2023 has been a wild year yet again in the market, with stocks experiencing rapid price swings both up and down. One stock with especially high volatility is Carvana (CVNA -3.90%). The online used car marketplace shot up over 200% to start 2023, but has since given up a lot of those gains after delivering a terrible fourth-quarter earnings report. With deteriorating gross margins, a huge debt load, and a shrinking market share, Carvana is heading into 2023 on thin ice. 

Is the party over for Carvana? Here's why I think the answer to that question is a resounding yes, and why shareholders should avoid buying shares in 2023. 

2022 earnings: from bad to worse

In late February Carvana reported its 2022 financial results. To put it lightly, things didn't look pretty, with gross profit shrinking from $1.93 billion in 2021 to $1.25 billion last year. Combine this with rising operating expenses ($2.7 billion for the full year) and interest payments on its huge debt load ($153 million just in Q4), and Carvana posted a net loss of $2.89 billion in 2022 vs. a loss of $286 million in 2021.

Why did this happen? Well, a few reasons. For one, during the pandemic Carvana benefited from a huge surge of people wanting to buy cars online. Now that trend is reversing, leading to declining unit volumes processed through its marketplace. Second, used car prices have soared in recent years, which -- combined with rapidly rising interest rates -- have priced out the majority of potential buyers on Carvana's marketplace. This has led to a deterioration in Carvana's top-line growth, something management was not prepared for in 2022.

CVNA Revenue (TTM) Chart

CVNA Revenue (TTM) data by YCharts

If Carvana wasn't profitable in 2021, when will it ever be?

Anyone who owns Carvana should think about why the company did not generate a profit in 2021. In that year, the company had multiple macroeconomic factors working in its favor that will likely not be repeated ever again.

Used car prices rose at the fastest pace in history in 2021. This helped Carvana earn a wider spread between its buying and selling prices. Interest rates were at record lows in 2021. This made it extremely easy for Carvana to finance its operations with debt. 2020 and 2021 saw a one-time bump in growth for buying cars online. Carvana benefited from this as one of the leading online-only marketplaces for used car buying in the United States.

Yet Carvana still lost $286 million that year. If not then, when will Carvana ever generate a profit? This is a question any shareholder of this stock needs to be asking themselves.

CVNA EBIT Margin (TTM) Chart

CVNA EBIT Margin (TTM) data by YCharts

Liquidity is the real concern

Carvana's unit economics are troubling, but they actually aren't the largest concern for shareholders right now. That award goes to the company's balance sheet, which looks like a debt-laden bomb that could go off at any moment.

At the end of 2022, Carvana had $434 million in cash and equivalents. Based on its fourth-quarter numbers, this cash won't even cover one year of interest expenses on its debt, let alone its high level of operating expenses.

In order to not run out of cash, Carvana will need to raise capital through the debt or equity markets. The company will likely find it difficult to raise debt seeing as it already has $6.6 billion in long-term debt on its balance sheet and has never generated a profit. So it is going to have to raise money by diluting shareholders through equity offerings. A common stock offering could help stave off a potential bankruptcy filing, but it will still cost shareholders by increasing the stock's total shares outstanding. And it doesn't fix the fact the company is still hemorrhaging money.

The path forward looks bleak for Carvana. With a terrible balance sheet and unproven unit economics, the stock remains un-investable today, no matter how far its price falls.