Interesting print for CVNA. When we outlined our bear case in our CVNA Black Book last week (link below), we noted that this quarter was not our catalyst, and specifically said in our preview this weekend that we “would be very surprised if CVNA does not put-up numbers that are optically strong”. The quarter itself is actually worse than we would have thought, though it looks like some of the onetime upside we expected has shifted into 1H24, though the company not flagging 1-time help in 1Q. For this quarter EBITDA barely beat, CVNA missed on revenue and units sold, and management guided roughly 9% below the street for full year 2024 EBITDA. Units sold got less bad, at -12.5% vs -21% a quarter earlier, but given the easy compares, used units per market were slowed just over 200bps on a 2 year basis. This is supposed to be a growth company headed to 1mm units sold per year (over 3x where it sits today) to drive cost leverage, not shrinking to short term ‘profitability’. On the positive side gross profit per unit came in well ahead (albeit with units missing), as the company is looks to be holding pricing and margins as of 4Q, and there looks to be upside to 1Q, perhaps with some benefit from 2,800 cars from Vroom (thought management stated no material benefit from it). Despite the quarter being ahead, cash balance went down and net debt went up $359mm, now at 5.45bn. Don’t forget the company has about $700mm left on it’s at-the-market stock offering, which looks ready to fire with that aftermarket stock reaction. The 1Q guide certainly looks net bullish, units are about inline with what we expected, but EBITDA is well ahead. Though at the same time the one time loan sale benefit looks to be shifting into 1H24, so we’re not sure how much of the 1Q EBITDA upside will be recurring profit performance vs one time help. There is a lot of noise in how CVNA presents its non-GAAP GPU and profit metrics, and we’ll plan to do a teardown of the 10-K to see what if anything has changed as it relates to our Bear thesis, but from what we can tell so far, the print looks to be in support of our Base case on fundamentals, which got us to an enterprise value comfortably covering the debt load, but not leaving much more than a single digit stock on the equity side. Within our model we are getting less bearish on near term pricing on gross profit per unit, taking up our EBITDA for 2024 by ~$100mm, we still build to a single digit stock over a TAIL duration.
For our Best Idea Short Black Book on CVNA CLICK HERE
