After exiting my Carvana position around $35-$40 in late August, I today bought again a 3% position in Carvana at $18.36. The current share price reflects an extreme level of pessimism. In the upcoming Q3 report it will be crucial that Carvana meets the expectations in terms of cost reductions per unit sold. Moreover, it will be interesting to see the evolution of the liquidity position and if Carvana managed to liquidate further real estate. However, no matter how bad Q3 gets, it will not be insolvent anytime soon. At the end of Q2, Carvana had $1,047m in cash and $1,603m available under short revolving facilities.
The future of Carvana is highly path dependent. Insolvency is a real possibility. However, I believe that at the current share price it is more likely that Carvana rallies 50% than that it falls another 50% without news. Moreover, in any recovery rally on a FED pivot, I would want to have some Carvana exposure with the stock being down 92% ytd.
To finance the purchase, I reduced Lemonade Insurance from 10.5% to 7.5%. Recent google trends and website traffic data look less compelling than before. There are some hints that Lemonade is changing its marketing strategy from ad dollars to honoring client references. If a customers convinces a friend to get Lemonade Insurance via a sent link, he will receive a $10 voucher for Amazon.
While I am not against such a campaign, any sudden switch in strategy makes me somewhat less comfortable. Lemonade is also “only” down about 50% ytd, so may suffer more if this bear market continues and / or Q3 and the outlook disappoints. On the other hand, I consider Lemonade has somewhat less upside if we see a recovery rally and / or a FED pivot compared to other names like Opendoor, Carvana, or Meta.