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Why Carvana stock has gotten crushed in the last 2 trading days

Brian Sozzi
·Executive Editor
Updated ·2-min read

Carvana stock (CVNA) continues to get run over.

Shares of the online car retailer fell 50% over the past two full trading sessions and were dropping another 18% in early trading on Monday as Wall Street questioned the company's business model after a mixed third quarter.

Carvana swung to an adjusted operating loss of $186 million compared to a $9 million profit a year ago. Execs told analysts on a conference call they were preparing for a "difficult" year ahead, which didn't help market sentiment around the stock.

Carvana's ticker page was one of the most active on the Yahoo Finance platform on Monday.

The two-day slide in Carvana stock was set in motion by influential Morgan Stanley auto analyst Adam Jonas.

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On Friday, Jonas published a note suggesting Carvana shares could go as low as $1. Underpinning Jonas's call is a backdrop of weakening used car demand and rising funding costs, both of which could hammer Carvana's already less-than-sterling financial statements.

The tough funding environment alone "adds material risk to the outlook" for Carvana, Jonas said.

NUMBERPLATE PIXELATED BY PA PICTURE DESK A car crushed by fallen bricks in Seaton Sluice, Northumberland after strong winds from Storm Malik battered northern parts of the UK. Picture date: Sunday January 30, 2022. (Photo by Owen Humphreys/PA Images via Getty Images)
A car crushed by fallen bricks in Seaton Sluice, Northumberland, after strong winds from Storm Malik battered northern parts of the UK on Sunday, January 30, 2022. (Photo by Owen Humphreys/PA Images via Getty Images) (Owen Humphreys - PA Images via Getty Images)

Other analysts on the Street echoed Jonas's concerns.

"Carvana is taking action to ride out a challenging demand backdrop that is likely to linger into 2H23 (or longer) in our view," Evercore ISI Analyst Michael Montani wrote in a note to clients.

The analyst added that if Carvana is not able to turn EBITDA positive by the second half of next year, it may lead to asset divestitures, sale leasebacks, delays to its acquisition of Adesa's auction business, and the need for additional capital, including by founder Ernest Garcia III's family.

Montani calculated that Carvana has $4.4 billion in liquidity to ride out a "choppy" six to nine months.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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