In mid-afternoon trading, Carvana, best known for its auto vending machine concept, stands at about $4.60 a share, up on the day but down more than 40% from a week ago.
But its losses have widened amid the recent downturn in the sector.
It reported a net loss of $1.5 billion in the first nine months of this year, up from a $105 million net loss in the same period of 2021.
Bloomberg reported Tuesday that major holders of Carvana debt have entered into a cooperation agreement to work together and give them more leverage in any negotiations with the company. And it reported Wednesday the company is in talks with lawyers and investment bankers about options for managing its debt load amid concerns about its solvency.
Seth Basham, an analyst with Wedbush Securities, slashed his price target on the stock to $1 from $9 in a note Wednesday, saying that the fact that its debt is trading at less than 50 cents on the dollar is a sign that there is a “higher likelihood of debt restructuring that could leave the equity worthless in a bankruptcy scenario… or highly diluted in a best case.”
Carvana launched 10 years ago with a plan to disrupt the used car market, offering both online car shopping and trade-ins as well as distinctive car vending machines. But Basham told CNN Carvana’s problems are worse than other used car dealers because it expanded faster than its sales could support.
“They put the cart before the horse,” he said. “They built infrastructure for a lot more sales than they’re currently doing. And that saddled them with a ton of excess capacity.”
The company did comment directly on the report about meetings with lawyer and bankers, only saying that it is not a party to the cooperation agreement among bondholders.
“Our message to our customers, shareholders, employees and other stakeholders remains clear: we are singularly focused on executing on the plan to profitability outlined in our third quarter shareholder letter and we have substantial liquidity to get us there,” said the company’s statement. “In no way do these reports change that strategy.”
Source: CNN
