What happened
Shares of used-car specialist Carvana (NYSE: CVNA) are soaring today, up 30% as of 11:45 a.m. EDT, after the company issued an exciting business update for the upcoming third quarter of 2020. In short, it expects to report record results for Q3, and investors are loving the news.
In addition to the business update, Carvana also announced a senior note offering totaling $1 billion, which likely contributed to today's move higher.
Image source: Getty Images.
So what
In the second quarter, Carvana's revenue was up 13% year over year and retail units sold (vehicle sales) increased a more robust 25%. Management noted how the COVID-19 pandemic led used-car shoppers to its e-commerce platform, and it was optimistic this would accelerate the adoption of its business model long-term.
This appears to be the case. For Q3, Carvana expects to report blowout results, according to its business update. Besides selling a record number of vehicles, the company expects to report record gross profit per unit. This is important because Carvana says its goal is to be the biggest and most profitable used-car business someday (it's not currently profitable). Gross profit is improving with volume, and that's a good sign for the company's ambitions.
Now what
With financing, Carvana is offering $1 billion in senior notes. Half will be due in 2025; the other half will be due in 2028. With the proceeds, management is redeeming $600 million in senior notes that were due in 2023, and using the rest (minus expenses from this financing process) for general purposes.
Carvana is likely still a ways off from profitability, even with improving gross margin. Therefore, it's helpful to use available financing to fund growth. By paying off what's due in 2023, the company is more prepared financially for the long haul, which is good for investors holding this growth stock for the long term.
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