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This Week's Exclusive Content

Carvana Drops 14% After $1B Accounting Allegations

Submitted by Jeffrey Neal Johnson. Publication Date: 1/29/2026.

Key Points

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 the last days of January 2026. The stock fell roughly 14%, trading near $408 per share and erasing a large portion of its gains from earlier in the year. The sharp decline surprised many investors because it followed the company's record-breaking third-quarter financial results.

The sell-off was triggered by a new report from short seller Gotham City Research. The report alleges serious accounting irregularities and undisclosed financial dependencies between Carvana and related entities. The publication sets up a classic battleground: one side points to rapidly improving fundamentals and cash flow, while the other highlights complex related‑party accounting risks. Investors now must decide whether the pullback signals structural problems or a discounted buying opportunity.

Smoke and Mirrors? Analyzing the Accounting Claims

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The Gotham City Research report centers on Carvana's relationships 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 earnings for 2023–2024 by more than $1 billion by using those entities to subsidize its operations.

A focal point of the report is a lesser-known entity called GoFi, LLC. Financial documents for GoFi show that nearly 100% of its 2024 revenue—about $7.1 million—came from gains on the sale of finance receivables. Gotham uses this detail to argue GoFi may exist primarily to move loans and capital between related parties rather than to operate as an independent business.

The report also questions DriveTime's role as a financial backstop for Carvana. DriveTime's 2024 statements reportedly show negative operating cash flow of more than $900 million over the 2022–2024 period, suggesting DriveTime has been raising debt to fund its own operations rather than generating surplus cash to support Carvana.

Gotham further alleges discrepancies in loan valuations. According to the report, Carvana books immediate profits by selling customer loans to related parties such as Bridgecrest at inflated values. Bridgecrest then allegedly marks down those same assets later by as much as 15%—roughly $900 million in 2024—shifting potential losses off Carvana's public books and onto private ones.

Carvana pushed back in an emailed statement, calling the allegations "inaccurate and intentionally misleading" and saying that all "related‑party transactions are accurately disclosed in our financial statements."

Amid the Noise: Carvana's Record Financials

Despite the allegations, Carvana's recent operating results are strong. In its Q3 2025 earnings report, the company posted record revenue of $5.65 billion, a 55% year‑over‑year increase.

Carvana also reported GAAP operating income of $552 million and adjusted EBITDA of $637 million, an 11.3% margin—both company records. These metrics suggest the core business of buying and selling cars is generating tangible profit, independent of the contested loan accounting.

The company has materially improved its balance sheet, addressing previous bankruptcy concerns. At the end of the third quarter, key liquidity and capital metrics included:

Cash on Hand: More than $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, Carvana 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 about 40% of sales in the Phoenix market—a tangible efficiency advantage critics cannot easily dismiss.

The Smart Money Vote: Price Targets Head Higher

Wall Street's initial reaction suggests some institutional investors are looking past the short‑seller report. After the Gotham publication and the Q3 earnings release, several major analysts raised their price targets for Carvana.

JPMorgan maintained its Overweight rating and raised its target to $510, while Wells Fargo increased its target to $525. Those upgrades imply analysts view the related‑party complexities as manageable relative to the company's improving cash generation and market share gains.

Analysts boosting targets amid a sell‑off is often read as a vote of confidence that the market reaction may be overdone.

The Tail Risks: Auditors and Subpoenas

Material risks remain. The Gotham report notes that Grant Thornton serves as auditor for Carvana, DriveTime, and GoFi. Some observers contend this could create perceived conflicts or weaken independent oversight, since the same firm signs off on both sides of related‑party transactions.

More concretely, Gotham references an SEC subpoena from June 2025 covering these issues. That represents the clearest hard risk: regulatory scrutiny could lead to restatements, fines, or other enforcement actions. If regulators force accounting changes or operational adjustments, the stock could face further pressure regardless of ongoing sales momentum.

Crisis or Opportunity? Weighing Risk Against Reward

Carvana remains a high‑risk, high‑reward investment. The stock trades at a valuation north of 90 times trailing earnings, which naturally invites significant volatility. It is not suitable for conservative investors who cannot tolerate double‑digit daily moves.

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

The underlying retail machine appears to be firing on most cylinders, but capturing the potential upside requires investors willing to weather the regulatory and legal uncertainties that linger.

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