Carvana said revenue growth decelerated rapidly in the first quarter of 2020, while its online car-selling model has gained market share during the Covid-19 crisis.
The U.S.-based online car dealer posted income of $1.1 billion during the quarter, up 45% year-on-year. In comparison, income in Q4 2019 grew 89% year-on-year.
“We began to see significant reductions in demand in the back half of March with a sales trough in early April at approximately 30% reduction in sales year-over-year,” explained Carvana CEO Ernie Garcia in the company’s quarterly call with investors. “From there, we have consistently improved week-after-week with sales in the most recent weeks being up about 20% to 30% year-over-year.”
Garcia said it wasn’t clear how other car retailers had fared in recent weeks, but said there was “every indication that Carvana has outperformed the industry quite significantly and grown our market share accordingly over this period.” His assumption is likely correct. Used car sales in the U.S. were down roughly 50% year-on-year in the last week of April, according to the chief economist at Cox Automotive.
Garcia conceded that Carvana’s recent gains are partly due to transitory factors, but said it may also predict new consumer habits.
He cited market research from leading car listings site CarGurus that showed a major shift in consumer attitudes toward buying cars online. Before the pandemic, about 30% of consumers said they would consider buying a car online, which was up to 60% in a recent poll.
“Through a medium-term lens, we believe customer behavior shifts are likely to accelerate our progress,” Garcia said.
Carvana posted a net loss of $184 million, compared to a loss of $84 million in Q1 2019.
Carvana has also made cutbacks during the pandemic. While it has so far avoided laying off staff, the company has had to “significantly reduce hours for thousands of people across the company,” Garcia said. Carvana set up a fund to help affected employees, and its board members and executives have donated their salaries for the cause, he said.
Carvana, which had been on a path of rapid geographic expansion, has suspended openings of new car reconditioning centers and car-vending machines. It has continued to introduce its car-delivery service to new cities, but only to those that can be served with existing delivery infrastructure “with limited incremental investment,” Garcia said.
The company had also suspended car purchases from wholesale auctions, formerly its main source of inventory, although it has continued to acquire vehicles through customer trade-ins.
Inventory was down 30% by the end of March, which will help the company avoid costs connected to warehousing inventory for longer periods, Garcia said.
The company has also shored up its cash reserves through a registered direct offering of $600 million in stock. With $1 billion in liquid assets at the end of Q1, the company has “significant flexibility to operate our business under a wide range of operating and macroeconomics scenarios,” Garcia said.