Why Carvana Stock Just Jumped 34%
Don't make the mistake of thinking Carvana is profitable now. It isn't.
Carvana (CVNA 33.77%) reported its earnings results for the first quarter of 2024 last night, and the crowd went wild.
Shares of the used car "vending machine" company soared 34% through 10:20 a.m. ET on results that easily beat expectations. Instead of the $2.7 billion in sales that Carvana was expected to report, the company did $3.1 billion. And instead of losing money as Wall Street expected, Carvana earned a surprise $49 million profit.
Well, it sort of earned a profit. In a laconic press release, Carvana boasted that it sold nearly 92,000 automobiles in Q1, up 16%, for total revenue of $3.1 billion (up 17%). Net profits did amount to $49 million, but only because the company recorded a $75 million "gain in the fair value of Carvana's warrants to acquire Root common stock."
Without that accounting correction, Carvana would have lost money.
That being said, a profit's a profit, however one comes by it. Carvana also reported $235 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). That was quite a surprise, especially since even a very optimistic J.P. Morgan, in previewing Carvana's results last month, thought the company would only do $180 million in EBITDA (and most analysts guessed less).
So you can see why investors are excited. It doesn't hurt, either, that Carvana management said it expects both sales and adjusted EBITDA to continue growing in Q2, and indeed, throughout the year.
Still and all, investors shouldn't make the mistake of thinking Carvana is now a profitable company. It isn't. One-time accounting changes in warrant value aren't something you can count on happening regularly in the future. Indeed, most analysts agree that despite today's earnings beat, Carvana won't report its first generally accepted accounting principles (GAAP) profit before 2027 at the earliest -- and even then, its profit will be less than $0.50 per share.
At a current valuation of more than 250 times 2027 estimated earnings, Carvana stock is the opposite of cheap.
