To The Moon

$Carvana Co.(CVNA)$ is scheduled to release fourth-quarter 2024 results on 19 Feb 2025 (Wednesday) after market close.

The market is looking at consensus estimate for the revenue to come in at $3.3 billion, and the consensus for earnings per share for the upcoming reporting quarter would be 31 cents. This is a significant improvement compared to the previous -1 EPS same period last year.

Carvana (CVNA) Last Positive Earnings Call Saw 37.63% Change Since

Carvana has a positive earnings call on 30 Oct 2024 and CVNA has given investors a 37.63% change since.

The earnings call reflects strong financial performance and growth, driven by operational efficiencies and strategic infrastructure investments. Despite challenges like seasonal demand fluctuations and inventory management, Carvana's robust market position and innovative strategies indicate a positive outlook.

Carvana (CVNA) Guidance To Focus On Operational Improvements

During Carvana's Q3 2024 earnings call, the company reported a record net income of $148 million, operating income of $337 million, and an adjusted EBITDA of $429 million, marking an adjusted EBITDA margin of 11.7%. Retail units sold increased by 34% year-over-year, reaching 108,651, while revenue grew by 32% to $3.655 billion. The record performance was attributed to fundamental operational improvements and strategic initiatives such as the integration of ADESA sites, which reduced shipping distances by 300 miles in certain markets. The company also highlighted substantial gains in non-GAAP retail GPU, which rose by $740 to $3,617, and non-GAAP other GPU, which increased by $377 to $2,945.

Despite achieving these milestones, Carvana plans to invest between $5 million and $10 million more in advertising in Q4 to further boost brand awareness and customer acquisition, while continuing to scale and optimize its inventory selection and operations.

Carvana's Q4 2024 earnings will hinge on several interconnected factors, both internal and external. In the following sections, we will look at the various factors in depth.

In the third-quarter 2024, Carvana achieved record net income of $148 million, operating income of $337 million, and an adjusted EBITDA of $429 million with an EBITDA margin of 11.7%, marking the most profitable quarter ever for public automotive retailers.

We also saw that retail units sold reached 108,651 in Q3, marking a 34% increase year-over-year. This growth is attributed to improved customer offerings, increased brand awareness, and enhanced inventory selection.

Macroeconomic Factors

But Carvana have been enjoying the Fed’s rate cuts in 2024 which help to lower financing costs, boosting demand for Carvana’s loans. However, if rates remain elevated as Fed has paused the last interest rate decision, affordability issues may persist.

Consumer Demand: Used car demand is typically lowest in Q4, and depreciation rates are highest, which could impact profitability. Carvana expects seasonality in retail GPU to be similar to pre-2022 averages.

Carvana has enjoyed the stabilizing used car prices and inventory levels (post-pandemic chip shortage) might normalize margins. Economic health in late 2024—consumer confidence, unemployment rates—will heavily influence discretionary spending.

Despite growth, Carvana's inventory levels remain below target, impacting potential sales and customer selection. Efforts to increase inventory are ongoing. This might carry over to the fourth-quarter.

Company-Specific Factors

In third-quarter, Carvana reported a $832 reduction in non-GAAP SG&A expense per retail unit sold, driven by operational efficiency initiatives, marking the sixth consecutive quarter with a new company record in retail GPU of $3,617.

Debt Management: Carvana’s progress in reducing its $5+ billion debt load (e.g., 2023 restructuring efforts) will be critical. Improved liquidity and cost-cutting (e.g., layoffs, facility closures) could enhance EBITDA.

Operational Efficiency: Metrics like GPU (Gross Profit per Unit) and SG&A costs in prior 2023 quarters will indicate whether efficiency gains are sustainable. Q3 2023’s reported EBITDA positivity suggests a potential turnaround.

Inventory Strategy: Balanced inventory levels (neither shortages nor gluts) and sourcing strategies (e.g., direct-to-consumer vs. auctions) will affect margins.

Carvana has built reconditioning infrastructure to support over 1 million retail units per year and has physical real estate to support over 3 million units, indicating strong potential for future growth.

Competitive Landscape

Rivals like Carmax and Vroom are also digitizing. Carvana’s differentiated offerings (vending machines, 7-day returns) and market-share gains (or losses) will be key to watch.

Market Sentiment & Analyst Views

Analysts are cautiously optimistic if Carvana maintains EBITDA profitability. Short interest remains high (~35% of float), reflecting skepticism about long-term viability.

Key Metrics Investors Should Look Out For Q4 2024

Investors should be looking out for :

1. Revenue Growth: Year-over-year trends in units sold and average selling price.

2. Profitability: Adjusted EBITDA margins and net income/loss.

3. Liquidity: Cash reserves and debt obligations.

4. Customer Acquisition: Website traffic, app downloads, and customer satisfaction scores.

We also need to understand the risks that could derail Carvana, the talks of recession fears are slowly creeping back as we are seeing inflation data suggesting that it is still high, so a downturn could crater demand.

Another challenge that Carvana might face us the debt defaults, Carvana’s high interest expenses ($600M annually) remain a burden. Not forgetting the regulatory risk that scrutiny of online sales practices or loan underwriting will be affecting Carvana also.

Technical Analysis - Exponential Moving Average (EMA)

Even though we are seeing some challenges for Carvana as used car demand might decline in the four-quarter 2024, and the debt burden while interest rate have not gone down, this might be a burden to Carvana in servicing this debt.

On the technicals, we are seeing that CVNA is doing pretty well, with RSI momentum strong currently at overbought region, some investors might take it as a SELL signal, but I would think this is the momentum of buying, as CVNA is trading above the 12-EMA, and this has been running for quite a long period.

We should be seeing some volatility trading on 18 Feb 2024 before CVNA earnings, but I would think momentum might pick up if CVNA earnings could pose a surprise.

Summary

Carvana’s Q4 2024 earnings could surprise positively if macroeconomic conditions (rates, demand) align with its cost-cutting progress.

However, significant risks around debt and competition persist. Investors should monitor management’s guidance and pre-earnings analyst revisions for clearer signals.

I might adopt a "wait-and-see" approach.

Appreciate if you could share your thoughts in the comment section whether you think CVNA could provide an earnings surprise.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.