Carvana - Recurve’s Response to Hindenburg’s Short Attack
Background
Recurve Capital has had a significant investment in Carvana for several years and it has grown to become the largest position in our portfolio. Last week on January 2nd, Hindenburg Research (henceforth “Hindenburg” or “HR”) published a short attack on Carvana, claiming all sorts of risks and improprieties at and around the company. The main thrust of the argument goes like this:
Carvana originates bad loans and uses several unsavory methods to mask that fact.
Opaque related party transactions between Carvana and Drivetime appear to be overly favorable to Carvana.
The stock is expensive even if the business is valid.
Hindenburg’s piece is a rambling affair that is purposely inflammatory, misleading, manipulative, and irresponsible. For instance, it smeared the entirety of Grant Thornton, insinuating that it is a firm that simply allows fraud to happen. Making such claims is incredibly irresponsible and potentially libelous.
Rather than respond to all 85 pages of sensationalist material, I’d like to focus on the points above which should address the primary concerns that would impact enterprise value. This does get a bit technical in places, but it’s essential to walk through the details to build conviction in our conclusions. Let’s dive right in…
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