Carvana shares dropped 14.2 percent on Wednesday after short-sellers accused the online used-book retailer of overstating earnings through the assistance of businesses controlled by CEO Ernie Garcia III’s family.
Gotham City Research accused it on Wednesday, claiming that the online used car retailer that joined the S&P 500 in the previous month had overstated earnings in 2023-2024 by more than $1 billion, and is “far more dependent on related parties” connected to the family than previously disclosed.
Generally, the company charges the profits of Carvana to be reliant on the issuance of the debt by DriveTime, “toxic” loans, and accounting irregularities.
In an email release, Carvana said the report was “inaccurate and intentionally misleading.” The company claimed that all its “related party transactions are accurately disclosed in our financial statements.”
Carvana also reiterated a move to announce its 2025 earnings on February 18, after Gotham announced that Carvana would have to postpone its 10-K annual earnings filing.
Gotham released audited financials for 2024 of DriveTime Automotive Group, Inc and Bridgecrest Acceptance Corp. to support its assertions. Carvana and Ernest Garcia II are the largest shareholders of the company, and the father of the chief executive of the online retailer.
However, the CNBC did not confirm the validity of the financial results on its own, which Gotham claimed it received through the Freedom of Information Act. This short-seller report is the most recent among a series of short sellers of Carvana in the last few years.
Notably, the disbanded short seller Hindenburg Research last year posted a bet against Carvana, arguing that the turnaround of the online used-car retailer was a mirage, of itself being supported by unstable loans and accounting manipulation.
Carvana shares have been on a historic rollercoaster ride since the company narrowly escaped bankruptcy in late 2022. The price of the stock has surged in the same period, which was less than $5 per share or below, to over $477 per share when it closed on Tuesday.
Carvana stock dropped to $410.04 on Wednesday and fell 14.2 percent, marking the company’s second-worst trading day in the previous year.
