Carvana's shares experienced a significant decline today following the release of its fourth-quarter earnings. Despite a robust 58% increase in revenue, reaching $5.60 billion against an estimated $5.27 billion, and a similar surge in retail unit sales to 163,522, the company's profitability metric, adjusted EBITDA, fell short of Wall Street's predictions. The reported adjusted EBITDA was $511 million, lower than the anticipated $535.7 million, with the adjusted EBITDA margin at 10.1% missing the 10.4% estimate. This divergence between strong sales performance and weaker-than-expected profit margins led to a 7% drop in Carvana's stock during morning trading, building on a prior 20% slide in after-hours trading.
Adding to investor concerns, Carvana's forward-looking statements for the first quarter were notably vague, without concrete financial guidance. CEO Ernie Garcia III mentioned in his shareholder communication that Carvana anticipates substantial growth in both retail units and adjusted EBITDA for the entirety of 2026, including a sequential rise in the first quarter of 2026, assuming market stability. However, this general optimism contrasted with analyst expectations for Q1, which projected an adjusted EBITDA of $671 million and 175,478 retail units sold. Garcia also acknowledged that increased vehicle reconditioning costs impacted the fourth-quarter results, and a similar trend is expected in the first quarter, although the company projects an improved profit per unit.
Despite the mixed financial report and the absence of clear Q1 projections, Wall Street's overall reaction was tempered, with some analysts maintaining a positive long-term view. Analysts like Marvin Fong of BTIG reiterated a 'Buy' rating, albeit with a reduced price target, emphasizing the importance of market share gains over immediate margin expansion. Similarly, Wedbush's Scott Devitt upheld an 'Outperform' rating, foreseeing a normalization in gross profit per unit that would offset margin pressures. These perspectives suggest that while Carvana faces immediate challenges in profitability and cost management, its strategic trajectory and market positioning are still viewed favorably by certain financial observers. The company has also recently addressed allegations from a short seller regarding its earnings transparency, which further added to the stock's volatility earlier in the year.
In the dynamic landscape of e-commerce, companies like Carvana demonstrate both the immense potential for growth and the intricate challenges of maintaining profitability. Their journey underscores the importance of transparent communication and robust financial health in building investor confidence. Every step forward, even amidst market fluctuations, contributes to the evolution of the online retail sector, encouraging innovation and resilience in the face of economic pressures. The future holds promise for entities committed to adapting and excelling in an ever-changing marketplace.