The Amazon of used cars gets a balance sheet tune-up

{"text":[[{"start":4.56,"text":"What made Amazon the giant it is today? Not just a snazzy website, but an ultra capital-intensive supply chain that took decades to build out, something impossible for most retail rivals to replicate."}],[{"start":18.28,"text":"Used-car seller Carvana was once favourably compared with Jeff Bezos’ retail colossus. A nifty online sales model, plus a supply of cheap capital, funded its rise in the late 2010s. But the comparison hit a speed bump. Carvana nearly went bankrupt in 2022. It survived only after tense renegotiations with hedge funds that owned its debt."}],[{"start":41.64,"text":"Today, the company looks to be back on course. Its market capitalisation of $80bn compares with just $5bn of debt, equivalent to one year’s ebitda. On Wednesday, Carvana secured a $1.6bn loan initially yielding just above 6 per cent, which will help pay off a bond with a 9 per cent coupon. The savings could be worth $1bn in present value, Lex calculates based on the company’s current price-to-earnings multiple."}],[{"start":null,"text":"

"}],[{"start":69.68,"text":"In investment, too, chief executive Ernie Garcia seems to have returned to the Amazon trail. Carvana has invested heavily in warehouses and car reconditioning centres, key to a goal of supplying 3mn of the 40mn used cars Americans buy each year. The company’s infrastructure currently suffices for about half of this target. Positive free cash flow — nearly $250mn in the first half of the year — should help."}],[{"start":96.2,"text":"Respectability is also perhaps on the horizon. The company has long been a target of short sellers, drawn by the founding Garcia family’s web of affiliated car businesses, tight control and stock sales. But the portion of the company’s stock sold short by investors betting on it going down has fallen from 29 per cent in 2023 to just 6.5 per cent now, according to LSEG."}],[{"start":119.64,"text":"The way Carvana makes its money remains pretty complex. It finances customers’ auto purchases in many cases, and then sells on packages of loans in the form of securitisations. Those bundles generate gains that are tacked on to the company’s measure of gross profit, which now exceeds $7,000 per vehicle."}],[{"start":137.52,"text":"Its investment is paying off in more straightforward ways, though. An ebitda margin of about 10 per cent that is the best in auto retailing. The favourable pricing on its new loan is another encouraging sign. Carvana is still a long way behind Amazon when it comes to justifying huge, multiyear investments, but as imitators go, it is once again a credible one."}],[{"start":165.39,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1786588301_9865.mp3"}