Shares in used car retailer Carvana (CVNA) skidded 9% lower after the firm posted Q4 earnings which missed market expectations. The $47 billion company is popular with US retail investors and recently joined the large-cap S&P 500 benchmark.
| Share price: $329 (-9%) | PE: 55x |
| Market cap: $47bn | Yield: n/a |
Higher costs impact margins
For the three months to December, Carvana posted adjusted EBITDA of $511 million against $359 million a year earlier. However, Wall Street analysts had pencilled in $540 million of EBITDA.
Q4 revenue was $5.6 billion, up 58% on the prior year and above the $5.27 billion consensus. With its eye-catching ‘car vending towers’, the firm sold 163,522 vehicles, an increase of 43% on a year earlier.
The problem the company faced was higher non-car costs, such as inspection, repair, preparation and depreciation. As a result, the average per-vehicle gross profit was down by $255, impacting margins and earnings.
For 2026, Carvana projected further ‘significant’ growth in unit sales and an increase in EBITDA. In total the company sold almost 600,000 vehicles last year.
Hedge fund favourite
As well as being a popular stock with retail investors, Carvana has attracted the attention of hedge funds. Originally, they were big buyers of the stock, but today around 7% of the company’s shares have been sold short.
Earlier this week, research firm Gotham City questioned the source of Carvana’s revenues and claimed it overstated its 2024 results. The firm has also been criticised for its high levels of debt and ‘cash burn’.
Gotham’s main concern is that Carvana books gains on the cars it sells without actually owning them. It claims the vehicles are financed by Bridgecrest, a related company, and its reliance on this relationship is far greater than investors realise.
Read the press release here: https://investors.carvana.com/
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