Shares of Carvana was coming off its worst day on record Friday after the company missed Wall Street̵[ads1]7;s top and bottom line expectations for the third quarter as the outlook for used cars falls from record demand, prices and profits during the coronavirus pandemic.
The stock cratered about 40% during midday trading. Shares of the online used car retailer have fallen more than 95% this year, after hitting an intraday high of $376.83 per share on Aug. 10, 2021. Carvana’s current worst trading day was a 26.4% decline on Aug. 18. March. , 2020.
The stock is near an all-time low of $8.14 per share, which occurred less than a week after the stock began public trading on April 28, 2017.
Morgan Stanley withdrew its rating and price target on Carvana on Friday. Analyst Adam Jonas cited deterioration in the used car market and a volatile financing environment for the change.
“While the company continues to pursue cost-cutting measures, we believe a deterioration in the used car market combined with a volatile interest rate/financing environment (bonds trading at 20% yield) adds significant risk to the outlook, contributing to a wide range of outcomes (positive and negative),” he wrote in a note to investors on Friday.
Used vehicle prices and profits have been significantly elevated as consumers who could not find or afford to purchase a new vehicle opted for a used car or truck. Inventories of new vehicles have been significantly depleted during the coronavirus pandemic, largely due to supply chain issues, including an ongoing global shortage of semiconductor chips.
But rising interest rates, inflation and fears of a recession have made consumers less willing to pay the record prices, which has led to a decline for Carvana and other used car companies such as CarMax.
Major franchise dealers of new and used vehicles, such as Lithia Motors and AutoNation, warned of a softening of the used car market when they recently reported their third quarter results.
Carvana CEO and co-founder Ernie Garcia on a call Thursday described the next year as “a difficult one” for the company, citing a normalization of the used car industry from its inflated levels and rising interest rates, among other factors.
“Cars are an expensive, discretionary, often financed purchase that has increased much more than any other commodity in the economy over the last couple of years, and that clearly has an impact on people’s purchasing decisions,” he said.
Garcia described the end of the third quarter as the “most unaffordable point ever” for customers financing a vehicle purchase.
Nearly every aspect of Carvana’s business was down from a year earlier in the third quarter, including a 31% decline in gross profit to $359 million. Retail units sold fell 8% compared to the third quarter of 2021 to 102,570 vehicles, while gross profit per unit — a closely watched metric by investors — fell by more than $1,100 to $3,500.
Carvana posted a bigger-than-expected loss of $2.67 per share. Revenue also came in below expectations at $3.39 billion, compared with estimates of $3.71 billion, according to Refinitiv.
– CNBC Michael Bloom contributed to this report.