Smells like bad business
If you ever thought that building giant, used-vehicle vending machines would be a great business model, we have some bad news for you. Carvana, the online used-car dealership, saw its shares plummet 39% in trading on Friday after they announced slowing sales.
Driven down
Despite riding the hottest used-car market in recent history, Carvana has yet to prove that its business model really works.
Revenues grew at lightspeed to more than $3bn a quarter, but as the economy has turned, so too has Carvana’s fortune, with modestly falling sales translating into rapidly mounting losses. Inspection centers across the country, heavy advertising spend and the cost of picking up and delivering cars have made the economics of each Carvana sale razor-thin. Offering loans and other fees has helped, but ultimately hasn't been enough to get the company into the black.
Arguably most worrying for investors is that the company reported having just $316m of cash on its balance sheet. With quarterly losses at a similar level, investors have dumped the shares, and the 34 glass vending machine monoliths increasingly look like white elephants.
Once hailed by some as the ‘Amazon of car dealers’, Carvana’s crash has been — on a relative basis — perhaps the most aggressive of any company in the last few years. The shares have fallen some 97% from their peak, reportedly wiping ~$18bn from the combined wealth of the father-son partnership who are at the wheel.
