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Just For You Carvana Drops 14% After $1B Accounting AllegationsAuthored by Jeffrey Neal Johnson. Article Published: 1/29/2026. 
Quick Look - Carvana achieved record financial results in the third quarter, driven by surging revenue growth and its highest-ever operating income and profit margins.
- Operational improvements from integrating the auction network have streamlined logistics and enabled faster delivery for many retail customers.
- Wall Street analysts raised their price targets and maintained positive ratings following the earnings report, citing strong cash flow and debt reduction.
Carvana Co. (NYSE: CVNA) shares swung sharply in the final days of January 2026, dropping about 14% to trade near $408 and wiping out a large portion of earlier gains. The sell-off is striking because it followed the company's record third-quarter financial results. The trigger was a new report from short seller Gotham City Research alleging serious accounting irregularities and undisclosed financial ties between Carvana and related entities. The situation has split opinion: some investors point to improving fundamentals and cash flow, while others worry about complex related-party arrangements. Now investors must decide whether the decline signals structural problems or a buying opportunity at a discount. Smoke and Mirrors? Analyzing the Accounting Claims Gotham's report centers on Carvana's dealings with companies controlled by the Garcia family. Ernest Garcia II—father of CEO Ernest Garcia III—controls DriveTime Automotive Group and Bridgecrest. The short seller alleges Carvana overstated earnings for 2023–2024 by more than $1 billion by using those entities to subsidize operations. A focal point is a lesser-known entity, GoFi, LLC. Documents show GoFi generated nearly all its 2024 revenue—$7.1 million—from gains on the sale of finance receivables. Gotham argues this suggests GoFi primarily exists to move loans and capital among related parties rather than to operate as an independent business. The report also challenges the notion that DriveTime is a reliable financial backstop for Carvana. DriveTime's 2024 filings indicate an operating cash burn exceeding $900 million between 2022 and 2024, suggesting it has been raising debt to fund its own operations rather than providing surplus cash to Carvana. Gotham highlights discrepancies in loan valuations as well. Carvana books a Gain on Loan Sales when it sells customer loans—allegedly to Bridgecrest—at inflated values. Bridgecrest then reportedly marks down those same assets by as much as 15% (about $900 million) in 2024. If true, that could shift losses off Carvana's public books and onto the private books of related parties. Carvana denied the allegations in an emailed statement, calling them "inaccurate and intentionally misleading," and said all "related-party transactions are accurately disclosed in our financial statements." Ignoring the Noise: Carvana's Record Financials Despite the allegations, Carvana's recent financials paint a strong operational picture. In its Q3 2025 earnings report, the company posted record revenue of $5.65 billion, a 55% year-over-year increase. More notably, Carvana reported GAAP operating income of $552 million and Adjusted EBITDA of $637 million, an 11.3% EBITDA margin—both company records. Those metrics indicate the core buy-and-sell auto business is generating substantial profit even amid complex loan accounting. The company has also significantly repaired its balance sheet, easing prior bankruptcy concerns. At the end of the third quarter Carvana reported strong liquidity and balance-sheet improvements: - Cash on Hand: Over $2.1 billion
- Debt Reduction: Retired about $1.2 billion in corporate debt over two years
- Leverage Ratio: Reduced to 1.5x, a level generally considered healthy for a growth company
Operational gains are visible to customers as well. Integration of the ADESA auction network acquired in 2022 has streamlined logistics in the retail automotive sector, enabling same- or next-day delivery for roughly 40% of sales in the Phoenix market—a tangible efficiency that underpins the company's retail execution. The Smart Money Vote: Price Targets Head Higher Wall Street's initial reaction suggests many institutional investors are looking past the short-seller report. After the Gotham report and Q3 results, several major analysts raised price targets on Carvana. JPMorgan kept its Overweight rating and lifted its target to $510, while Wells Fargo raised its target to $525. Those moves imply analysts view the related-party complexity as manageable noise and are prioritizing Carvana's ability to generate free cash flow and gain market share. Analyst upgrades during a sell-off are often read as a vote of confidence that market reactions are overdone. The Tail Risks: Auditors and Subpoenas Significant risks remain. Gotham notes that Grant Thornton audits Carvana, DriveTime and GoFi, which critics say could create potential conflicts of interest or weaken independent oversight since the same firm signs off on both sides of related-party transactions. More materially, the report references an SEC subpoena from June 2025 into these matters. That is the clearest downside risk: regulatory action that forces an earnings restatement or changes to business practices could pressure the stock further, regardless of strong sales or cash flow. Crisis or Opportunity? Weighing Risk Against Reward Carvana is a high-risk, high-reward investment. The stock trades at more than 90 times trailing earnings, a valuation that tends to produce large swings. It is not appropriate for conservative investors who cannot tolerate double-digit daily moves. For investors with a higher tolerance for volatility, the recent pullback may present an opportunity. Shares trading in the $400–$410 range are well below the recent 52-week high of $486 and below new analyst targets above $500. If Carvana can clarify its accounting relationships with DriveTime and GoFi and sustain operational momentum into 2026, the market could reprice the shares considerably higher. The retail machine appears to be running efficiently, but investors must be prepared to weather potential regulatory and accounting headwinds to capture upside.
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