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Carvana stock surges 30% in after-hours; Here’s why

Carvana stock surges 30% in after-hours; Here's why
Elmaz Sabovic

Carvana (NYSE: CVNA) turned the tide on its recent challenges. Previously, it grappled with declining sold vehicles and a surplus of used cars, raising concerns about potential bankruptcy in 2022.

However, restructuring and strategic adjustments have paid off. In Q1, Carvana avoided losses and turned a profit, surprising investors

This success was reflected in a remarkable 32.54% surge in CVNA stock during the premarket, propelling Carvana shares from $87.09 to $116.15 valuation following the release of its Q1 earnings report.

CVNA stock surge in the pre-market. Source: Google Finance
CVNA stock surge in the pre-market. Source: Google Finance

Positive results caught analysts off guard

Carvana’s first-quarter performance was nothing short of impressive. The company surpassed estimates with earnings per share of $0.23 and revenue of $3.06 billion. The most striking improvement was the company’s net income, which reached a record $49 million, a significant leap from the $286 million loss in the same period last year. 

Carvana’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also hit an all-time high of $235 million, compared to a $24 million loss a year earlier, painting a promising picture for the company’s future.

Investors closely monitor Carvana’s gross profit per unit (GPU), which stood at $6,432 in the quarter. The adjusted EBITDA profit margin reached 7.7%. CEO Ernie Garcia III attributed the outstanding results to efficiency improvements in operations, particularly in vehicle reconditioning and selling, general, and administrative expenses.

The future looks promising for Carvana

Carvana aims to further boost profitability by cutting costs and improving efficiency, particularly in advertising, overhead, and operational expenses. 

CEO Ernie Garcia III highlighted the company’s efforts to enhance vehicle reconditioning and rebuild its inventory, which hit a near all-time low of 13 days’ supply in March. Over the past year, Carvana has increased its reconditioning capacity by approximately 60%.

Garcia emphasized the challenges in scaling reconditioning capacity compared to acquiring inventory but expressed confidence in the company’s ability to address inventory shortages.

 This comes after a significant restructuring over the past two years, shifting focus from growth to profitability following concerns of bankruptcy in 2022. This led to a substantial decline in Carvana’s stock value, which has since recovered, with an impressive 78.21% growth YTD.

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