Markets
markets
Kelly Cloonan

Carvana tumbles as weakness under the hood overshadows earnings beat

Carvana’s supercharged rebound just shifted into lower gear as its latest earnings report failed to impress investors’ sky-high expectations and justify the stock’s 444% rally over the past year, sending shares on a 12% tailspin. A top- and bottom-line beat from the used-car seller disguised some points of softness under the hood.

Of note: its wholesale business failed to move as many units as analysts expected. However, the used-car seller reported $3.55 billion in fourth-quarter revenue after market close on Wednesday, marking a 46% rise from a year prior and coming in above forecasts of $3.34 billion, according to analysts polled by Bloomberg.

The company’s adjusted earnings also exceeded expectations, coming in at $359 million for the quarter after a loss of $200 million a year prior. The latest figure brings the company’s full-year adjusted earnings to $1.38 billion, roughly in line with the company’s expectations for earnings “significantly above the high end” of a range between $1 billion to $1.2 billion.

In its forward outlook, Carvana said it expects another strong year, with significant growth in both units sold and adjusted earnings, but did not specify any exact numbers.

The stock’s downward move marks a slight dent in the tremendous rally that’s seen shares rise 6,859% from an all-time low in 2022. After nearing bankruptcy amid slowing sales and mounting debt, Carvana has seen its used-car sales rebound — up 33% over the course of last year — as new-car prices continue to rise since pandemic-era disruptions limited supply.

The turnaround hasn’t been without controversy, though. Last month, short seller Hindenburg Research accused the company of accounting manipulation and lax underwriting standards to boost results, all while shielding investors from the risk underlying the loans it originates and sells to lenders. Carvana said those accusations were nothing new, and stood firm on its accounting practices.

Kelly Cloonan is a journalist who has written for Business Insider and Fast Company.

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Max Knoblauch

Report: Boeing could unveil 500-jet order from China during Trump’s visit later this month

Shares of Boeing are up nearly 4% on Friday afternoon, following a Bloomberg report that the company could be close to finalizing a deal to sell 500 planes to China.

The deal was first reported in August and would be one of Boeing’s largest ever.

According to Bloomberg’s sources, the deal could be officially unveiled when President Trump travels to China at the end of the month. That trip could be delayed given the war in Iran. The deal, sources say, could still fall apart — similar language to when it was first reported on more than six months ago.

Boeing has been on the outside of the Chinese market, in terms of new orders, since 2019 amid escalating US-China trade tensions.

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According to Bloomberg’s sources, the deal could be officially unveiled when President Trump travels to China at the end of the month. That trip could be delayed given the war in Iran. The deal, sources say, could still fall apart — similar language to when it was first reported on more than six months ago.

Boeing has been on the outside of the Chinese market, in terms of new orders, since 2019 amid escalating US-China trade tensions.

markets
Matt Phillips

Why software shares are withstanding the war jitters

The outbreak of the war in Iran has clearly rattled investors and created a few clear winners — mostly energy stocks — and losers — consumer staples, airlines, and, well, more or else everything else.

But there is one interesting outlier to that Manichaean market dynamic.

Software shares — often the same companies that the market was giving up for dead just a few weeks ago due to overexpectations of an AI-driven disruption — have been holding up remarkably well.

These companies, including Intuit, ServiceNow, Datadog, Snowflake, IBM, Workday, and Oracle, have actually had a pretty decent run since the war started with a combined US-Israeli attack on Iran last weekend.

A new note from RBC Capital’s Rishi Jaluria suggests this isn’t just a fluke. Looking at the performance of software stocks during periods of geopolitical stress and market volatility over the last 10 and 25 years, his team found that software shares appear fairly well insulated when these broader shocks hit. RBC wrote:

“The defensive nature of SaaS models and the mission-critical nature of many core software systems at the enterprise level (e.g., in the absence of mass layoffs that may create seat-based headwinds, geopolitical uncertainty and/or market volatility typically will not cause an enterprise CIO to consider ripping out their ERP, CRM, Cyber systems, etc.”

I briefly got Jaluria on the phone yesterday, and he explained a bit more about why he thinks investors might see software as a decent place to hide out from the current chaos.

“With everything in the Middle East, you have to think about not just oil and gas input prices but also supply chains,” he said. “With software, you’re not really thinking about that.”

In other words, there is no equivalent of a closure of the Strait of Hormuz that software investors have to worry about.

Others suggested that the near-term profitability of these giant software companies — aside from concerns about potential long-term disruption from AI — may look different in the face of the economic uncertainty that seems to be growing with the war, especially after a sell-off that has left them relatively attractively valued.

Mark Moerdler, who covers software stocks for Bernstein Research, says that while the AI worries are clearly real, software companies continue to be highly productive cash cows.

“Everyone is afraid that AI is a massive disruptor, and all these articles you read talk about AI as massive disruptor or the world is ending or whatever,” he said. “You don’t see it in the fundamental numbers of the companies I cover. They are delivering GAAP profits, free cash flow, and they’re good investment ideas.”

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