend by $5 to $10 million in Q4 to continue driving growth.

As part of its growth strategy, Carvana's CEO, Ernest Garcia, highlighted that 35% of the U.S. population currently has access to same-day delivery, with plans to expand this capability. Improving logistics and delivery services is a core element of enhancing the customer experience and growing the Carvana brand.

Carvana's CFO, Mark Jenkins, pointed out that the seasonal factors are expected to influence EBITDA margins from Q3 to Q4. He emphasized the correlation between lower demand and higher depreciation rates that could impact the margins in the fourth quarter.

The company's focus on increasing inventory selection is strategic, as it aims at not only improving marketing efficiency but also driving better conversion rates. Scaling operations to support growth is also on the agenda, ensuring that the operational backbone of the company is strong enough to handle an expanding customer base.

Carvana Co is leveraging its competitive advantages, such as its significant capacity to scale, to balance growth with fundamental gains. As the company navigates the market's seasonality and inventory challenges, it remains committed to its strategic initiatives that drive profitability and an exceptional customer experience.