What happened

Shares of Carvana (CVNA -2.10%) slumped Thursday morning, falling as much as 4.5%. As of 2:01 p.m. ET, the stock was still down 1.9%.

While the downdraft in the broader markets no doubt contributed to the decline, the car-buying e-commerce platform had a catalyst of its own in the form of reduced expectations by a Wall Street analyst.

So what

Jefferies analyst John Colantuoni reduced his price target on Carvana, lowering it from $43 down to $23 while maintaining a hold rating on the shares. It wasn't just the online car selling platform that suffered reduced estimates, as the analyst lowered his expectations across the board for U.S. internet-based stocks, with his bearish outlook prompted by the slowing macroeconomic environment. 

Colantuoni reduced his estimates by 5% on average, though that puts his models below analysts' consensus estimates. He believes that investors would do well to use risk/reward to decide which internet stocks are worth owning for the long term. He recommends focusing on companies with "competitive differentiation, exposure to attractive end-markets, levers to offset softer demand, and robust" free cash flow.

Carvana wasn't among his preferred companies in the sector, which include Airbnb, which Colantuoni believes is the most recession resistant of the bunch, and Etsy, as its fundamentals have already hit their "trough."

Now what

Bearish commentary aside, Carvana investors have other things to worry about. The impact of inflation on consumers is front and center, as the used car market is already experiencing softer demand.

Just last week, rival CarMax reported results for its fiscal second quarter (ended Aug. 31), and the results fell far short of expectations. Carvana's Q2 results, reported two months earlier, also missed expectations. The combination of 40-year-high inflation, high retail prices, and soaring interest rates have convinced many consumers to put off buying used cars, a trend that will likely continue until the economy improves.

Add to that the company's precarious financial position, and investors will want to watch for improving cash burn and profitability before buying Carvana stock.