Carvana (NYSE: CVNA) stock is up 33% this morning premarket on the back of a prediction about a Q2 profit to come. This is perhaps less than it is being taken as. For the prediction - promise perhaps - is of an adjusted profit in Q2. And given the adjustments that people might make that might mean anything at all - and it almost certainly doesn't mean a net profit. For if they were to be predicting a net profit then that is, indeed what they would be predicting.
Still, we mustn't be too cynical as given the recent performance even an adjusted profit would be a nice surprise.
Carvana stock price from NASDAQThe Qi results were better than many had expected: yes the 25.4% revenue decline was better than analyst expectations. Sales of 25% fewer units meant they were no longer chasing - at a loss - marginal business which, given those past results, was a sensible enough move. Sadly though they still make much of their gross margin per unit. Which isn't really what we want to know - what's either gross or net margins either compared to overheads or after them?
But it's the predictions for Q2 that we might want to be a bit more wary of. Yes, it's for a profit, but only a “Company expects to achieve positive adjusted EBITDA in second quarter 2023”. And the problem there is that EBITDA is a pretty odd measure itself - before interest, depreciation and so on and so really not reflective of the full costs of being in business at all. Then an adjusted version of that, well, adjustments could be anything at all - although they do have to explain them to us.
Yes, it's true, Carvana's future is looking brighter than it was. But how much brighter? The really big issue here though is whether the used car business is ever going to be anything other than a local business. At the very highest levels then it becomes regional, possibly even national (for very rare or supercars perhaps). But the bread and butter trade of turning over 3 and 5 year old SUVs? If that never does rise up above a roughly city sized market then what would be the point of having a national company like Carvana trying to run it?
That is, Carvana might have operational and financial problems but it still does face that conceptual one.