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Carvana Drops 14% After $1B Accounting Allegations

Author: Jeffrey Neal Johnson. Article Posted: 1/29/2026. 

Summary

• 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 experienced extreme volatility in late January 2026. The stock fell roughly 14%, trading near $408 per share and wiping out a large portion of its earlier gains for the year. The decline is especially jarring because it followed the company’s record third-quarter financial results.

The catalyst for the sell-off was a new report from short seller Gotham City Research. It alleges substantial accounting irregularities and undisclosed financial dependencies between Carvana and related corporate entities. The situation sets up a classic battleground for the stock: one camp points to improving fundamentals and cash flow, while the other warns of complex accounting risks. Investors must now decide whether the pullback signals a structural problem or a discounted buying opportunity.

Smoke and Mirrors? Analyzing the Accounting Claims

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The Gotham report centers on Carvana’s dealings with companies controlled by the Garcia family. Ernest Garcia II, the father of Carvana CEO Ernest Garcia III, controls DriveTime Automotive Group and Bridgecrest. Gotham alleges Carvana overstated its earnings from 2023 through 2024 by more than $1 billion by using these related entities to subsidize operations.

A focal point is a lesser-known entity called GoFi, LLC. Financial documents for GoFi show that nearly all of its 2024 revenue—about $7.1 million—came from gains on the sale of finance receivables. Gotham argues this suggests GoFi may exist primarily to move loans and capital between affiliated companies rather than to operate as an independent business.

The report also questions whether DriveTime actually serves as a financial backstop for Carvana. DriveTime’s financials indicate a cash burn from operating activities totaling more than $900 million from 2022 through 2024. Rather than supplying surplus cash to support Carvana, DriveTime appears to be raising debt to fund its own operations.

Gotham further highlights discrepancies in loan valuations. Carvana books profits when it sells customer loans (Gain on Loan Sales). The short seller claims Carvana sells loans to Bridgecrest at inflated values to record immediate gains, and Bridgecrest subsequently marks those same assets down—by as much as 15%, or roughly $900 million in 2024. If true, that process could shift losses off Carvana’s public books onto the private books of related parties.

Carvana rejected the claims in an email statement, calling them “inaccurate and intentionally misleading,” and said all its “related-party transactions are accurately disclosed in our financial statements.”

Ignoring the Noise: Carvana’s Record Financials

Despite the allegations, Carvana’s recent operating performance is strong. 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% margin, a company record. Those metrics indicate the core business of buying and selling cars is generating tangible profit, regardless of the contentious loan accounting.

The company has also materially repaired its balance sheet, addressing the bankruptcy concerns that weighed on the name in prior years. Carvana closed the third quarter with improved liquidity and balance-sheet metrics:

• Cash on Hand: Over $2.1 billion
• Debt Reduction: Retired roughly $1.2 billion in corporate debt over the past two years
• Leverage Ratio: Reduced to about 1.5x, a level generally considered healthy for a growth company

Operationally, the company has integrated the ADESA auction network it acquired in 2022, streamlining logistics in the retail automotive sector. That integration enables same-day or next-day delivery for roughly 40% of sales in the Phoenix market—a tangible efficiency that supports the business case beyond accounting debates.

The Smart Money Vote: Price Targets Head Higher

Wall Street’s initial reaction suggests some institutional investors are looking past the short-seller report. In the wake of Gotham’s release and the Q3 results, several major analysts raised their price targets on Carvana.

JPMorgan maintained its Overweight rating and lifted its target to $510, while Wells Fargo raised its target to $525. Those upgrades imply analysts view the related-party complexity as manageable noise and are prioritizing Carvana’s demonstrated ability to generate free cash flow and gain market share.

When analysts raise targets during a sell-off, it is often interpreted as a vote of confidence that the market reaction may be overdone.

The Tail Risks: Auditors and Subpoenas

That optimism comes with clear risks. Gotham notes that Grant Thornton serves as the auditor for Carvana, DriveTime and GoFi. Critics contend that using the same audit firm across related entities could present a potential conflict of interest or weaken independent oversight, since the same firm is effectively signing off on both sides of related-party transactions.

More materially, the report references an SEC subpoena from June 2025 into these issues. That represents the most concrete risk for investors: regulatory or enforcement action could force a restatement of prior results or other changes to business practices. If that happens, the stock could face further downward pressure regardless of operational strength.

Crisis or Opportunity? Weighing Risk Against Reward

Carvana remains a high-risk, high-reward investment. The stock trades at a lofty multiple—over 90 times trailing earnings—which typically produces elevated volatility. It is not a fit for conservative investors who cannot tolerate large daily moves.

For investors with a higher risk tolerance, the recent pullback may present an opportunity. The stock was trading in the $400–$410 range, well below its recent 52-week high of $486 and materially below new analyst targets above $500. If Carvana can clarify the accounting questions around DriveTime and GoFi and sustain its operational momentum into 2026, the market could reprice the shares quickly.

The company’s retail engine appears to be firing on multiple cylinders, but investors must be prepared to weather potential regulatory scrutiny to capture the upside.

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