Polarizing short-short activist Hindenburg Research – known for its stunning reports alleging corporate fraud and other wrongdoing by companies including Nikola. NASDAQ:NKLA And Adani Group of India – Published on January 2, 2025, article About her latest target: Carvana. New York Stock Exchange: KFNA.
Carvana today
(As of 11:16 a.m. ET)
- 52 week range
- $40.21
▼
$268.34
- P/E ratio
- 19,207.21
- Price target
- $229.18
In the report, Hindenburg claims that the $44 billion online car dealer’s 284% rise in shares throughout 2024, which some investors have hailed as a major turnaround in the wake of bankruptcy fears in 2022 and 2023, is a “mirage.” At the heart of the Hindenburg report is an allegation that Carvana engaged in accounting manipulation and lax loan underwriting to give the appearance of income growth in recent quarters. As is its custom, Hindenburg also announced at the time of the report that it had entered into a short position of undisclosed size in CVNA shares.
Allegations of suspicious loan sales and inflating profit and loss performance
Hindenburg claims to have identified $800 million in loan sales to an “undisclosed suspected related party” as Carvana’s advance purchase commitment agreement with Ally Financial has changed in ways that are not entirely clear to outsiders in recent years. Carvana sold $3.6 billion worth of auto loans to Ally in 2023, representing about 60% of its total assets. However, sales to Ally dwindled through the first three quarters of 2024 to roughly 35% of Carvana’s assets, or $2.2 billion, for that period.
The Hindenburg report notes that the unnamed buyer of an additional $800 million in loans in the first quarters of 2024 is likely a fund affiliated with Cerberus Capital — Global Investments chief Dan Quayle is Carvana’s director.
Furthermore, Hindenburg claims that Carvana’s model is focused on non-prime and subprime loans and that its “toxic loan book is a result of lax underwriting standards,” resulting in more than $15.4 billion in asset-backed securities issued by the auto dealer. The report also notes that 60-day delinquencies across Carvana borrowers are more than four times the industry average.
The report alleges that Carvana used accounting “games” to give the appearance of stronger revenue and profit performance. These include the use of borrower extensions to avoid delinquent loans and a range of manipulations with DriveTime (an agency run by Carvana’s CEO’s father), including profit-sharing agreements between the two companies and Carvana’s history of offloading the costs of extended warranties and even excess inventory to DriveTime. The report also cites a former Carvana executive who claimed the company would manipulate income numbers by keeping loan sales on a quarterly basis.
Meanwhile, Hindenburg claims that Carvana’s CEO and his father timed the market with incredible precision, allowing them to make billions from Carvana stock sales.
Valuation and debt concerns
The Hindenburg report also notes potential concerns investors may have about Carvana even without taking into account the alleged “graft.” At the time of the report’s release, Hindenburg said Carvana was trading at an 845% premium to its peers on a one-year P/E basis and a 754% premium on a one-year P/E basis. The company had net debt of $4.8 billion at the end of September 2024, with cash interest payments of $215 million annually due beginning in February 2025 based on long-term debt obligations. Moreover, Carvana’s credit rating of B- is the lowest among its peers as well.
Carvana Corporation (CVNA) price chart for Friday, January 3, 2025
Carvana: Overview, Business Model, Bankruptcy Concerns
Founded in 2012, Carvana is an online car dealer that operates a platform through which individual customers can buy and sell used cars. Activity on this platform makes up the vast majority (about 70%) of the company’s business in terms of revenue, with other operations including services such as insurance, finance and protection plans. Finally, Carvana operates a wholesale auction company called ADESA. Carvana had an IPO in 2017.
In a recent investor presentation, Carvana noted that its operations cover more than 81% of the US population, with more than 45,000 vehicles available for sale as of September 30, 2024.
However, the company has recently seen concerns about potential bankruptcy. In September 2023, for example It aims to reduce debts worth $1.3 billion As part of major restructuring efforts. This, coupled with efforts to achieve positive EBITDA and increase gross retail vehicle earnings per unit nearly three times from September 2022 to September 2024, likely helped drive the significant rally in the past few months.
As of January 3, 2025, Carvana had not yet issued a press release addressing the Hindenburg Report.
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