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Carvana stock surge leaves short sellers sitting on $1 billion loss

Carvana (CVNA) stock surged more than 50% on Thursday, leaving short sellers sitting on heavy losses as the troubled car retailer continues its turnaround.

On Friday, the stock was again seeing wild swings, rising as much as 12% before dropping 21% to close at $19.07 per share. Friday's drop, however, isn't likely to blunt the pain felt by short sellers following Thursday's 56% rally that pushed this year's losses for bets against the stock higher.

"[Carvana] shorts have now topped the [billion dollar] mark in year-to-date, mark-to-market losses, down $1.037 billion in mark-to-market losses for the year," Ihor Dusaniwsky of S3 Partners told Yahoo Finance.

Carvana shares are heavily shorted with short interest at 55.66% of the float, according to data compiled by S3 Partners. With Thursday's move — which exceeded 60% at one point during the trading session — short sellers were down as much as $440 million in mark-to-market losses.

Carvana shares surged Thursday amid this short squeeze and following news the company expects to achieve adjusted EBITDA north of $50 million in the second quarter. Earlier this year, the company had signaled it would reach positive adjusted earnings in Q2 but hadn't given an exact figure.

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"Our record-breaking 2023 first quarter is evidence that our strategy is working, and our updated Q2 2023 outlook demonstrates that our progress continues to positively impact the business even faster than expected," Ernie Garcia, Carvana founder and CEO, said in a release.

Carvana announced cost-cutting measures last year in an effort to preserve cash as the stock was crushed in 2022, falling 98% as Wall Street worried the company could tip into bankruptcy.

AUSTIN, TEXAS - FEBRUARY 20: Vehicles are seen on a display at a Carvana dealership on February 20, 2023 in Austin, Texas. Auto consumers with low credit scores are reported to have fallen behind in payments in numbers unseen since 2010 according to the Wall Street Journal.  (Photo by Brandon Bell/Getty Images)
Vehicles are seen on a display at a Carvana dealership on February 20, 2023 in Austin, Texas. (Photo by Brandon Bell/Getty Images) (Brandon Bell via Getty Images)

This year, shares of the company are up a whopping 425% amid rallies reminiscent of the pandemic-era "meme craze."

Dusaniwsky said a portion of Thursday's trading action could be attributed to shorts covering after getting caught flat-footed ahead of Carvana's profit signal. However, Dusaniwsky said the majority of the move was driven by traders looking to get long the stock on this new outlook rather than shorts covering losses.

"We should expect more buy-to-covers over the next few days if this price level holds, as not many short sellers can remain short a stock with a -79% June month-to-date return," Dusaniwsky said. "There should be a few taps on the shoulders from chief risk officers to trim or exit CVNA short positions."

Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

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