Carvana Stock Drops On Soft Q3 Profit; Rising Subprime Auto Loans Exacerbate Concerns

Shares fell over 9% in after-market trading.

• Carvana reported Q3 revenue expectations, but profit fell short of the target.
• Shares fell over 9% in after-market trading, also weighed by concerns about rising subprime auto loans.
• Stocktwits sentiment for CVNS shifted to ‘extremely bearish’ from ‘bullish.’

Used-car retailer Carvana Co. reported third-quarter revenue above expectations on Wednesday, though soft profit and margins, along with growing concerns about subprime auto loans, caused the stock to drop by more than 9% in the after-market session.

Notably, retail sentiment for CVNA on Stocktwits shifted to ‘extremely bearish’ as of early Thursday, from ‘bullish’ the previous day, with some traders speculating potential accounting issues at the company amid insider stock sales.

A Brewing Crisis?

“Odd that they (the company) didn’t mention anything about the SEC investigation or the money moving scheme where Carvana offloads bad loans to drivetime for Papa Garcia to used the money he gains from stock sales to help pay off the bad loans,” remarked one user.

Recent bankruptcies of auto-related companies First Brands and Tricolor Holdings, as well as increasing auto loan defaults, have caused a stir in the auto market. 

The percentage of subprime auto loan borrowers has doubled since 2021 to 6.43%, according to Fitch Ratings. That’s worse than during the past three recessions—the Covid pandemic, the Great Recession, or the dot-com bust — according to the CNN report.

Earlier, noted short-seller Jim Chanos flagged concerns with Carvana, saying that, “Given the news in the subprime auto space of defaults, bankruptcies, rising delinquencies, the fact that Carvana seems to be sailing through it with nary a scratch stretches credulity.”

All this comes as Ernest C. Garcia II, father of Carvana co-founder and CEO Ernest Garcia III, and a significant shareholder in the company, sells company shares at a fast clip. Notably, Carvana's shares have climbed 74% year to date.

Revenue Growth Still Strong

Still, Carava has benefited from recent policy shifts, including U.S. tariffs, that have boosted used-car sales. Consumers are flocking to cheaper vehicles as carmakers raise prices to offset higher costs from tariffs.

The company’s third-quarter revenue to $5.65 billion from $3.66 billion a year ago, beating analysts’ expectation of $5.11 billion. Earnings were $1.03 per diluted share, up from $0.64 a year earlier, but missed the target of $1.30.

The company’s adjusted EBITDA margin dipped to 11.3% vs. 11.7% a year earlier. 

Carvana said it expects fourth-quarter retail unit sales over 150,000 vehicles.

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