Carvana: The Cash Incinerator

May 09, 2019 3:22 PM ETCarvana Co. (CVNA)54 Comments
Bill Maurer profile picture
Bill Maurer


  • Loss surges despite sharp revenue rise.
  • Cash burn skyrockets further.
  • Share count continues to jump.

Last month, I detailed how auto retailer Carvana (NYSE:CVNA) was quickly becoming a short seller's dream. Between massive losses, huge cash burn, and increasing dilution, investors looking at this name should be very skeptical. After the company's Q1 earnings report on Wednesday, the story only seemed to get worse with the stock at new highs.

For the period, the company announced revenues of $755 million. Not only did this represent growth of 110% over the prior year period, but it smashed analyst estimates by nearly $40 million. Unfortunately, that growth came with much larger than expected expenses, as the company on a non-GAAP basis missed estimates by a nickel, reporting an adjusted loss of $0.53 per share.

When we look at the income statement on a GAAP basis, the numbers are even more staggering. Despite that huge revenue jump, the net loss also soared from $52.7 million to $82.6 million. After subtracting out those losses attributable to non-controlling interests, the net loss attributable to Carvana nearly tripled from $9.8 million to $28.5 million. On a per share basis, the loss doesn't appear to be that much greater, but that's because the diluted share count used for calculating losses per share more than doubled over the prior year period! That's the only good thing about dilution.

As I detailed in my previous article, investors are facing a substantial amount of dilution. Between stock-based compensation and the conversion of Class B shares, the number of Class A shares (the ones trading in the market) have skyrocketed as seen in the chart below. In the three months between major filings, the Class A count jumped by another 7% plus, and there are still over 101 million Class B shares outstanding that could be converted.

(Source: Quarterly and annual filings, seen here)

The biggest

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Bill Maurer profile picture
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

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