Carvana stock drops 15% as margin pressure offsets record Q2
Carvana shares tumbled after the online auto retailer's full-year earnings guidance fell short of analyst expectations, signaling that its aggressive expansion is weighing on near-term profitability.
Carvana shares plunged more than 15% after the company issued full-year earnings guidance of $2.7 billion to $3 billion, falling well short of Wall Street forecasts. The online auto retailer had just posted a record second quarter, but investors punished the stock as the forward outlook failed to keep pace with elevated analyst models.
The guidance gap was stark. Analysts at Deutsche Bank had forecast earnings between $3 billion and $3.2 billion, while Morgan Stanley modeled a much higher $4.45 billion. Carvana projects a relatively flat second half, expecting $1.3 billion to $1.6 billion in adjusted earnings during that period. This trajectory would still easily surpass its full-year 2025 record of $2.2 billion.
The underlying quarterly performance was strong by most measures. Carvana reported net income of $513 million, up $205 million year-over-year, while revenue hit $7.38 billion, beating LSEG estimates of $6.91 billion. Vehicle sales surged 38% to 197,325 units during the quarter.
However, the company's total gross profit per unit fell roughly 6%, missing several analyst targets. Its adjusted EBITDA margin also contracted by 2 percentage points to 10.4% compared to a year earlier. Carvana did not break down used versus new vehicle sales, a notable omission as it expands into new car sales through Stellantis franchised dealerships.
Management remains focused on long-term market share over near-term margin preservation. Chief Executive Ernie Garcia noted the company still holds only 2% of the used retail market and 1.5% of all automotive retail. "Our runway is huge," Garcia told shareholders.
Garcia highlighted that the second quarter marked the company's 10th straight period of being "the fastest-growing and most profitable automotive retailer - achieving both by large margins." The company still expects sequential unit growth in the third quarter and maintains long-term targets of selling 3 million cars annually with a 13.5% adjusted EBITDA margin between 2030 and 2035.
"We built an experience customers love, our model gets better as we get bigger, and our execution is the key driver of our progress from here," Garcia said.
