Form 4: Carvana Co. Director Ernest Garcia II Sells Shares Under 10b5-1 Trading Plan

Director Ernest Garcia II, along with related entities, sold Carvana Co. Class A Common Stock over two days under a pre-arranged Rule 10b5-1 trading plan.

Summary

• Ernest C. Garcia II, a director and 10% owner of Carvana Co., sold shares of Class A Common Stock on July 18 and 19, 2024.
• The sales were executed under a Rule 10b5-1 trading plan adopted on March 11, 2024, by Ernest C. Garcia II and Elizabeth Joanne Garcia.
• On July 18, 2024, Garcia sold shares at weighted average prices ranging from $128.909 to $136.8179.
• On July 19, 2024, Garcia sold shares at weighted average prices ranging from $129.4916 to $135.9289.
• The sales were conducted through multiple transactions within specified price ranges.
• The shares were sold directly and indirectly through Verde Investments, Inc., an entity wholly owned and controlled by Mr. Garcia.
• Mr. Garcia also holds Class A and Class B shares through various trusts, including the Ernest Irrevocable 2004 Trust III and the Ernest C. Garcia III Multi-Generational Trust III.
• Additionally, Mr. Garcia holds shares through ECG II SPE, LLC, an entity he wholly owns and controls.
• The filing also discloses ownership of Class A Units exchangeable for Class A Common Stock through an Exchange Agreement.

Sentiment

Score: 5

Explanation: The sentiment is neutral. The sales were conducted under a pre-arranged 10b5-1 trading plan, which reduces the negative implications. However, any insider selling can create uncertainty.

Positives

• The sales were conducted under a pre-arranged Rule 10b5-1 trading plan, which can mitigate concerns about insider trading as the plan was established well in advance of the transactions.

Negatives

• The sale of shares by a director could be perceived negatively by investors, potentially signaling a lack of confidence in the company's future performance, although the 10b5-1 plan mitigates this concern.

Risks

• Continued sales by insiders, even under a 10b5-1 plan, could put downward pressure on the stock price.
• Market perception of insider sales could negatively impact investor sentiment.

Industry Context

Insider sales are common, but the market often scrutinizes them for signals about a company's prospects. The use of a 10b5-1 plan is intended to provide transparency and avoid accusations of trading on non-public information. Carvana operates in the highly competitive online used car market, where companies like Vroom and CarMax also face similar scrutiny regarding insider transactions.

Comparison to Industry Standards

• Comparing Carvana's insider trading activity to peers like CarMax (KMX) and Vroom (VRM) shows that insider sales are a common occurrence in the industry.
• However, the scale and frequency of these transactions, as well as the use of 10b5-1 plans, can vary significantly.
• For example, CarMax executives also utilize 10b5-1 plans for stock sales, while smaller companies like Vroom may see more sporadic and less structured insider activity.
• The key difference lies in the market's perception of these sales; consistent, pre-planned sales are generally viewed less negatively than opportunistic trades.

Stakeholder Impact

• Shareholders may react to the news of insider sales, potentially leading to short-term price volatility.
• Employees may be concerned about the long-term implications of insider sales, although the 10b5-1 plan mitigates some of these concerns.

Key Dates