(Bloomberg) — Carvana’s shares plummeted to all-time lows as concerns over used-car sales deepened, wiping out about half of its market cap in just two trading sessions.
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Since the company released its third-quarter results late Thursday, online dealer shares have fallen 49% in two trading days, pushing their once-high market cap to about $1.3 billion from $2.6 billion before missing earnings. That’s a far cry from the $60 billion valuation the company commanded last year.
Carvana, which allows customers to buy cars from anywhere, saw its market value soar last year when demand for used cars surged due to supply problems in new car production. This has helped attract investors hungry to bet on Covid lockdowns, especially given his Carvana’s focus on home purchases.
But the landscape is changing as supply disruptions ease, vehicle production gradually normalizes, and used car costs plummet. In addition, the Federal Reserve’s anti-inflationary measures have pushed up interest rates, raising the cost of financing car purchases and weighing on consumer demand.
The Mannheim Used Car Value Index, which tracks used car prices, fell for the fifth straight month in October, down 10.6% year-on-year. This is the biggest drop in the index’s nearly 28-year history.
For Wall Street analysts, the shift poses a major challenge for Carvana’s business. On Friday, Morgan Stanley analyst Adam Jonas downgraded the company, sending the stock to just 1 as a weakening used-car market and volatile interest rates and funding conditions “add significant risk to the outlook.” He said it could be a dollar.
Analysts’ average share price target for the company is down about 30% from Thursday’s closing.
“Cars are very expensive and very sensitive to interest rates,” Carvana CEO Ernie Garcia said on a conference call with analysts last week.
–With help from Jeran Wittenstein.
(Updated with closing prices throughout.)
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