December 4, 2022

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Carvana stock digging as the used car market darkens

Carvana stock digging as the used car market darkens

shares Carvana It was on track for its worst day ever on Friday after the company missed Wall Street’s highest and lowest expectations for the Third quarter As expectations for used cars drop from record demand, prices and profits during the coronavirus pandemic.

The stock dug nearly 40% at midday. Shares of the online used car dealership are down more than 95% this year, after hitting an all-time high of $376.83 per share on August 10, 2021. The worst trading day in Caravana is currently at 26.4% on March 18, 2020 .

The stock is approaching an all-time low of $8.14 a share, which occurred less than a week after the stock went public on April 28, 2017.

Morgan Stanley on Friday withdrew its rating and price target on Carvana. Analyst Adam Jonas cited the decline in the used car market and volatile financing environment for change.

“While the company continues to pursue cost-cutting measures, we believe the deterioration in the used car market combined with a volatile interest rate/financing environment (bond trading at 20% yield) add material risks to the outlook, contributing to a wide range of outcomes (positive and negative) ,” he wrote in a note to investors on Friday.

Used car prices and profits have skyrocketed as consumers who couldn’t find or afford a new car chose to buy it A used car or truck. Inventories of new vehicles have been significantly depleted during the coronavirus pandemic in large part due to supply chain issues, including the ongoing global shortage of semiconductor chips.

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But rising interest rates, inflation and recession fears have reduced consumers’ willingness to pay record prices, leading to declines for Carvana and other used car companies such as Carmax.

Major new and used car dealers with franchises such as Lithia Motors and Auto Nation warn of softening in the used car market when recently reported third-quarter results.

Carvana CEO and Co-founder Ernie Garcia In a phone call on Thursday, he described the coming year as a “difficult year” for the company, citing the used-car industry’s normalization of its inflated levels and increased interest rates, among other factors.

“Automobiles are an expensive, discretionary purchase and are often financed and have ballooned far more than other commodities in the economy over the past couple of years and obviously have an impact on people’s buying decisions,” he said.

Garcia described the end of the third quarter as “the most unsustainable point ever” for customers financing a car.

Almost all aspects of Carvana’s operations declined from the prior year during the third quarter, including a 31% drop in gross profit to $359 million. Retail units sold were down 8% from the third quarter of 2021 to 102,570 vehicles, while gross profit per unit — a measure highly watched by investors — fell by more than $1,100 to $3,500.

Carvana posted a larger-than-expected loss of $2.67 per share. Revenue also missed expectations at $3.39 billion, compared to an estimate of $3.71 billion, according to Refinitiv.

– CNBC channel Michael Bloom Contribute to this report.

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