Carvana (CVNA) reported record Q3 revenue of $5.6B but missed earnings expectations at $1.03 per share versus $1.30 expected.
Carvana’s loan portfolio is 44% nonprime borrowers and its 60-day prime delinquencies are four times the industry average.
Subprime auto loan delinquencies hit 6.5% in September, the highest for that month in 30 years.
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Carvana (NYSE:CVNA) released its third-quarter earnings report last week, revealing record revenue of $5.6 billion, up 55% year-over-year, driven by 155,941 retail units sold, a 44% increase. However, the company posted earnings of $1.03 per share, missing analyst expectations of $1.30, amid concerns over subprime loan performance and operational costs.
The market reacted sharply, selling off shares by as much as 17%, though the stock has since bounced 8% higher from its post-earnings low. Despite the stock remaining below the pre-report price, analysts maintain a buy rating, with a consensus price target around $415 per share, suggesting 26% upside. But with rising auto loan delinquencies and broader market pressures, is Carvana really in trouble?
CarMax (NYSE:KMX) recently highlighted the challenges in the used-car sector with its own preliminary Q3 results, which triggered a 23% stock drop, alongside the abrupt departure of its CEO. The company cited weak sales and rising loan provisions, attributing issues to deteriorating auto market factors like high interest rates and softening consumer demand, beyond its internal operations.
This echoes broader industry struggles, where flat auto loan balances at $1.66 trillion persist despite higher unit sales, due to more cash deals and lower vehicle prices.
Auto loan delinquencies are also on the rise, signaling potential stress for lenders like Carvana. According to analysts at Wolf Street, 60-day delinquencies for subprime auto loans hit 6.5% in September, the highest ever for that month in the last 30 years, up from 6.12% a year ago. Overall, the 60-plus-day rate for all auto loans held at 1.57%.
The New York Federal Reserve further reported a flow into serious delinquency of 90 days or more of 2.99% for auto loans in Q3, up from 2.90% a year earlier, amid total household debt reaching $18.59 trillion. These trends reflect growing consumer burdens from high rates and stagnant balances.
