Silicon Valley Invades The Used Cars Market
Even tech’s red-headed stepchild such as Carvana is making money in Bidenflationary times showing the deep momentum of the tech sector in early 2024.
Tech stocks are hot and Carvana (CVNA) is joining in on the action.
The Nasdaq has ignited early this year rallying around the hype of AI.
In turn, investors are coming off the sidelines to pour money into tech stocks and that has also had a strong effect on the lower tranche of tech firms like Carvana.
Carvana sells used cars on a digital platform. They charge a commission for this service.
The business model poorly scaled and incurs high costs yet they were able to turn their first profit in the history of the company.
They also forecasted core current-quarter profit "significantly above" $100 million helped in part by cutting costs.
To strengthen its balance sheet and attain positive cash flow, Carvana has been trimming inventory and slashing advertising and other expenses.
The company became popular during the healthcare pandemic, as people opted for readily available used cars instead of buying newer vehicles, which were in short supply due to a global chip crunch.
Carvana said it expects retail units sold in the first quarter of 2024 to be "slightly up" from last year.
Carvana said it expects first-quarter retail gross profit per unit to be similar to the fourth quarter, with an upside potential.
It reported retail gross profit per unit of $2,812, representing a nearly seven-fold increase from the fourth quarter of 2022.
Carvana also said it expects to reduce expenses per retail unit sold from the $5,769 it reported in the fourth quarter, on a sequential basis.
The company reported net income of $450 million for the year 2023. It had reported a loss of $1.59 billion in 2022.
The company’s gross profit per unit rose to more than $5,500 from $3,022 in 2022.
The online car seller has lowered costs in recent quarters and restructured some debt to lower interest payments. Carvana has sought to regain its financial footing and resume growing after an ill-fated expansion several years ago.
Carvana offers a unique insight into the health of the American economy.
The US is a car-reliant country and car costs are one unavoidable input. Good news for CVNA.
The accelerating profit in used cars shows the impact of Bidenflation and increase in goods which has led to many tech firms reporting profits like Uber.
If the price of cars sold continues to increase, the future augurs well for Carvana.
I fully expect inflation to stay sticky for many types of goods in the US economy and used cars are one of them.
I fully believe an ample volume of supply won’t be dumped in the car market because consumers know they’ll have to pay a higher price for something similar.
This won’t reverse anytime soon.
Carvana is poised to be a serious tech player selling a product that will likely see increasing prices for the short to medium term.
Carvana would be a great buy the dip candidates on big dips of 10 or 20%.
