Carvana’s stock is on one wild ride. Before the market began its pandemic plunge in February, the online used-car dealer’s shares hit a record high of $115, up tenfold just three years after its initial public offering. Then the pavement crumbled and investors bailed. The shares plunged to $22 as Carvana scrambled for financing and the market wondered if selling and lending to subprime used-car customers was the best business in a homebound economy with fast-rising unemployment.
Many stocks have revived in recent weeks as investors look beyond Covid-19. Carvana’s (ticker: CVNA) has positively roared, going as high as $95 after a big capital raise. Recently at $85, the stock gives the Tempe, Ariz.–based company a market value of $14 billion.
That’s a generous number —whether compared with Carvana’s own financial performance or with the valuation of its auto-retailing peers. The largest used-car dealer, CarMax (KMX), did five-times Carvana’s revenue in the latest year, and earned more than twice as much as the unprofitable Carvana lost. Yet CarMax’s $77 stock price gives it a smaller market value of $13 billion.
Carvana’s many fans consider it the Amazon.com of car retailing, a surging e-commerce business that’s not comparable to bricks-and-mortar rivals like CarMax. Since 2013, Carvana has let shoppers see, finance, and purchase a wide selection of used cars online. There’s no price-haggling and no salesperson in your face. With its own trucking system to move its supply of cars around the country, the company delivers the car to your door or lets you pick it up at one of its glass-tower “car vending machines,” a frequent sight in cable-TV ads.
“We have more than doubled our revenue six years in a row,” says Carvana’s CEO, Ernest Garcia III. “In 2019 our differentiated supply chain enabled the fastest organic growth year of any automotive retailer in U.S. history.”
The coronavirus will test the Amazon-of-cars thesis, as rivals race to adopt Carvana’s online, so-called touchless sales model. At CarMax and AutoNation (AN), customers now can shop, buy, and make trade-ins from home. Result: Carvana is starting to look more like another used-car dealer than a new Amazon.
The industry, meanwhile, is getting crushed. With unemployment possibly headed above 25% , Covid-19 is likely to drive the biggest decline in used-car prices in history, says Morgan Stanley analyst Armintas Sinkevicius, a Carvana bear. A key index of used-car values fell by more than 10% over the past month or so—double the decline suffered in the 2008 financial crisis.
Carvana won’t report its March quarter until May 6, but dealers such as CarMax, AutoNation, and Group 1 Automotive (GPI) say sales fell by half after states told shoppers to stay home.
It’s true that no car dealer has expanded as quickly as Carvana. When the company came public in 2017, it had just finished a year with $365 million in revenue by selling some 19,000 used cars. It lost $85 million, or 23%, on those sales, as measured by earnings before interest, taxes, depreciation, and amortization, Carvana’s preferred metric. In 2019, revenue passed $3.9 billion from the sale of 177,000 cars. Negative Ebitda was bigger, too, at $230 million, but that represented only 6% of sales. By standard accounting, the net loss for 2019 was $351 million, or $2.29 a share.