Carvana's Accounting Is Misleading and Weird
Online used car retailer Carvana (NYSE: CVNA) is probably not the future of the used car industry. After demand and prices for vehicles boomed during the first two years of the pandemic, the market for used cars is now correcting hard. Carvana is seeing its sales volumes decline, and the gross profit it generates per vehicle has tumbled. Weighed down by a mountain of debt, the company may not survive.
I hadn't looked at Carvana's financial statements at all until a few months ago. I knew enough about the company before then to avoid the stock entirely. Car vending machines? Net losses even when demand for used cars was crazy? An extreme valuation at its peak? It was an easy pass for me. When I did finally take a look, though, there was one weird thing that stood out for me: The way Carvana calculates how much gross margin it generates from each car it sells at retail.
In the article linked to in the first paragraph, I briefly mentioned that Carvana's gross profit accounting seemed a bit off: "The way Carvana reports its gross profit per vehicle is a little strange," I wrote. Having chewed on it since then, I think it's not only a little strange, but also downright misleading.
Source Fool.com
