Carvana Stock Crash and Employee Purge

Not all press is good press. Carvana—the door-to-door car e-tailer—was once the buzz about town. The company’s commercials graced every television and phone screen, touting their tagline: a better way to buy a car. As a result, people bought and sold their cars through a seamless process.

As of late, however, they’ve earned their buzz for very different reasons.

First Came the Crash…

It’s no secret that pandemic-era businesses, i.e., Zoom, Peloton, and BNPL services, have deflated in recent months. However, people have returned to gyms and offices (to a degree) and are still paying off the online purchases they made in 2020. Another thing people are buying less of? Cars. Auto sales spiked during the pandemic as demand for used and new vehicles surged.

It was during this time that Carvana experienced incredible growth. Its stock price climbed higher and higher, ultimately tapping out at around $360 US. But all good things must come to an end. Since the fall of 2021, the company’s share price has experienced quite the avalanche due in part to slowing growth, supply chain issues, and inflated prices.

Then Came the Purge

2022 has been difficult for the car retailer. Reported earnings for the first quarter revealed a $506 million loss and the company announced it was selling $1 billion worth of stock. While Carvana is still growing, it is growing slower than expected. The disparity between expectation and reality led to a dramatic budget cut.

On Monday, May 9, Carvana CEO Ernie Garcia III emailed employees, notifying them of layoffs.

2,500 Carvana employees—12% of its workforce—lost their jobs that day without any direct contact from managers. After the email from Garcia, affected employees lost access to email and were asked to attend a Zoom meeting.

While many companies experience layoffs, what’s leaving a bad taste in everyone’s mouth is how Carvana went about it. The company ultimately notified most employees via Zoom. Sure, there’s no cleaning out your desk or being escorted by security, but letting one know that their job is disappearing via video chat feels rather impersonal.

The announcement sparked another drop in Carvana’s share price, and as of May 24, it hovers around $27 US.

What’s Ahead

No one could have predicted that the Russia-Ukraine conflict would hurt the auto industry as much as it has. The semiconductor chip shortage hinders Carvana’s supply of used vehicles: if people can’t buy a new car, they don’t want to sell their old car.

Long-term, it’s unclear how, when, and if Carvana will recover. For investors, the Carvana story is a lesson that the rise in a company’s stock price isn’t always as it seems.

If you’re well on your way to earning your accredited investor certificate, it’s imperative to remember this. If you have questions or are curious about becoming an accredited investor, get in touch with us here at Verify Investor.