Ca$htag$: CVNA Selloff Creates Opportunity

Network. I'm Nicole Petallides alongside Tom white. And it's time for cash. And for that we bring in Megan Brantley, VP of research at like folio, to take a look at Carvana, which we. I can't wait to hear your data. I know they had some record numbers. They've had ten consecutive quarters of growth, but the guidance was a little light. I want to hear what some of the data you have there at like folio. Please share. Yes. As we watch this report come in, we saw, you know, cars sold increase by about 38% year over year. I think revenue grew by 52% year over year. But some of that growth is coming at a cost. We saw, you know, increased costs in advertising, some increase in operating expenses, fuel, logistics, things like that. And that seemed to weigh on the stock. But what we really focus on at like folio is what the consumer is doing, where the consumer is changing behavior long term. And it increasingly looks like the consumer continues to pick Carvana at a quicker rate. And whenever we look at Carvana versus peers, we use CarMax, even though, traditionally speaking, CarMax has been the larger player and still is the larger player in this space. But you can see that gap is shrinking and these are web visits. And this is really helpful for us because Carvana is an online, online focused platform. And those visits are up by about 64% year over year versus CarMax at 9% year over year. We've seen a rising tide lifting both boats a bit when it comes to used car demand, because we do see a bit of a trade down effect in consumers who are maybe spooked by new car prices, they're willing to trade down into that used car market. And I just want to talk about this gap again in that Carvana versus the CarMax, just because I think this is really telling of behavior. And we've been tracking this for some time, and I will say in June is the first time in our data where we've actually shown higher traffic counts on a volume metric for Carvana versus CarMax. So we're starting to see a bit of a shift. We would expect Car Carvana to catch CarMax pretty quickly when it comes to overall unit sold. And so this is something on our radar where obviously this is resonating with the consumer. This was a stock that a lot of people really counted out just as recently as a couple of years ago. I think in 2022, there was a bankruptcy scare. And now, it has really changed its trajectory. It really seems to be resonating with that consumer and the overall buying experience. And so this is one that we're watching long term because we think that the stock was punished on this earnings reaction. And really in our data demand looks pretty strong. Yeah the demand is strong. The numbers were good Megan. But then that profitability metric was kind of lower than anticipated. You know, and that's always been the key for Carvana. I remember you guys talking about it repeatedly on a quarter by quarter basis that hey, they make so much more than what CarMax does per car use cars outsell new cars, almost 2 to 1 just due to the fact of price points at this point. Is that the caveat here moving forward, the ease for the customer, Megan, and you probably have good data on that, but also the amount of cars that are going to be sold, used as opposed to new just due to inflationary pressures. Right? Yeah. This seems to be an environment that works well for both the Carvana and CarMax. And it's helpful for us whenever we see this massive mindshare steal, whenever we see the piece of the pie for Carvana growing much quicker, continuing to accelerate versus key peers, that's a really important benchmark for us. And also when we look at that sentiment data, we can see consumers really enjoy the Carvana experience. They they like the process of being able to go online and check things out and see the price that they're going to get for their car to not have to haggle, to not have to go into a lot necessarily and make, make, interactions with a dealer or try to understand what the final ticket price is going to be whenever they buy that car. And so for us, when we see that sentiment rising alongside demand, especially when demand is rising at this clip, this team tends to be a really long term kind of bullish flag for us. And you can see on this chart that yellow line that you're watching, that's that consumer demand. And the dotted line is the stock price. So I think profit profitability obviously is something to watch. And you know the margins that Carvana can command for each unit they push. But for us that demand curve is just bending upwards. And it's also unlocking a new space. They've recently, you know, started to acquire these new car lots. And so I think that this is what they estimate a $1.3 trillion addressable market, that they're kind of just now dipping their toes into. So certainly a lot to watch from here moving forward. But for us, this does seem to have some tailwinds from just an overall market where more consumers are trading down and also the preferred experience whenever consumers are considering, okay, where do I want to buy a used car? If I am going to trade down more are turning to the Carvana and we think about the record sales that the company had over 197,000 units. They're talking about the path to selling 3 million cars per year and achieving 13.5% adjusted EBITDA margin by 2030 to 2035. You know, and we see the demand that's there. There seems to be somewhat of a disconnect too, because they have demand, they have interest, they have some big growth projections and the stock is to the downside. What other data may may support some of the volatility that we're seeing. I think really the the key thing that really hurt the stock this time was that the advertising cost. So how much the company is having to pay to win over that conversion increase. And also, you know, fuel costs went into the logistics side of things. So the, the margins that they were able to squeeze per unit decreased year over year. And so I think that this is something to watch moving forward. Also, we'll watch moving forward just the overall used car market at large. Right now we're in an environment where consumers are able to trade down. But if if this softens even more, at what point are consumers starting to pull back on some car prices, car purchases at large? So certainly something to watch in the economy at large. And also if I think when things start improving, do consumers start upselling into new cars. Is Carvana well positioned there. So a lot to suss out in the long term. But for us we feel like this looks like a winner. This is one of those instances where our demand data is heading in one direction and the stock is heading in the other. So long term, we think this opportunity gets more compelling as the stock falls. And it's interesting, Megan, too, because I'm just looking at a longer chart. Three years ago this was $5. So I know you know what I mean. So I think I think that's also some perspective. Three years ago this was $5 and it's $61 right now. So that's not terrible. And they continue to expand the customer service. I saw same day service. I mean it's like buying a broom on Instacart. I mean, it's like, let me get my car by this afternoon. You know, it's pretty amazing. Megan Brantley thank you, VP of research at like