Carvana Q4 2025: $1.9B GAAP Profit on a Pre-Tax Loss, SEC Investigation, and the Most Complex Name in US Auto Retail
Carvana beat EPS estimates by 274% ($4.22 vs. $1.13 consensus) and the stock dropped 15-20% after hours. The headline profit was driven by a $2.8B non-cash deferred tax asset release on a pre-tax loss of $890M. An SEC investigation targets $600M+ in annual Garcia family related-party transactions. Two major short sellers allege fraud. Management responded with a blanket denial. We ran 1,000+ pages of filings through 8 analytical lenses with 6 AI models. All 8 lenses converged on the same central question.
This is a summary of our full CVNA analysis →
Disclosure: As of 2026-02-10, the Runchey Research Model Trading Fund holds put options in CVNA. Per our Editorial Policy, these are classified as Event-Driven holdings and may be adjusted immediately following the relevant catalyst event. View our full Editorial Integrity & Disclosure Policy.
The Numbers That Matter
Driven by $2.8B non-cash DTA release
Actual pre-tax result: a loss
+49% YoY; 596,641 retail units (+43%)
Despite 274% EPS beat
Genuine operational metric
Under active SEC investigation
Surged from $65M; 85% to insiders
5 of 7 officers in 10b5-1 plans
The Central Question
Carvana is the most analytically complex name we have examined. Revenue of $20.3B (+49% YoY), 596,641 retail units (+43%), and Adj. EBITDA of $2.2B represent genuine operational achievements. The company retired $709M in debt at 9-11% rates, eliminated all PIK interest, and is targeting investment-grade credit ratios. The competitive position — 34 inspection and reconditioning centers, ADESA wholesale network, proprietary logistics — is DEFENSIBLE.
But that operational reality sits inside a governance structure where the Garcia family controls both sides of $600M+ in annual related-party transactions, has a $2.2B TRA obligation directing 85% of tax benefits to insiders, maintains dual-class voting control, and allegedly shares the same auditor (Grant Thornton) across all Garcia entities. An SEC investigation (subpoena June 2025) targets these practices. Two detailed short seller reports allege fraud. The CFO responded with a blanket denial ("100% inaccurate") without point-by-point rebuttal. We ran 1,000+ pages through 8 analytical lenses with 6 AI models. All 8 lenses converged naturally with zero Voice of Reason interventions needed.
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Why the Stock Dropped on a 274% EPS Beat
The headline appears paradoxical: Carvana reported EPS of $4.22 vs. $1.13 consensus — a 274% beat — and the stock fell 15-20%. The answer is in the composition of the beat.
$2.8B Non-Cash DTA Release
GAAP net income of $1,895M was almost entirely driven by a ~$2,785M non-cash deferred tax asset valuation allowance release. When a company returns to sustained profitability, GAAP requires the release — it is standard accounting, not manipulation. But the pre-tax result was a loss of $890M. The headline figure is a non-cash accounting event, not $1.9B in actual profit.
Pre-Tax Loss of $890M
Remove the DTA release and the company lost $890M pre-tax. Operating income was $1,881M (9.3% margin) — genuinely strong. The gap between operating income and pre-tax loss is driven by interest expense (~$505M) and other items. Investors who focus on Adj. EBITDA ($2,187M) see a profitable company. Investors who focus on GAAP pre-tax see a loss.
Short Seller Overhang
Hindenburg (January 2025) and Gotham City Research (January 2026) published detailed reports alleging undisclosed related-party subsidies. An SEC subpoena was issued in June 2025. On the earnings call, CFO Jenkins described the reports as "100% inaccurate" without point-by-point rebuttal. Three independent lenses classified this blanket denial as a governance communication gap.
Key Signals Across 8 Lenses
Eight analytical lenses produced 15 signal assessments. Here are the six that define the investment case. See the full analysis for all 15 with complete evidence.
$1.9B GAAP profit driven by $2.8B non-cash DTA release on pre-tax loss of $890M. $600M+ RPTs lack arm's-length pricing disclosure.
Garcia family controls both sides of $600M+/yr RPTs. $1.7B TRA to related parties. Shared auditor alleged. Blanket denial without detail.
89.5% of revenue is durable retail vehicle sales. 10.5% (~$2.1B) dependent on loan partnerships and DriveTime RPTs, but contributing ~36% of gross profit.
34 IRCs + ADESA network + proprietary logistics. SG&A up 23% vs units up 43% = operating leverage. 1.6% market share with capacity for 1.5M units.
$709M debt retired at 9-11%. Zero buybacks. Zero dividends. Organic only. IG targeting. Consistently correct since 2023 restructuring.
SEC cascade scenario: 70-90% equity destruction at 3-10% probability. All 7 other lens assessments depend on financial statement accuracy.
The Garcia Family RPT Complex
The governance structure is what makes CVNA unlike any other name in our coverage. Garcia II controls DriveTime, Bridgecrest, and GoFi. Garcia III controls Carvana. Together, they operate on both sides of $600M+ in annual related-party transactions.
| RPT Category | FY2025 | Notes |
|---|---|---|
| Master Dealer Agreement | $338M | +75% YoY vs. 43% unit growth |
| Reconditioning (to DriveTime) | $147M | Expense paid to Garcia entity |
| Leases (to DriveTime) | $66M | Property leased from insiders |
| TRA (to related parties) | $1,721M | 85% of realized tax benefits; surged from $65M |
| Annual Recurring RPT Flows | ~$590M | Excludes TRA (contingent) |
The committee debated the governance classification intensely. The Fugazi Filter classified it as CAPTURED — arguing the combination of TRA + RPT web + dual-class control + shared auditor is unusual even among Up-C corporate structures. The Insider Investigator reached MISALIGNED — one level less severe — weighting observable behavior patterns over structural architecture. The true classification likely sits at the boundary.
Where Our Models Disagreed
25 debates across 8 lenses. Natural convergence on every debate with zero Voice of Reason interventions needed. Here are four that shaped the final assessment.
CAPTURED vs. MISALIGNED Governance
Resolved: CAPTURED. Opus conceded after Sonnet challenged it to name another Up-C where the controlling family controls both the public company AND private RPT counterparties, receives 85% of tax benefits via TRA, AND shares the same auditor. Opus could not.
TRA: Debt or Profit-Sharing?
Resolved: contingent profit-sharing. TRA has no maturity, no interest, and cannot trigger default. Adding it to debt overstates funding fragility. But it reduces deleveraging velocity and directs 85% of tax benefits to insiders.
Was the DTA Disclosure Obfuscated?
Resolved: no. Management discussed DTA mechanics explicitly on the earnings call. The concern is headline risk (investors misinterpreting the figure), not intent to mislead. Sonnet withdrew the 'obfuscation' characterization.
REGULATORY_EXPOSURE: MANAGEABLE vs. ELEVATED
Resolved: ELEVATED. An active SEC subpoena targeting core business practices (RPTs) is qualitatively different from operational compliance risk. Opus conceded that securities enforcement warrants ELEVATED even though operational regulation is minimal.
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The Part That Is Genuinely Strong
The governance concerns should not obscure what the company has accomplished operationally. These are real achievements:
Operational Leverage at Scale
SG&A grew 23% while units grew 43% — demonstrating the operating leverage that was always the bull thesis. Revenue per unit is declining (more lower-cost vehicles) but fixed cost absorption is improving. The 34 IRC network plus ADESA integration creates logistical infrastructure competitors cannot replicate quickly.
Capital Structure Recovery
From near-bankruptcy in 2022 to 1.3x net debt/EBITDA. All PIK interest eliminated ($105M to $0). $709M in debt retired at 9-11%. Targeting investment-grade credit ratios. This is the most disciplined capital deployment in our coverage universe (E3 evidence level — highest).
Defensible Competitive Position
Vertical integration across sourcing, reconditioning, logistics, and financing creates measurable barriers. 1.5M units/year capacity with land banked for 3M. Constrained from DOMINANT by commoditized product (used cars), negligible switching costs, and 1.6% market share in a 37M unit/year market.
What Could Go Wrong: Three Compound Scenarios
The Black Swan Beacon identified a critical dependency: all 7 other lens assessments depend on a single assumption — financial statement accuracy supported by an allegedly non-independent auditor.
Scenario 1: SEC Cascade (3-10% probability, 70-90% equity destruction)
SEC enforcement action forces restatement or disclosure changes. Grant Thornton resigns. Counterparties flee from loan purchase agreements. ABS market access disrupted. Debt covenant reviews triggered.
Scenario 2: Capital Market Disruption (5-15% probability, 30-50% impairment)
Ally facility ($6B, expiring October 2026) not renewed. ABS spreads widen. Loan origination constrained. The ~36% of gross profit from conditional revenue compresses.
Scenario 3: Compound Operational + Governance (10-25% probability, 30-50% impairment)
Volume decline (-20%) coincides with SEC escalation and reconditioning cost headwinds. Interest coverage drops to ~2.7x. Restructuring tools from 2022 (PIK conversion, debt exchange) have been permanently consumed.
What to Watch
Six of 8 lenses identified the SEC investigation as their top monitoring trigger. These are the events that would change our assessment:
| Trigger | Direction | Impact |
|---|---|---|
| SEC clean resolution | Positive | Shifts 4+ signals favorably; REGULATORY from ELEVATED to MANAGEABLE |
| SEC enforcement action | Negative | FUNDING_FRAGILITY to STRAINED; deepens CAPTURED governance |
| Grant Thornton resignation | Negative | Immediate re-analysis; validates shared auditor concern |
| Ally facility renewal (Oct 2026) | Either | $6B facility expiry; renewal = positive, non-renewal = material |
| Robbins Geller discovery | Either | Securities suit survived MTD; discovery may produce new documents |
Bottom Line
Carvana's operational turnaround is genuine. The governance structure around it is genuinely concerning. These two facts are not in conflict — a company can build a strong business while governance structures extract disproportionate value from minority shareholders.
The committee's classification is HIGHER_SCRUTINY rather than AVOID because the operational achievements are real and the SEC investigation outcome is uncertain — enforcement is not a foregone conclusion. But the combination of CONCERNING accounting integrity, CAPTURED governance, ELEVATED regulatory exposure, and STRETCHED market expectations ($85B valuation requiring unprecedented growth AND clean governance resolution) warrants scrutiny beyond standard diligence.
The SEC investigation is time-bound and produces discrete outcomes. Until resolution, the governance structure and lack of arm's-length pricing verification on $600M+ in annual related-party transactions prevent assessment at standard levels.
Public Sources Used
This analysis was powered by the following publicly available documents:
- Annual Report (10-K) — FY2025 (filed 2026-02-18)
- Quarterly Reports (10-Q) — Q1-Q3 2025
- Current Reports (8-K) — Q4 2025 earnings release + 6 prior
- Proxy Statement (DEF 14A) — March 2025
- Schedule 13D/A — Garcia family holdings (3 filings)
- Schedule 13G/A — Institutional holdings (3 filings)
- Q3 2025, Q2 2025, Q1 2025, Q4 2024 Earnings Transcripts
- Form 4 — 20 insider transaction filings (Dec 2025 - Feb 2026)
- Form 144 — 10 proposed sales filings
- Hindenburg Research: "Carvana: A Father-Son Accounting Grift For The Ages" (January 2025)
- Gotham City Research: "Carvana, Bridgecrest, and the Undisclosed Transactions and Debts" (January 2026)
- DriveTime 2024 Annual Report (FOIA, via Gotham City)
- GoFi LLC 2024 Annual Report (FOIA, via Gotham City)
- CourtListener litigation records (10 cases)
- Google Trends data (search interest: 95/100, stable)
- Greenhouse job postings (1,505 listings, 50% reconditioning)