For the online car platforms that have promised to bring kicking the tires firmly into the digital age, profitability has been volatile, sometimes elusive.
Inventory’s been lumpy, aging and — in the age of (still) high interest rates — tough to afford for many consumers, as the spate of recent earnings reports from the online platforms show.
Carvana’s presentation materials noted that the automobile market is a $1.2 trillion opportunity, with $840 billion in used car sales. As many as 86% of vehicle purchases have at least some digital research involved.
But for Carvana (and for others), the move to right-size inventory continues to be a journey. CEO Ernie Garcia noted on the conference call with analysts that from the beginning of 2018 through the first quarter of 2021, inventory grew by a 70% CAGR. Third-quarter results show that retail units were down by 21% in the quarter, to just under 81,000 units. Revenues were down 18% to $2.8 billion.
But in the midst of those declines, and as we noted in our own coverage of the quarter, management spotlighted positive EBIITDA (a rough measure of cash flow). The fourth quarter’s one of typical seasonality and lower industry-wide volume, said Garcia, and, along with higher industry-wide depreciation rates, will lead to lower EBITDA.
As Garcia noted on the call, looking ahead, “there’s been a ton of distortions in the market that have made things a little bit harder to kind of precisely forecast. Last year we saw rates going up quite a bit. In ‘21, we saw…prices going up quite a bit. So, I think it’s a little bit hard to know exactly what to expect out of seasonality.”
Marketplace revenue was $177.9 million, an increase of 8% year-over-year, as management noted on the call that the company ended the quarter with 13,562 transactions, down approximately 35% quarter-over-quarter.
And as noted here, new functionality allows dealers to present two types of offers to consumers who are considering selling their car. One offer includes the dealer picking up the vehicle at the seller’s home, while the other involves the seller taking the car to the dealer.
“As we progress toward an end-to-end transaction-enabled platform, we will have the ability to bundle a growing number of other products across the business and curate unique data insights,” CEO Jason Trevisan said. Guidance on the call projected that digital wholesale operations will remain unprofitable until market conditions and customer buying activity pick up. But, with cost cutting in the mix, the company expects positive EBITDA in the fourth quarter.
Vroom’s results noted an 11% sequential improvement in eCommerce units. Year-on-year eCommerce units sank 29% to roughly 4,560. Revenues, as measured year on year, slipped to $225.2 million, down from more than $235 million last year. Adjusted EBITDA was a negative $56.3 million, narrowing from negative EBITDA of $64.5 million.
CEO Tom Shortt said on the call that “results were negatively impacted by higher realized net losses and a negative mark-to-market of finance receivables originated in late 2022 and early 2023 at UACC due to unfavorable portfolio performance.”
The company has, as a result, changed its underwriting criteria. As for the age of the inventory, Shortt noted some improvement, stating on the call that “34% of our units sold were held greater than 180 days, compared to 80% in the second quarter, 77% in the first quarter, 75% in the fourth quarter of 2022, and 49% in the third quarter of 2022.” Moving forward, the company should see less than 20% of its fourth quarter mix to be from unaged units, and Short added that the company will look to raise capital to scale the business.
In discussing the performance of the automotive financing operations (UACC), Shortt said that the “sizable increase in interest rates had an adverse impact on UACC’s business. Used cars are less affordable and used car payments are at all-time highs. Our warehouse interest rates have increased approximately 500 basis points, increasing our cost of funds and compressing our spreads.” UACC is originating over 40% of Vroom customer loans, he said.