Carvana Co (CVNA): Investor Discussion
Carvana Co. - Ordinary Shares - Class A
Consumer, Finance/Real Estate, Industrial/Transportation, TMT, Credit
05/31/2022
Presented
| Date | 05/25/2022 |
| Price | $30.96 |
| Market Cap | $3.27B |
| Ent Value | $16.51B |
| P/E Ratio | N/A |
| Book Value | $0.89 |
| Div Yield | 0% |
| Shares O/S | 105.74M |
| Ave Daily Vol | 9,122,797 |
| Short Int | 50.48% |
Current
| Price | $192.02 |
| Market Cap | $23.78B |
| Carvana Co. is a holding company and an eCommerce platform, engages in the buying of used cars and provision of different and convenient car buying experiences. It operates through the following segments: Vehicle Sales, Wholesale Vehicle Sales, and Other Sales and Revenue. The Vehicle Sales segment consists of used vehicle sales to customers through its website. The Wholesale Vehicle Sales segment consists of the proceeds from vehicles sold to wholesalers. The Other Sales and Revenue segment consists of sales of automotive finance receivables originated and sold to third parties. The company was founded by Ernest Garcia, III, Benjamin Huston and Ryan Keeton in 2012 and is headquartered in Tempe, AZ. |
On May 25, 2022, DeMatteo Research hosted a discussion on Carvana Co (CVNA) with six investors. The participants varied in terms of their outlooks (bullish, bearish, neutral), as well as by specialty (credit, equity). Topics discussed include the risk of a liquidity crunch, unit economics, the financing business & credit risk, the recent debt raise, CVNA’s ADESA acquisition, and the participants’ outlooks and KPIs going forward.
Publicly traded companies mentioned herein: Apollo Global Management Inc (APO), CarMax Inc (KMX), Carvana Co (CVNA), Peloton Interactive Inc (PTON)
Liquidity
There is a common bear thesis that CVNA’s ongoing cash burn will create a liquidity crunch. A neutral participant explains that this bear thesis was magnified by CVNA’s $800MM of cash burn in Q1’22. Bears argue that if the cash burn doesn’t decrease materially, CVNA should run out of money in late 2023 – early 2024. While this is less of a short-term concern, he reasons that the market should price this risk in today if the probability is high. CVNA has already gone through great lengths to raise capital through high-cost debt in addition to an equity offering that is down significantly from the initial price. This makes him question whether CVNA will find financing if it is still burning cash to that extent in 18 months. Therefore, his biggest question is how CVNA can bridge the liquidity today to 1.5 – 2 years from now. He understands that the cash burn rate should decrease from Q1 since that was likely the peak of SG&A spend and CVNA will start to rationalize facilities. However, the company has a lot of inventory, the inventory is aging, and used car prices will likely decrease over the next 12 – 18 months meaning the spread on metal margins should be moving in the wrong direction. He acknowledges that the financing business could improve slightly from Q1 since the company hadn’t fully repriced to reflect the magnitude of interest rate hikes, but he doesn’t expect that to fully solve the problem and therefore wonders how other investors bridge that gap.
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