Carvana’s stock price dropped after the online used-car retailer reported fourth-quarter profits that fell short of expectations. The miss was attributed to costs that climbed higher than anticipated, signaling some growing pains as the company continues its rapid expansion.
The company’s adjusted earnings fell below the average analyst forecast. According to its statement, increased non-vehicle expenses and higher depreciation were key factors. This came despite a significant 43% jump in car sales for the period.
To fuel its growth, Carvana has been aggressively purchasing vehicles, expanding its reconditioning network, and acquiring new-car dealerships. While these moves have maintained a fast sales pace, they also put pressure on margins, which fell by a percentage point compared to the previous year. The profit made on each retail vehicle sold dropped, partly due to higher-than-expected costs for reconditioning cars.
The company’s shares fell sharply when markets opened, paring losses later in the morning. Analysts noted that controlling these costs is crucial for a company that needs to acquire more inventory to sustain its expansion. Carvana also significantly increased its advertising spending to raise brand awareness.
In a call with analysts, the company’s co-founder and CEO acknowledged that rapid growth can sometimes lead to “a little backsliding.” He emphasized that Carvana will continue to invest, with plans to add reconditioning capacity and build new vehicle repair facilities in the coming year.
Despite the current margin pressure, the company’s leadership remains focused on expansion, expecting sales and earnings to continue growing this year. The quarter’s retail sales hit a record, aided by investments in advertising and online sales tools.
