The only thing Carvana may be delivering in the months ahead is more pain to investors.
The online used car seller — a former pandemic darling that has now become one of the most hated stocks on Wall Street as it fights for its survival — is on the cusp of running out of cash, Jefferies analyst John Colantuoni warned in a note.
"For perspective, our model has Carvana running out of cash in 1Q23 without an additional infusion," Colantuoni stated. "The deterioration in liquidity was precipitated by worsening unit economics and higher interest payments, following the $3.275 billion debt issuance in May 2022 tied to the U.S. ADESA acquisition."
The company ended the third quarter with $477 million in cash. So far in 2022, Carvana's free cash flow has been an outflow of more than $1 billion. A challenging restructuring process is the likely next step.
"The restructuring process is likely to negatively impact the value of existing equity," Colantuoni added. "We anticipate the restructuring process will be the primary determinant of the stock price, with fundamentals as a distant secondary factor."
Carvana stock traded at a record high of $361 in August 2021, as people purchased cars online to coincide with moves out of cities during the COVID-19 pandemic, before falling sharply as the business deteriorated.
For the nine-months that ended Sept. 30, Carvana's net loss clocked in at a whopping $1.45 billion.
A group of Carvana’s 10 biggest lenders holding around $4 billion of the company's unsecured debt reportedly made a three-month pact to act together in the case of restructuring. Creditors named in the report included Apollo Global Management and PIMCO. (Disclosure: Apollo Global Management owns Yahoo.)
The reported pact could make it far tougher for Carvana to restructure its business to survive and could also make any cash raise very costly from a cost of capital perspective.
"Carvana is not involved in any cooperative agreement amongst bondholders and we will not be addressing any questions that arise from actions taken by such bondholders," a Carvana spokesperson told Yahoo Finance. "Our message to our customers, shareholders, employees and other stakeholders remains clear: we are singularly focused on executing on the plan to profitability outlined in our Q3 Shareholder Letter and we have substantial liquidity to get us there. In no way does today’s news change that strategy."
Carvana CEO Ernie Garcia didn't return Yahoo Finance's request to discuss the company's troubles.
Jefferies is the latest investment bank to slam Carvana in what has been a tumultuous December.
Wedbush analyst Seth Basham slashed his rating on Carvana to Underperform on Wednesday, sending the stock down 43% on the session. Basham sees fair value for Carvana at $1, adding that how things shake out for Carvana are a giant unknown since even the best scenario is far from perfect.
"Best case scenario is that the equity gets very little dilution here, and there's no bankruptcy situation," Basham said on Yahoo Finance Live (video above). "The company infuses more capital, either through a real estate sale or otherwise. And we see a debt exchange, which leads to less debt burden going forward. So that'd be the best case. I will point out that the Garcias, who are the CEO and his father, they own over 40% of the company's equity. And so they have a very big incentive not to let that equity go to zero."
Yahoo Finance's Alexandra Semanova contributed to this story.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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