One company, in less than a year and a half, the share price has doubled six times, and then fell 99% from its highest point. However, after the stock experience such a “roller coaster”, can actually “Dongshan again”, in 2023 there was an exponential level rise again, from December 2022 reached the historical lowest price of $3.55 jumped to the highest price of $57.19 in July 2023, an increase of 1511%.

This company is Carvana, a used car retail company.

Is the stock price rising, is it hype or is it really powerful? Let's take a closer look!

Online used car platform to subvert the traditional sales model

Carvana Co. Founded in 2012 and headquartered in Arizona, it is an e-commerce platform to buy and sell used cars. Its online business model covers every aspect of used car retail, through the company's platform, consumers can buy, finance and trade-in vehicles online. According to statistics, consumers can complete the purchase of a car in as fast as 11 minutes.

Carvana's mission is to change the way people buy cars. Customers do not need to bargain with sales staff, customers in some areas can also choose to pick up the cart at vending machines. It can be said that Carvana has changed the traditional way used cars are sold in many ways, enhancing the customer buying experience.

Unique brand highlight: “Vending machine”

I believe that some people have seen and even personally mentioned the car in Carvana's car vending machines. The experience should be much more interesting than buying drinks from vending machines. Carvana Car Vending Machine is the world's first fully automatic, coin-operated car vending machine. It looks like this:

Take Carvana's car vending machine in Nashville, for example, it looks like a beautifully designed glass building that includes a welcome center, a five-story glass tower for 20 cars, three customer delivery areas, and an automated delivery system that moves a customer's vehicle from tower to every Parking area. When picking up, the customer chooses his name from the self-service terminal inside the vending machine and inserts Carvana's coin into the coin slot where the car is automatically retrieved from the tower and moves through the machine to the delivery area.

You think it's over? And there is no. Carvana also offers each customer a personalized video showcasing their unique vending machine experience that they can then share on social media. So, as a brand highlight, Carvana's car vending machines really create an unforgettable pick up experience for customers.

2020-2022: Behind the fluctuations in stock prices

Share price “crazy”:Analysts at Nasdaq mentioned that Carvana's sales model eliminates many of the hassles of processes many Americans don't like, so with a simple and convenient way to sell across the country, achieving three-digit revenue growth for 23 consecutive quarters.The coronavirus caused increased demand and chip shortages to limit new car manufacturing, and used car prices soared, and sales surged again in 2021.

Share price “crazy down”:According to Nasdaq's analysis, the decline in used car prices in 2022 caused Carvana to hit the company, as it made used car inventory no longer valuable. At the same time, Carvana acquired the auto auction business ADESA company untimely: in the second-hand car market downturn, Carvana loans more than $3 billion to complete the deal. Woe is not a single line, it coincides with the FedThe strongest interest rate hike in history, The rapid rising interest rates not only made buying a car more difficult, but also exacerbated Carvana's dilemma. As a result, Carvana shares went lower, from a brilliant growth “nova” to a company on the verge of bankruptcy by the end of 2022.

2023: From the verge of bankruptcy to “get a new life”?

Carvana continues to be blocked by short stunners due to “insolvent”. The normal short interest rate floating in the 1%-4% range once surged to 12.8% at the end of 2021, indicating strong pessimism on stocks.

So, what is the reason for Carvana's recent rise again? The Motley Fool states that the following are possible factors for stock price reversal:

1. At this time Carvana stock price has fallen more than 90% from the peak, the price is already very cheap;

2. In the Consumer Price Index, used car prices rebounded, and data rose nearly 9% from April to June, favoring Carvana to improve inventory;

3. The Fed's rate hike slowed, positive for consumers and Carvana;

4. Carvana's business showed signs of a clear improvement, with the adjusted EBITDA at least $50 million in the second quarter.

Among them,“Business reversal” is the focus of the market. Zuck's report argues that the company achieved a previously announced $1 billion SG&A reduction plan in the first quarter of 2023, and a positive growth after adjusting EBITDA in the second quarter, triggered optimism in the market.

Traders closed their bearish bets as two-quarter earnings were higher than Wall Street expectations, according to Reuters.

Future Opportunities and Risks

Carvana's business situation has just been mentioned, but investors may be more concerned about:Is profit sustainable?

Bloomberg Intelligence's study of Carvana pointed out that in response to possible economic downturns, Carvana is implementing a stricter approach to purchasing and selling used cars to increase profitability.

On the one hand, we see the results of the company's efforts: Carvana achieved lower sales and management expenses (SG&A) by rationalizing operating costs and reducing debt during periods of less volume in the market. But on the other hand, the company's sales are not optimistic. As of mid-2023, sales volume has fallen for four consecutive quarters, with an annualized retail sales rate of only 310,000 vehicles and far from the target of 2 million.

In addition, EBITDA may reappear losses in the third quarter, according to forecasts from Bloomberg and Zuck. Carvana has not yet achieved annual earnings since its listing in 2017, and the sustainability of future earnings is yet to be confirmed.

Finally, Carvana's debt problem solved?

The Zuck report showed that Carvana had a long-term debt of $65.33 million as of March 31, 2023, while cash and cash equivalents were only $488 million. Bloomberg Intelligence news said that Carvana's creditors have finally reached an agreement in July 2023 after long-term negotiations with the company: asset managers will agree to reduce outstanding debt by $1.2 billion. In addition, Carvana will raise at least $350 million in new equity.This means that Carvana's probabilistic decision will be “selective default” to restructuring the balance sheet. “This transaction has significantly increased our financial flexibility by reducing our total debt, extending maturity dates and reducing short-term cash interest expense,” said Mark Jenkins, Chief Financial Officer of Carvana. We will continue to execute the plan for boosting profitability and recovery growth”.