Carvana’s Alleged ‘Grift Of The Ages’: Exposing The Short-Seller’s Claims

Introduction

Carvana, the online used-car retailer, has been under fire in recent weeks after a short-seller accused the company of engaging in a “grift of the ages.” The short-seller, Carson Block of Muddy Waters Capital, alleged that Carvana is using accounting tricks to inflate its profits and that the company’s business model is unsustainable.

Carvana has denied the allegations, calling them “baseless” and “riddled with errors.” The company has also pointed to its strong financial performance and its rapidly growing customer base as evidence that its business model is sound.

The Short-Seller’s Allegations

In a report published in June 2023, Block accused Carvana of using a number of accounting tricks to inflate its profits. These tricks, Block alleged, include:

• Booking revenue on cars that have not yet been delivered to customers.
• Capitalizing expenses that should be expensed immediately.
• Using aggressive accounting assumptions to inflate the value of its inventory.

Block also alleged that Carvana’s business model is unsustainable. He argued that the company is spending too much money on marketing and that it is not generating enough revenue to cover its costs.

Carvana’s Response

Carvana has denied all of Block’s allegations. The company has stated that it follows all applicable accounting rules and that its financial statements are accurate.

Carvana has also pointed to its strong financial performance as evidence that its business model is sound. The company reported revenue of $12.8 billion in 2022, up 56% from the previous year. Carvana also reported a net loss of $826 million in 2022, but it narrowed its losses from $1.3 billion in 2021.

Independent Analysis

A number of independent analysts have weighed in on Block’s allegations. Some analysts have expressed concern about Carvana’s accounting practices, while others have defended the company.

A report by Goldman Sachs, for example, found that Carvana’s accounting practices are “generally consistent” with industry standards. However, the report also found that Carvana’s “aggressive” accounting assumptions could lead to the company overstating its profits.

A report by J.P. Morgan, on the other hand, defended Carvana’s accounting practices. The report found that Carvana’s “revenue recognition policies are in line with industry practice” and that the company’s “inventory valuation is reasonable.”

Conclusion

The allegations against Carvana are serious, but it is important to note that they have not been proven. Carvana has denied the allegations and has provided evidence to support its claims. Independent analysts have also weighed in on the allegations, with some expressing concern and others defending the company.

It is important to remember that Carvana is a publicly traded company and that its financial statements are audited by an independent accounting firm. If Carvana is found to have engaged in any accounting irregularities, it could face serious consequences, including legal action and fines.

For now, investors should carefully consider the allegations against Carvana and weigh them against the company’s strong financial performance. It is also important to remember that the allegations are just that: allegations. Until they are proven, Carvana should be presumed innocent.