🍋 Carvana Runs Out of Gas

Carvana's stock value has gone from a high-flying unicorn to a flaming dumpster fire. The company's stock has plummeted 98% in the past year, and its bonds are barely worth the paper they're printed on.

December 22, 2022

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"Remember that banks aren't markets. The market is amoral. The market doesn't care who you are. You're a trade to the market. The market will sell you if they think you're riskier." — Jamie Dimon

Good Morning! Sam Bankman-Fried was extradited to the United States last night, and will await trial in New York. Gary Zhang (co-founder of FTX) and Caroline Ellison (SBF’s ex-girlfriend) both pleaded guilty to fraud yesterday. US home sales took a 7.7% tumble in November, marking a historic tenth consecutive month of decline.

Google can now decode your doctor’s bad handwriting as the search engine giant ups its AI game. The Phoenix Suns are being sold for a record $4 billion to a billionaire mortgage lender. And startups are cancelling their holiday parties as they try and cut costs.

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1. Story of the Day: Carvana Runs Out of Gas

Carvana's stock value has gone from a high-flying unicorn to a flaming dumpster fire. The company's stock has plummeted 98% in the past year, and its bonds are barely worth the paper they're printed on, trading at 40-50 cents on the dollar.

During Covid, a bunch of cash-strapped startups turned to the debt markets for a financial lifeline. These riskier startups were able to secure funding from high-yield bond investors who were willing to take a chance on them, thanks to some seriously low-interest rates and a ton of quantitative easing.

And then there was Carvana, an internet-based company that hit the jackpot during the pandemic thanks to a combination of skyrocketing demand for used cars and the boom in online commerce. Suddenly, all those investors who had been on the sidelines were hit with some serious FOMO as they watched Carvana's equity soar to dizzying heights.

At its peak in 2021, Carvana was worth a whopping $60 billion, even though it was hemorrhaging money. That kind of valuation made bondholders feel like they were on top of the world, even though they were really just setting themselves up for a fall.

And let's not forget about the investors who couldn't be bothered to think about the consequences of rising interest rates and plummeting markets. They were more than happy to keep pouring money into Carvana, even though it was a sinking ship.

Takeaway: It's almost like the idea of a "car vending machine" business with no profits and a mountain of debt was a bad idea. The Fed's low-interest rate policies and subsequent reversal created a perfect storm for Carvana's demise. It was a wild ride in Carvana's prime, where all you needed was access to capital and you were set to go. But alas, those good ol' days are gone and now we're left to clean up the mess of all the over-leveraged financing from the past decade. The capital markets will ultimately decide who comes out on top, and we got a reality check of that this year.

2. Markets Rundown

If you want access to Wall Street insider interviews, industry deep-dives, premium research/resources and weekly Knowledge Drop newsletter, check out our Insiders membership.

Stocks rose, lifted by consumer-confidence data that jumped to its highest level since April.

Movers & Shakers

  • (+) Nike ($NKE) +12% after the company easily topped earnings and revenue estimates for its most recent quarter.

  • (+) BlackBerry ($BB) -10% after reporting a quarterly loss.

  • (–) Rite Aid ($RAD) -17% after the pharmacy operator reported a quarterly loss.

Private Dealmaking

  • Viva Republic, a South Korean super app, raised $405 million

  • Magnetic Rail Group, an Australian rail company, bought Magnetic Rail Group’s East Coast rail unit for $285 million

  • SunKing, a developer of off-grid solar energy products, raised $70 million

  • Small Door, a membership-based veterinary care platform, raised $40 million

  • Sweep, a platform that changes how companies use Salesforce, raised $28 million

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Top Reads

  • 10 recession-proof jobs that will will be in demand in 2023 (CNBC)

  • 2022 was the year inflation changed everything (Axios)

  • Consumer confidence rises to highest level since April (YF)

  • How CoinDesk took down SBF (NYMag)

  • Here’s how much money Google estimates Microsoft’s cloud business is losing (CNBC)

  • Citadel expects to return a record $7 billion to clients (Fox)

  • How long Covid may impact the job market in 2023 (YF)

  • Redfin’s last Wall Street bull finally throws in the towel (BB)

  • Bitcoin miner Core Scientific to file for bankruptcy (CNBC)

4. Book of the Day: Disorder

The 21st century has brought a powerful tide of geopolitical, economic, and democratic shocks.

Their fallout has led central banks to create over $25 trillion of new money, brought about a new age of geopolitical competition, destabilized the Middle East, ruptured the European Union, and exposed old political fault lines in the United States.

Disorder: Hard Times in the 21st Century is a long history of this present political moment. It recounts three histories - one about geopolitics, one about the world economy, and one about western democracies - and explains how in the years of political disorder prior to the pandemic the disruption in each became one big story.

It shows how much of this turbulence originated in problems generated by fossil-fuel energies, and it explains why as the green transition takes place the long-standing predicaments energy invariably shapes will remain in place.

“The book weaves together the history of energy, economics and politics.”

5. Short Squeez Picks

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6. Daily Visual: Duopoly Disrupted

Source: Axios

7. Daily Acumen

"Sociopolitical forces today can make humility feel especially dangerous, and even foolish.

Social media has stunted our ability to reinvent our thinking, because our ideas are increasingly cumulative: Every opinion we’ve ever posted online is memorialized.

With such a well-documented history of beliefs, changing your mind on something important or controversial can feel like weakness and open you up to public criticism.

The solution to this is to take most of your opinions off the electronic grid."

Source: The Atlantic

8. Job Board

9. Memes of the Day

 

 

 

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