Carvana Falls 4% on Wider-Than-Expected Q4 Loss, $2.2B Acquisition Deal

Online car retailer Carvana Co. (NYSE: CVNA) has signed an agreement to acquire the U.S. physical auction business of wholesale vehicle auction solutions provider ADESA for $2.2 billion in cash.

ADESA, which is a subsidiary of Indiana-based digital automotive wholesale solutions firm KAR Auction Services (NYSE: KAR), has 56 sites and a team of 4,500 employees. Last year, ADESA U.S. facilitated over a million transactions, totaling around 6.5 million square feet of buildings on more than 4,000 acres of land.

Last year, ADESA U.S. reported revenue and EBITDA of $800 million and $100 million, respectively.

Commenting on the deal, the Founder and CEO of Carvana, Ernie Garcia, said, “Together with Carvana’s existing operations, ADESA U.S.’s nationwide infrastructure network and robust, highly profitable business will accelerate Carvana’s progress toward becoming the largest and most profitable automotive retailer.”

“Over time, we will leverage our combined infrastructure and complementary expertise to deliver even better selection, better value, and faster delivery times to our retail customers while simultaneously raising the bar and providing more access and better experiences to our wholesale customers,” Garcia added.

John Hammer, the President of ADESA, said, “We look forward to bringing our innovative teams together and combining the power of our physical auction and retail capabilities to better serve buyers, sellers and consumers across the automotive industry.”

The acquisition will boost Carvana’s annual production by nearly two million units. Further, ADESA’s wholesale auction business and related services will continue to operate under the ADESA brand after the completion of the acquisition.

Q4 Results

Meanwhile, the company also announced its financial results for the fourth quarter of 2021.

Net loss came in at $1.02 per share, wider than the year-ago loss of $0.87 per share and the Street’s loss estimate of $0.82 per share.

Revenue more than doubled to $3.75 billion, exceeding analysts’ expectations of $3.52 billion.

The number of retail units sold jumped 57% year-over-year to 113,016.

Commenting on the results, Garcia said, “2021 was a year full of meaningful milestones. We sold our one-millionth car, achieved our first positive earnings quarter, and became the fastest growing e-commerce company in U.S. history.”

“The end of 2021 and the start of 2022 have come with more challenges for our team to face. The Omicron wave has impacted our supply chain deeply. We have seen the fastest increase in interest rates in recent memory, and we have seen historic vehicle price increases. These impacts will make for a challenging first quarter,” he added.

In full-year 2022, the company expects retail units sold to cross 550,000.

About Carvana

Headquartered in Arizona, Carvana is an e-commerce platform for buying and selling used cars. It operates patented, automated multi-story car vending machines for the delivery or pickup of vehicles.

CVNA stock closed nearly 11% up on Thursday. However, following the announcements, after the market closed, the stock lost 4% to end the day at $120.99.

Analysts’ Take

After the announcements were made, Stifel Nicolaus analyst Scott Devitt maintained a Buy rating on the stock with a price target of $180 (42.8% upside potential).

Additionally, Zachary Fadem from Wells Fargo (NYSE: WFC) reiterated a Buy rating on Carvana with a $200 price target (58.7% upside potential).

Based on 10 Buys and 4 Holds, the stock has a Moderate Buy consensus rating. The average Carvana price target of $270.91 implies 115% upside potential from current levels. Shares have lost 62.6% over the past six months.

Website Traffic

TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (NYSE: SEMR), the world’s biggest website usage monitoring service, offers insight into Carvana’s performance.

According to the tool, compared to the previous year, Carvana’s website traffic registered a 5.1% rise in global visits year-to-date.

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