Online retailer Carvana boosted its finance gross profit per unit (GPU) in the third quarter amid growing originations, largely due to tightened credit standards and lower benchmark interest rates.
Finance GPU grew 31.3% year over year to $1,415, a 63.6% increase from last quarter. Improved market conditions were the primary driver for the sequential growth, said Chief Financial Officer Mike Levin during the company’s earnings call today.
Third-quarter originations totaled $927.7 million, a 33.3% YoY increase, according to an Auto Finance News analysis, bringing the company’s nine-month total to $2.5 billion. By comparison, Carvana originated $1.9 billion in the same period last year.
Net finance receivables held for sale clocked in at $317 million, according to the earnings supplement. Carvana sells a majority of the loans it originates to Ally Financial, with which it has a $3 billion purchase agreement that was extended in September.
Carvana was also able to issue $1.1 billion in senior notes after quarter end, which it used to redeem $600 million in existing notes, effectively extending maturities out to 2028 and saving the company 3 percentage points on its annual interest rate.
Still, inventory constraints continue to be a sore spot for the retailer as it works to shore up enough vehicles to return to pre-pandemic levels.
“Our inventory as we exited the third quarter in terms of cars that were available for a customer to buy … was roughly half what it was pre-pandemic,” Chief Executive Ernie Garcia III said on the conference call. “Our ideal inventory would be higher than we were pre-pandemic.” At quarter end, Carvana had 11,900 units available for immediate purchase on its website.
The Tempe, Ariz.-based company was aggressive on returning its inventory to meet demand in the third quarter. Carvana increased its floorplan facility with Ally to $1.25 billion from $950 million, and — for the first time in company history — bought more cars from customers than it sold to them, Garcia said. Retail units sold clocked in at 64,414, a 39% YoY increase.
“We acquired 73,400 vehicles from our customers, an increase of 128% year-over-year, which resulted in buying 114% as many cars as we sold, up from 69% a year ago,” according to the company’s letter to shareholders. By another measure, that’s a sequential, quarter-over-quarter growth rate of 261%.
Shares of Carvana [NYSE: CVNA] were trading at $185.35, a 3.17% decrease since market open. The online retailer’s market valuation has been steadily climbing since the stock bottomed out at $29.35 per share on March 20. Carvana has a market capitalization of $31.63 billion.