Carvana – The Second Enron by Alexander Gornyi


The post was originally published in Russian on Startup of the Day. Alexander kindly agreed to republish what we think is of great value to our readers.

There once was a startup called Carvana – the American used car dealer. Its shares were the worst investment of the year.

In August 2021, the company cost USD 70B, today it costs USD 700M, – a 100x drop. And judging by the latest financial report, the current value is also exaggerated, and bankruptcy is practically inevitable. I.e. the shares will cost a flat zero in a while.

At that, there is only one significant difference compared to last year’s (‘70B’) reports – lack of growth. All the years up until 2021, Carvana has been doubling its revenue, and in 2022 it stands still. Investors used to believe that after a few years, the turnover would grow really big, – and then, the revenue will come with the scaling. And now it’s become more difficult to believe in this since there’s no growth.

Dropping shares or even bankruptcies are not a new story, it happens. But note the sequence of events. Since last August, Carvana didn’t suffer any external blows: no charges, no new legislation, and no global lockdowns. True, the American economy does have some problems, but they are all measured in single digits percent, that’s not a catastrophic scale.

I.e. the growth has stopped due to some exclusively internal reason. Perhaps, they have entered all cities, and there was no place left to enter. Perhaps, it was the work of some other limiting factor, doesn’t matter. What matters is that when the company was worth 70B, the managers already knew it wouldn’t end well, and not at some point in the distant future, but at any time now. They knew and they didn’t tell. Even in late February they gave optimistic reports on the past year and promised continued growth in the year to come.

The story is truly Enron-scale.

Translation: Kostiantyn Tupikov


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