Carvana stock tumbles on Stifel downgrade

Carvana shares are down more than 85% year-to-date

Carvana has an investor confidence problem. The stock tanked 18% Wednesday and has tumbled over 85% this year. 

Ticker Security Last Change Change %
CVNA CARVANA CO. 34.72 -6.79 -16.36%

"Deteriorating capital market conditions and worsening trends in the used vehicle industry have eroded our conviction in the path for Carvana to secure the necessary capital to realize sufficient scale and self-funding status," Stifel analyst Scott Devitt wrote in a note to clients Wednesday. 

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Devitt downgraded the stock from "buy" to "hold" and slashed the price target on the used car dealer from $115 to $40 per share. 

CARVANA LAYOFFS: STOCK CONTINUES TO DROP AS COMPANY DISCLOSES PLAN TO SHED 12% OF WORKFORCE

The downgrade comes after the company announced plans to cut 2,500 jobs, or approximately 12% of its workforce, and transition its operations away from its Euclid, Ohio, IRC and a few logistics hubs over the next several weeks. 

All impacted employees will have the opportunity to receive four weeks of pay, plus an additional week for every year they have been with Carvana, as well as extended health coverage, pay equal to early vesting of certain previously granted equity awards, recruiting and résumé support and continuing participation in certain other company programs. Carvana's executive team will forego salaries for the remainder of 2022 to contribute to severance pay of departing team members. 

"We believe these decisions, while extremely difficult, will result in Carvana restoring a better balance between its sales volumes and staffing levels and facilitate Carvana returning to efficient growth on its mission to change the way people buy and sell cars," the company said in a filing with the Securities and Exchange Commission

Carvana

A Carvana car vending machine in Gaithersburg, Md., Feb. 10, 2019. (Kristoffer Tripplaar/Sipa USA / Reuters Photos)

In the first quarter of 2022, Carvana sold a total of 105,185 retail vehicles, up 14% year-over-year. The company's gross profit fell 12% year-over-year to $298 million, while its revenue increased 56% year-over-year to $3.497 billion. Carvana said its quarterly results were impacted by omicron and severe weather events, high used vehicle prices, an increase in gasoline prices, dampening consumer sentiment and rapid changes in interest rates. 

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Stifel is expecting Carvana to sell approximately 112,000 retail vehicles in the second quarter, down from a previous estimate of 118,000 units, and generate total revenue of $3.5 billion, down from a previous estimate of $3.7 billion. 

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A Carvana vending machine location in Novi, Mich., Oct. 31, 2021. (Emily Elconin/Bloomberg via Getty Images / Getty Images)

For the full year, the firm predicts Carvana will sell a total of 458,000 retail vehicles, down from a previous forecast of 491,000 units. It predicts revenue of $14.4 billion for the period, down from the previous $15.4 billion estimate. 

On profitability, the firm expects a second-quarter EBITDA loss of $286 million, compared to its previous estimate of a $302 million EBITDA loss for the period, and a full year EBITDA loss of $1.10 billion, compared to the previous estimate of a $1.15 billion loss.

"Our revised model suggests that the company will need to raise incremental capital relative to its existing liquidity resources before reaching break-even," Devitt added.