Carvana Co. shares advanced approximately 2% to $339.76 during Friday's afternoon trading, marking a partial rebound from a steep decline earlier in the week. The stock had tumbled about 15% in after-hours trading Wednesday following the release of its fourth-quarter financial results, which fell short of Wall Street's profit expectations. Thursday saw an additional 8% drop as several brokerages revised their price targets lower.
The online used-car retailer reported a significant increase in costs associated with reconditioning vehicles—the process of inspecting, repairing, and detailing cars before sale—as well as higher retail depreciation rates. These pressures contributed to a decline in its adjusted EBITDA margin to 9.1% for the fourth quarter, down from prior periods. For the current quarter, management has indicated that elevated reconditioning costs are expected to persist.
Despite the cost headwinds, Carvana demonstrated robust demand growth. Retail units sold surged 43% year-over-year to 163,522 in Q4, driving revenue up 58% to $5.603 billion. However, gross profit per unit (GPU) dipped, highlighting the margin squeeze from rising operational expenses. The company noted that reconditioning costs exceeded projections, particularly at newer locations.
On the earnings call, Chief Financial Officer Mark Jenkins acknowledged that cost pressures would likely continue into the first quarter. He also addressed allegations from short seller Gotham City Research, stating clearly that the company does not sell loans to related parties. According to data from Ortex cited by Reuters, short interest in Carvana stood at nearly 10.7% of its free float as of February 17, representing about 14.84 million shares sold short.
The market reaction underscores the heightened sensitivity for high-growth, high-valuation names like Carvana. Stephens analyst Jeff Lick characterized the post-earnings decline as a potential buying opportunity but cautioned that even modest disappointments can trigger severe price swings in such stocks. At least four brokerages, including J.P. Morgan and RBC Capital Markets, lowered their price targets on the company following the report.
Investor attention now turns to a follow-up call hosted by investment firm Stephens, scheduled for February 26. This session will provide institutional investors a forum to query Carvana's capital markets and investor relations team on specifics regarding cost control measures, reconditioning performance, and management's outlook for the first quarter.
Beyond company-specific factors, traders continue to monitor broader used-car price trends, which influence industry profitability. In Friday's market action, the SPDR S&P 500 ETF gained about 0.6%, while peers presented a mixed picture: CarMax shares slipped roughly 0.5%, and AutoNation edged up 0.4%.
Looking ahead, a key risk for Carvana is the potential for reconditioning and depreciation costs to remain elevated through the spring, which could further compress per-vehicle profit margins and exert additional pressure on the stock price. The company's latest annual filing also notes a remaining capacity of $461 million in its at-the-market share sale program as of December 31, 2025, presenting a potential dilution risk if shares are sold under that program.
