Carvana Co. (NYSE: CVNA), the popular online car retailer, experienced an unprecedented surge on Thursday as its shares rallied by an astounding 56% in a single day—a historic milestone for the company. This significant boost comes in response to Carvana’s recent update on its financial outlook.
The company’s latest announcement revealed its expectation to achieve adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) surpassing $50 million in the second quarter of 2023. Although Carvana had previously signaled positive adjusted earnings for Q2 but hadn’t specified an exact amount.
Moreover, Carvana is also expecting its non-GAAP total gross profit per unit to surpass $6,000. This signifies a momentous accomplishment and a remarkable improvement of over 63% compared to the same quarter in the previous year.
CEO Ernie Garcia expressed his satisfaction with the team’s unwavering dedication while saying, “The team’s persistent focus on driving profitability has resulted in significant savings and efficiencies, and this work will persist as we continue to execute our plan.”
Carvana’s shares have experienced a remarkable year-to-date increase of 425%. This surge is reminiscent of the viral “meme craze” seen during the pandemic era.
However, this surge has put significant pressure on short sellers who bet against the company’s stock. When Carvana’s stock rises rapidly, these short sellers are compelled to cover their positions by purchasing the stock. This creates what’s called a short squeeze.
Notably, Carvana faced significant challenges during the pandemic, including layoffs and concerns about potential bankruptcy. However, the company’s decisive actions to reduce costs and preserve cash have evidently contributed to its recent success.
Douglas Arthur, the managing director at Huber Research Partners, had previously expressed concerns about Carvana’s financial situation. He told Yahoo Finance earlier this year, “The equity market is largely shut off, and the bond market is largely shut off, so where is the money going to come from if they run out of money?”
However, Carvana’s exceptional rally demonstrates that it has successfully navigated these hurdles.
On Thursday, Carvana’s shares closed at $24.23 each, reflecting the substantial surge in investor confidence and market value following the positive outlook update.