Since the end of 2022, Carvana may be the best-performing share on the entire US stock market and has been the subject of repeated buy recommendations on Quentinvest. It illustrates how helpful a good imagination is for investors. In the final quarter of 2022, the shares fell to $3.5. The company was caught in what could have been a death spiral. The values of its US car stocks were plummeting while interest rate costs on the debt used to finance those cars were soaring.
The company explained both its problems and its strategy to overcome those problems and bounce back stronger than ever in its February 2023 letter to shareholders.
What happened in 2022?
Carvana, Letter to Shareholders, Q4 2022, 23 February 2023
The story of 2022 is straightforward: We came into the year positioned for growth, similar to what we had experienced in our prior nine years.After the pandemic, snarled automotive supply chains and historically rapidly rising interest rates combined to dramatically impact the affordability of used cars. Rising interest rates and market sentiment drove a significant shift in our priorities away from growth and toward profitability. This led to markedly lower volumes than we had positioned for and, as a result, we have been carrying excess costs.
What are we doing about it?
Inside the company, we are doing the most productive work we have ever done. We are adjusting to the lower level of volume that we believe meets our profitability objectives in this environment. We are implementing systems and new operational and management processes that make us more efficient across all areas of the business. And we are also making our cost structure more flexible so we can handle variations in volume relative to our expectations with less operational and financial impact on the business in the future.
Where are we going in the near term?
By the second quarter of 2023, we expect to complete an annualized SG&A reduction of over $1 billion compared to the first quarter of 2022. We expect GPU [gross profit per unit] to have troughed in Q4 2022 and to head back to levels over $4,000. We plan to manage the business to be able to achieve significant positive adjusted EBITDA at our current volume in the future. From a volume perspective, we are planning more conservatively in the near term than we have in past years and, therefore, expect the positive seasonality we usually see late in the first quarter and in the second quarter to be more muted this year than in prior years.
What does all this mean for the long-term prospects of the business?
We believe 2022 was a key year as it relates to our long-term potential. We were always planning to focus on reducing expenses. We are doing it faster now. While retail units sold decreased for the first time in our history this year, people still love buying cars online and love buying them from us. In our view this is unlikely to change and highly likely to grow in popularity over time. We believe extrapolating to much higher volumes than today is not difficult based on our results in our older markets, and with the incredible infrastructure that we have built and acquired, we expect to be able to operationally access those higher volumes more quickly and efficiently than in the past. And while the last year has been difficult for us, it has also been difficult for many others in the automotive industry. As a result, we believe our competitive differentiation has grown further. While progress is rarely linear, we remain on the path to changing the way people buy and sell cars and to becoming the largest and most profitable automotive retailer.
Management said what they intended to do, and they have delivered, and more.
The third quarter was another exceptional quarter for Carvana. We were once again the most profitable and fastest growing automotive retailer. And once again by significant margins. Our net income margin was 4.7%. This is more than 2x the industry average in the quarter. Our operating income and adjusted EBITDA margins were 9.8% and 11.3%, both about 2.5x the industry average in the quarter. In the quarter we grew units 44% year-over-year. This compares to the public dealer average in the quarter of approximately zero growth. Not only is this growth happening at the same time we are producing margins higher than have ever been reported by any other automotive retailer, but it is also happening at a very significant scale. This quarter we crossed over $20 billion annual revenue run rate for the first time, with revenue growth at 55%. Excitingly, we are achieving these results while we still have many areas of opportunity across the business. We still have fundamental gain opportunities in every revenue and cost line item with plans to systematically unlock them. We still have significant fixed cost leverage opportunities that we expect to achieve consistently over time as we grow. We are still investing in foundational capabilities that strengthen, differentiate, and further vertically integrate our business, deepening our competitive moats. We still have significant capacity for growth and positive feedback that we are investing in and unlocking now. We currently have inspection and reconditioning real estate capacity for our current goal of selling 3 million retail units annually and, by year end, we will have fully built out capacity for over 1.5 million retail units or 2.5x our current quarterly run rate. We are still adding inventory pools which reduces logistics costs and puts cars closer to more customers speeding up delivery times. We have now added production capabilities to 15 ADESA locations [car auction locations for selling to the trade cars that Carvana does not think are suitable for its retail customers] with plans to continue opening these centers at a similar pace over the next year. We are still small compared to our opportunity – just about 1.5% of the U.S. used car market and 1% of the total U.S. car market. We still compete in a highly fragmented market with a highly differentiated and difficult to replicate offering. We are still delivering the best experiences available to customers when buying or selling a car. And we are still relentlessly marching down the path to hitting our goal of selling 3 million cars per year at a 13.5%
Carvana, Letter to Shareholders, Q3 2025, 29 October 2025
adjusted EBITDA margin within 5 to 10 years.
The shares recently jumped, helped by the prospect of inclusion in the S&P 500 index, which brings in fresh institutional buyers of the shares. Prospects for the business look amazing, and based on experience, we should believe they will do what they are planning over the next few years.
Looking forward, we continue to see opportunities for fundamental gains in every line item. Opportunities that will make our customer experiences simpler and more fun, will make our costs lower. Our plan is to unlock these opportunities with the same discipline that has driven our success so far. Something that has always been true in the past remains true today and that we suspect will be true for a long time is that prioritizing our opportunities is the hardest part of making significant progress quickly. With constantly evolving technology, constantly evolving customer preferences and expectations, and an ambitious group of thoughtful people, new opportunities emerge faster than we are able to take advantage of the ones we previously saw.
With AI, this is more true today than it has ever been. The future is bright, selling 3,000,000 cars per year with a 13.5% adjusted EBITDA margin in five to ten years is very achievable. There’s a lot left to do, and there’s an excited team ready to do it. We will continue to aggressively pursue rapid progress, and we aren’t tired. The march continues.
Ernie Garcia, CEO and co-founder, Carvana, Q3 2025, 29 October 2025
In Q3 2025, Carvana sold approximately 151,000 cars, generating revenue of $5.65 billion [annualised over $20bn]. If we assume 3 million cars a year are sold, we get a revenue of approximately $100 billion a year. On margins of 13.5 per cent, that equates to $13.5bn of EBITDA (earnings before interest, tax, depreciation and amortisation).
Carvana is a company which generates a great deal of controversy. Ernie Garcia’s father is a major shareholder and served prison time for bank fraud; both Garcias have done major profitable trades in the shares, and there have been questions about the accounting practices.
These guys are in business to make money, and they are doing an incredible job of taking a growing share of the US used car market while making profits. Equally clear is that their customers love what they are doing. I see no reason not to buy these shares, which are delivering massive gains for ALL their shareholders.
Share Recommendations
Carvana. CVNA
Another good omen for the future is the growing financial strength of the business.
As previously noted, we currently carry many expenses that support retail unit sales capacity of over 1,000,000 units and expect our GAAP operating income to grow faster than adjusted EBITDA over time. In the third quarter, we took additional steps to further strengthen our balance sheet with a continued goal to drive toward investment-grade credit ratios. In Q3, we retired the remaining $559 million of our 2028 senior secured notes, primarily through proceeds from $539 million of equity issuance through our ATM program. Following quarter-end, we also retired $98 million of 2025 senior unsecured notes due October 2025, bringing our total quantum of corporate debt retired in 2024 and 2025 to $1.2 billion.
With more than $2.1 billion of cash on the balance sheet, our net debt to trailing twelve-month adjusted EBITDA ratio is now down to just 1.5 times, our strongest financial position ever. Our results through Q3 position us well for a strong finish to 2025. Looking toward the fourth quarter, we expect the following as long as the environment remains stable: retail units sold above 150,000 and adjusted EBITDA at or above the high end of our previously communicated range of $2 billion to $2.2 billion for the full year 2025. In conclusion, Q3 marked another outstanding quarter for Carvana.
We remain very excited about progressing toward our long-term plan of driving profitable growth, pursuing our goals of becoming the largest and most profitable auto retailer and buying and selling millions of cars.
Mark Jenkins, CFO, Carvana, Q3 2025, 29 October 2025
One day, Carvana will be so strong financially that it will be able to buy back its own shares and maybe pay dividends. There is no reason why it should stop at selling 3 million cars a year in a market with total sales of around 40 million units. It will also look at new profit streams by providing services to its car buyers, insurance, finance, repairs, software upgrades, who knows what form these might take.
It may also export its car-buying experience to adjacent countries. As it scales, it will become the big beast in its marketplace, and that can offer opportunities.
