Stock Wars: CarLotz Vs. Carvana

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between a pair of used car companies: CarLotz Inc. LOTZ and Carvana CVNA.

The Case For CarLotz: This used car consignment company was founded in 2011 by three entrepreneurs — Michael Bor, Aaron Montgomery and Will Boland — with a store in Midlothian, Virginia. The company later expanded to other Virginia locations, including Richmond (now the site of its headquarters), and later 11 other states: Alabama, California, Colorado, Florida, Georgia, Illinois, Missouri, North Carolina, Tennessee, Texas and Washington, with a Nevada expansion planned for later this year.

In January 2021, the company completed a merger with Acamar Partners Acquisition Corp., a Miami-based special purpose acquisition company (SPAC), and began trading on the Nasdaq exchange. The company promotes itself as the nation's largest consignment-to-retail used vehicle marketplace.

Beyond the announcements of its new hub locations, some of the recent corporate developments in 2021 involving CarLotz include the first major brand marketing campaign in August, partnership with the consumer shareholder loyalty platform TiiCKER in July, and March’s announcement of a multi-faceted strategic relationship with Ally Financial Inc ALLY that covered consumer and inventory financing, remarketing and additional finance and insurance offerings for CarLotz’s car buyers.

In its most recent earnings report, the third quarter data published on Nov. 8, CarLotz recorded revenue of $68 million, up from $29 million one year earlier, and a net income loss of $3.4 million compared to a loss of $492,000 in the previous year. CarLotz’s net loss per share, both basic and diluted, was -3 cents versus -1 cent in the third quarter of 2021.

While co-founder and CEO Michael Bor highlighted a 128% revenue growth that was “driven by a 58% increase in retail unit sales, a 190% increase in finance and insurance revenue, and more than doubling our hub locations versus last year,” he also acknowledged that the chip shortage which has bedeviled the automobile industry since the COVID-19 pandemic took root “has caused a disruption to our consignment business model.

Nonetheless, Bor insisted his company was “focused on maximizing returns on the significant investments we have made this year, leveraging the assets we already have in place, and offering the best customer experience in the industry, all while building awareness of the CarLotz brand and what consignment means.”

CarLotz shares opened for trading on Wednesday at $2.10, closer to its 52-week low of $2.01 and distant from its 52-week high of $12.90.

Related Link: The complete Stock Wars series

The Case For Carvana: Not unlike CarLotz, Carvana was also founded by a trio of entrepreneurs — Ernest Garcia III, Ryan Keeton and Ben Huston — with a premiere year in 2012 and a business focus as an online used car dealer.

The Tempe, Arizona-headquartered company gained the national spotlight in November 2013 by debuting a car vending machine that became Carvana’s trademark; the oversized vending machines are now in 24 states and the company offers its “as-soon-as-next-day vehicle delivery” to 266 markets. Since its launch, the company also expanded via acquisitions of rival start-up Carlypso in 2017 and the Mark Cuban-backed Car360 in April 2018. Carvana has been publicly traded since its April 2017 IPO.

Aside from announcements of its entry into new markets, some of Carvana’s recent corporate developments include its August 2021 announcement of a partnership with the insurtech carrier Root, Inc. ROOT to develop integrated auto insurance solutions for Carvana’s online car-buying platform. Carvana is also investing approximately $126 million in Root.

Carvana is also dealing with a threat from Florida’s state government to pull the company’s dealer license by Jan. 31 if it fails to resolve the failure to transfer of the automobile titles for 300 vehicles — with some transfers still incomplete on sales from late 2019. WFLA-TV reported the company received a warning from the Florida Department of Highway Safety and Motor Vehicles stating the agency “remains concerned with Carvana’s apparent inability to comply with the provisions of Florida law requiring a dealer to apply for title within 30 days of the sale and the impact that has on Florida consumers.”

In its most recent earnings report, the third-quarter data published on Nov. 4, Carvana reported net operating revenues of $3.4 billion, up from $1.5 billion one year earlier. The company also reported a net loss of $68 million, compared to the previous year’s $18 million net loss. Carvana’s net loss per share, both basic and diluted, was -38 cents versus -10 cents in the third quarter of 2021.

Ernie Garcia, co-founder and CEO, insisted the third quarter was “another great quarter” with a 74% year-over-year increase in auto deliveries and the “continued laying the foundations necessary to sell over 2 million cars per year.”

Garcia very briefly acknowledged “the complexities of managing through all the change of the last two years,” but quickly accentuated the positive by noting how the company “bought and sold over three times as many cars from our customers in the third quarter as we did in the third quarter of 2019.”

Carvana’s shares opened for trading on Wednesday at $162.09, which is closer to its 52-week low of $147.67 than to its 52-week high of $376.83.

The Verdict: According to Cox Automotive, the used vehicle market in the U.S. reached an all-time record in 2021 with sales of 40.9 million units, a 10% year-over-year increase. Retail sales for used vehicles accounted for approximately 54% of the total used car sales, a 13% year-over-year rise.

Yet both CarLoft and Carvana recorded net income losses in the third quarter and both of their stocks are trading closer to their respective 52-week lows. Compare the current stock prices to those on Jan. 19, 2021, when CarLoft’s stock closed at $11.37 and Carvana’s closed at $275.

To his credit, the CarLotz CEO was more honest in acknowledging the impact of the chip shortage on his operations. Carvana’s CEO, in comparison, seemed intentionally vague in spelling out the challenges that continue to dominate this sector. And Carvana’s problems in Florida offer a public relations problem for a company that has mostly enjoyed favorable attention.

There is good reason to believe both companies will enjoy better financial performances when the economy improves, but the emphasis is on the word “when” — after all, few financial experts believe the ongoing economic doldrums are, to use a Powellesque phrase, transitory. Adventuresome investors with a penchant for buying low might want to load up on either stock now, but at the moment there are more vibrant companies worthy of attention and investments.

Photo: Don O’Brien / Flickr Creative Commons