Carvana stock rises after first annual profit: 'We're not breaking up'

Carvana (CVNA) stock rose as much as 40% on Friday after the used car platform reported its first-ever annual profit and issued better-than-expected guidance.

The results pushed the company's leadership to victory during Thursday's earnings call.

“It is very difficult for a group to go through a period like the last two years without disintegrating under pressure. We did not disintegrate,” Ernie Garcia, CEO and chairman of Carvana, told analysts.

In its latest results, Carvana It achieved a net income of $150 million for 2023, supported by gains in debt reduction.

For the current quarter, the company is guiding retail units to be slightly higher year-over-year and adjusted core earnings “well above $100 million.”

The results represent a turnaround for a company that was facing bankruptcy speculation in December 2022 and a stock price as low as $3.55.

On Friday, shares were hovering around $70 per share.

Over the past two years, the Tempe, Arizona-based company has focused aggressively on achieving profitability and restructuring its debt at the expense of near-term growth. Carvana, once a pandemic darling, has announced layoffs in 2022 to cut costs and conserve cash.

Short sellers have since piled into the stock. In the first half of 2023, shares rose 1,000% to more than $50 each, resulting in short sellers losing $2 billion.

On Friday, short interest remained just above 32% of the float, leaving stocks vulnerable to violent upward movements, or short squeezes, following positive news headlines.

“The pressure has been real for a while, though it ebbs and flows along with its share price,” Ihor Dusaniwski, managing director of S3 Partners, told Yahoo Finance on Friday.

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“If recent price strength continues, we should expect more short covering, helping to push the CVNA share price higher,” he added.

Introducing the world's first fully automatic coin-operated car vending machine, from Carvana.  (Photo: Business Wire)

Introducing the world's first fully automated coin-operated car vending machine from Carvana. (Business Wire) (Business Wire)

Following Carvana's results, Raymond James and William Blair analysts upgraded the stock to market perform and outperform, respectively.

Meanwhile, Jefferies analyst John Colantoni maintained an Underperform rating, acknowledging a “great start” to 2024 but noting that long-term visibility “remains low.” In 2023, Carvana sold 312,847 units, a decrease of 24% from the previous year.

“Guidance assumes that units sold remain weak, making it difficult to assess whether CVNA can maintain its recently elevated unit economics once it returns to growth, a risk that reduces visibility into long-term profitability and makes us cautious about the stock,” Colantoni and his team wrote. . . The analyst has a price target of $30 per share.

Carvana stock has two analyst recommendations to buy, 16 comments, and five recommendations to sell.

Correction: A previous version of this story misspelled the name of S3 Partners. We apologize for this error.

Ines is the chief business correspondent at Yahoo Finance. Follow her on X in @ines_ferre.

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