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    Carvana Co (CVNA)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$52.41Last close (Feb 22, 2024)
    Post-Earnings Price$67.83Open (Feb 23, 2024)
    Price Change
    $15.42(+29.42%)

    What went well

    • Carvana expects to generate significantly above $100 million of adjusted EBITDA in Q1 2024, equating to significantly above $1,200 per retail unit sold, despite high interest rates and industry volumes below pre-pandemic levels. This demonstrates the company's ability to generate substantial profitability in challenging market conditions.
    • Carvana has substantial excess capacity in its infrastructure, capable of supporting multiples of profitable growth without significant additional investment. This positions the company to achieve significant operating leverage as it scales, leveraging underutilized overhead costs. ,
    • The company is beginning to demonstrate growth alongside profitability, with expectations of retail unit sales growth both sequentially and year-over-year in Q1 and full year 2024, indicating potential market share gains and a positive growth trajectory. ,

    What went wrong

    • The company is uncertain about sustaining EBITDA growth beyond the first quarter of 2024, as management is cautious in expressing confidence for the remainder of the year. ,
    • Carvana acknowledges challenges in transitioning from an efficiency-focused model to one geared towards growth, admitting that the speed at which they can achieve this is "less clear," which may hinder their ability to scale rapidly. ,
    • Recent tightening of credit standards and rate increases could potentially curtail sales growth, as customers may find it more difficult to obtain financing for vehicle purchases.

    Q&A Summary

    1. Q1 Adjusted EBITDA Guidance
      Q: Can you grow EBITDA beyond Q1's $100M+ guidance?
      A: Management is extremely excited about strong business trends and expects to be significantly above $100 million of adjusted EBITDA in Q1 , but they refrain from providing specific guidance beyond that . If they continue executing well, they believe there are exciting opportunities ahead.

    2. Acquisition of 2,800 Units
      Q: What's the impact of acquiring 2,800 units from a competitor?
      A: Carvana acquired about 2,800 vehicles in January from a competitor liquidating its inventory. These units will be sold over the next couple of quarters but are not expected to materially impact retail units sold or retail GPU in Q1 or subsequent quarters due to the small size of the portfolio .

    3. Retail GPU Outlook
      Q: Will retail gross profit per unit remain strong as you grow?
      A: Management expects retail GPU to remain close to Q4 levels with potential upside in Q1 . While growth brings some incremental costs, they do not expect these to significantly impact retail GPU because of efficiency gains and leverage of fixed expenses.

    4. Growth vs. Efficiency Transition
      Q: Why not accelerate growth given improved efficiency?
      A: The company aims to complete current efficiency projects before fully accelerating growth . They intend to intelligently transition between efficiency and growth, believing they are well-positioned to sell millions of cars and become the largest, most profitable automotive retailer .

    5. Affordability and Interest Rates
      Q: How do current car prices and interest rates affect customers?
      A: Car prices are about 10% higher relative to other goods compared to pre-pandemic levels, and monthly payments are roughly 20% higher due to higher interest rates. Management sees room for moderation, which would make cars more affordable and attract more customers.

    6. Same-Day Delivery Impact
      Q: Does same-day delivery improve conversion rates?
      A: Same-day delivery, now available in 11 markets, positively impacts conversion rates as speed influences customer decisions . It enhances efficiency and customer satisfaction, and management plans to expand this offering over time .

    7. Advertising Spend Outlook
      Q: How will ad spend trend in Q1 and 2024?
      A: Advertising spend in Q1 is expected to decrease slightly from Q4 levels, aligning with Q2 and Q3 levels of last year. The company anticipates stable ad expenditure moving forward.

    8. AI and Technology Advancements
      Q: How is AI impacting your operations?
      A: Carvana is leveraging AI and technology, such as its proprietary Carli system, to improve efficiency in reconditioning centers and customer care . They believe their large scale, vertical integration, and technology focus position them to significantly benefit from AI advancements.

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