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  "documentTitle": "Carvana Co. (CVNA)",
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  "authorName": "Kerrisdale Capital",
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  "sourceTypeLabel": "Short seller",
  "presentationDate": "2023-06-15 00:00:00",
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  "notes": "This is a text-heavy research note page from Kerrisdale Capital analyzing Carvana's financial and operational health.",
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      "text": "In terms of profitability (or lack thereof), Carvana has historically made money selling used car loans at a premium while losing a tremendous amount selling used cars.",
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      "text": "EBITDA: -$1.1bn",
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      "text": "The used car market is large and fragmented. Though it represented the lowest mark in a decade, there were an estimated 36.2 million used vehicle transactions in 2022. As of 2021, the top 100 used car retailers collectively held 11% market share, with the largest commanding only 2.3%. The competitive landscape is crowded and brutally competitive, with legions of mom-and-pop dealers, well-funded public roll-ups like AutoNation, Lithia Motors and Asbury Automotive, and used car retailing pureplay CarMax viciously battling to eke out thin margins. While Carvana management tries to paint its peers as old-fashioned slow movers, the reality is that the industry is overrun not only by scrappy local players constantly sacrificing profit to guard market share, but also sophisticated multibillion dollar behemoths actively building out their own data analytics and software capabilities to adopt the most cutting-edge tech-enabled industry standards.",
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      "text": "Since inception, Carvana has never generated positive cash flow or operating profits on an annual basis. Carvana’s core operations and expansion has been fueled through low-cost borrowing, leveraging its balance sheet as it burns through cash.",
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      "text": "utilizing in-house logistics to deliver cars directly to customers. Customers in certain markets can also pick up their vehicle at one of Carvana’s 33 car vending machines – multi-story glass towers that store purchased vehicles – a silly marketing ploy emblematic of how the company lit investor capital on fire during the tech bubble.",
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      "text": "Carvana depends heavily on the sale of these finance receivable for a substantial portion of gross profit and EBITDA. In 2022, Carvana originated $7.2bn in finance receivables and booked $411m (33% of total gross profit) from gains on loan sales (included in other sales and revenues). In 2022, Carvana generated negative $1.1bn in EBITDA (incl. SBC). In Carvana’s best financial year, 2021, Carvana booked $711m (37% of total gross profit) from gains on loan sales while still posting negative EBITDA (incl SBC) of -$45m. There is relatively little cost associated with making and selling loans versus the advertising, customer service, nationwide logistics network, and corporate overhead associated with selling used cars. In terms of profitability (or lack thereof), Carvana has historically made money selling used car loans at a premium while losing a tremendous amount selling used cars.",
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      "text": "An important feature of Carvana’s business model is making loans directly to customers. While Carvana does offer 3rd party financing as an option, roughly 80% of customers use Carvana’s in-house financing. Carvana provides financing to customers of all types of credit, with no minimum credit score or credit history requirements. 99% of applicants who are 18 and have annual income of at least $10k are approved for financing in minutes. Carvana does not typically hold loans on its balance sheet and sells finance receivables in whole loans to financing partners (primarily Ally Financial) and through securitization transactions.",
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      "text": "The ADESA acquisition was consummated at the peak of the market in early 2022. As used car demand exceeded supply during the pandemic (with stimulus checks, rising home / equity wealth, and a temporary shift in wallet share towards local transportation driving demand, while",
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      "text": "In May 2022, Carvana completed the acquisition of the U.S.-based physical auction business of ADESA from KAR for $2.2bn in cash. In 2Q22 the company issued $3.275bn in 10.25% senior unsecured notes to finance the acquisition and for general corporate purposes. The ADESA acquisition added 56 auction locations with 6.5 million square feet of buildings on more than 4,000 acres of land, significantly expanding the company’s inspection and reconditioning capacity (3.2m units if fully built out) broadening geographic reach and improving logistics costs by shortening delivery distances. 2023 consensus estimates currently stand at 318k for retail units and 153k for wholesale units.",
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