Carvana stock surge leaves short sellers sitting on $1 billion loss

Carvana (CVNA) stock jumped more than 50% on Thursday, leaving short sellers to suffer heavy losses as the struggling auto retailer continues its recovery.

On Friday, the stock saw wild swings again, rising as much as 12% before falling more than 5% in morning trading. Friday’s drop, however, is unlikely to ease the pain felt by short sellers after Thursday’s 56% rally that pushed this year’s losses for bets against the stock higher.

“[Carvana] the shorts have now exceeded the [billion dollar] mark year-to-date losses at market value, down $1.037 billion in mark-to-market losses for the year,” Ihor Dusaniwsky of S3 Partners told Yahoo Finance.

Carvana shares are heavily shorted with short interest at 55.66% of free float, according to data compiled by S3 Partners. With Thursday’s move — which topped 60% at one point in the trading session — short sellers shed up to $440 million in mark-to-market losses.

Carvana shares surged on Thursday amid the short-lived pressure and following the news, the company expects to hit adjusted EBITDA north of $50 million in the second quarter. Earlier this year, the company reported that it would achieve positive adjusted profit in the second quarter, but did not give an exact figure.

“Our record first quarter of 2023 is proof that our strategy is working, and our updated outlook for the second quarter of 2023 demonstrates that our progress continues to have a positive impact on the business even faster than expected,” said Ernie Garcia, founder and CEO of Carvana, in a press release. .

Carvana announced cost-cutting measures last year in a bid to preserve cash as the stock crashed in 2022, plummeting 98% amid fears on Wall Street that the company could tumble into bankruptcy.

AUSTIN, TEXAS - FEBRUARY 20: Vehicles are displayed at a Carvana dealership on February 20, 2023 in Austin, Texas.  According to the Wall Street Journal, auto consumers with low credit scores have fallen behind in payments in numbers not seen since 2010. (Photo by Brandon Bell/Getty Images)

Vehicles are seen on display at a Carvana dealership on February 20, 2023 in Austin, Texas. (Photo by Brandon Bell/Getty Images)

This year, the company’s shares have risen 425% amid rallies reminiscent of the “meme craze” of the pandemic era.

Dusaniwsky said some of Thursday’s trading action could be attributed to shorts coverage after being caught off guard ahead of Carvana’s profit signal. However, Dusaniwsky said the majority of the move was driven by traders looking to get long in the stock on this new outlook rather than selling short to cover losses.

“We should expect more cover buying over the next few days if this price level holds, as few short sellers can stay short of a stock with a cumulative return of -79% in June” , said Dusaniwsky. “There should be a few knocks on the shoulders of risk managers to reduce or exit CVNA shorts.”

Ines is a senior economics reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

Click here for the latest stock market news and in-depth analysis, including events moving stocks

Read the latest financial and business news from Yahoo Finance

Leave a Comment