Shares of Carvana fell 14.2% on Wednesday, marking a significant drop for the online used car retailer. The stock closed at $410.04, which is the company's second-worst trading day in the past year.
Gotham City Research accused Carvana of overstating its 2023-2024 earnings by over $1 billion. According to the allegations, Carvana's earnings are heavily dependent on businesses controlled by the family of CEO Ernie Garcia III.
Gotham City claims that the company is more reliant on related parties than previously disclosed.
To support its claims, Gotham City Research published the 2024 audited financials of DriveTime Automotive Group, Inc. and Bridgecrest Acceptance Corp.
Both companies are owned by Ernest Garcia II, who is Carvana's largest shareholder and the father of the company’s CEO. Gotham City stated it obtained these financial records through the Freedom of Information Act.
The firm also raised concerns about Carvana's business practices. Gotham City stated that the company's earnings are reliant on DriveTime's debt issuance and described some loans as 'toxic.'
The short-seller highlighted accounting irregularities that they believe are propping up Carvana's financial health.
This latest accusation is part of a trend where short sellers have targeted Carvana. Hindenburg Research, a disbanded short seller, previously disclosed a bet against Carvana.
They claimed that the company's turnaround was a 'mirage' supported by unstable loans and questionable accounting practices.
Carvana's stock has experienced dramatic fluctuations over the past year. During a bankruptcy scare in late 2022, shares traded for less than $5.
However, the stock price surged to over $477 before the recent decline. This volatility highlights the challenges the company faces in maintaining investor confidence amidst ongoing scrutiny.
As Carvana navigates these allegations and the resulting impact on its stock price, investors will be watching closely.
The company's ability to address the concerns raised by short sellers will be crucial for its future performance in the market.
