CarGurus, Inc. (CARG) Q3 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows strong financial performance with a 5% revenue increase and significant EBITDA growth. The Q&A reveals strategic focus on brand marketing and product pipeline, despite some unclear responses. The new $200 million share repurchase program is a positive catalyst, and the market cap suggests moderate stock price sensitivity. Overall, the positive financials and strategic initiatives outweigh any negative aspects, predicting a stock price increase of 2% to 8%.
Key Financial Performance
Consolidated Revenue $231 million, up 5% year-over-year, driven by double-digit expansion of marketplace business, partly offset by lower wholesale and product volume.
Marketplace Revenue $204 million, up 15% year-over-year, driven by strength in subscription-based listings revenue, net dealer ads, and greater adoption of value-added products.
Wholesale Revenue $12 million, down 44% year-over-year, driven by a decline in dealer-to-dealer transaction volume.
Product Revenue $15 million, down 23% year-over-year, but up 46% sequentially due to stronger volume from favorable market conditions.
Non-GAAP Consolidated Gross Profit $192 million, up 13% year-over-year, reflecting a revenue mix shift toward high-margin marketplace business.
Non-GAAP Gross Margin 83%, up from 77% in the prior year quarter, due to ongoing revenue mix shift.
Marketplace Non-GAAP Gross Profit Up 17% year-over-year, with non-GAAP gross margin expanding by about 170 basis points to 93%.
Consolidated Adjusted EBITDA $64.9 million, up 33% year-over-year, reflecting momentum in marketplace revenue and high full-term margins.
Consolidated Adjusted EBITDA Margin 28%, up approximately 590 basis points year-over-year.
Marketplace Adjusted EBITDA Grew 36% year-over-year to approximately $70 million, gaining leverage across operating cost base.
Non-GAAP Operating Expenses $132 million, up 5% year-over-year, highlighting ability to leverage fixed cost base.
Non-GAAP Diluted Earnings Per Share $0.45, up $0.11 or 32% year-over-year, reflecting increase in consolidated adjusted EBITDA and lower diluted share count.
Cash and Cash Equivalents $247 million, an increase of $31 million from the end of the second quarter, primarily driven by non-GAAP net income.
Share Repurchases Repurchased 164,000 shares for $3.7 million, totaling $146 million in 2024 with $104 million remaining under the repurchase program.
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Operating Highlights
New Product Launches: In the third quarter, CarGurus launched a major feature for Highlight, allowing dealers to promote their inventory at the top of search result pages, resulting in increased dealer adoption and engagement.
Digital Deal: Digital Deal is CarGurus' fastest growing product in the US, with penetration growing approximately 14% quarter over quarter and nearly 150% year over year, now serving 8,474 dealers.
Next Best Deal Rating: Next Best Deal Rating was introduced to the international dealer base, with early engagement tracking similarly to the rapid uptake seen in the US.
International Expansion: CarGurus' international business grew revenue by 23% year-over-year, with significant traffic share expansion in Canada and the UK.
OEM Advertising Growth: The OEM advertising business delivered two consecutive quarters of double-digit year-over-year revenue growth as new car supply normalized.
Operational Efficiency: Marketplace revenue grew 15% year-over-year, driven by new dealer ads globally and migration towards higher subscription tiers.
Cost Management: Flat operating expenses allowed consolidated adjusted EBITDA to exceed guidance, growing 33% year-over-year.
Executive Team Strengthening: CarGurus strengthened its executive team by hiring Jennifer Hanson as Chief People Officer and Mike O'Hanlon as Chief Revenue Officer.
Discontinuation of CG Buy Online: The CG Buy Online pilot was discontinued after a review of capital allocation, with resources redeployed to other growth initiatives.
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Risk or Challenges
Forward-looking statements: The company acknowledges that forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations.
Regulatory issues: The company undertakes no obligation to update or revise forward-looking statements except as required by law.
Competitive pressures: Despite strong performance, the company faces increasing competition in the auto marketplace industry, which could impact market share and revenue growth.
Supply chain challenges: The company reported a decline in dealer-to-dealer transaction volume in its wholesale business, indicating potential supply chain issues affecting operations.
Economic factors: The company noted that the overall economic environment, including interest rates, could influence consumer demand and dealer activity.
Product discontinuation: The decision to discontinue the CG Buy Online pilot was based on a disciplined capital allocation process, indicating potential risks in product acceptance and market demand.
Operational challenges: The company recognized a non-cash impairment charge related to the discontinuation of CG Buy Online, reflecting challenges in executing certain initiatives.
Market conditions: The company expects fourth-quarter volume to decline sequentially in its wholesale business, indicating potential seasonal challenges.
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Guidance & Outlook
Marketplace Revenue Growth: Marketplace revenue accelerated again this quarter, delivering 15% year-over-year growth or $26 million year-over-year expansion.
International Business Growth: International business revenue grew 23% year-over-year, with strong momentum in Canada.
Digital Deal Adoption: Digital Deal penetration grew approximately 14% quarter over quarter, and nearly 150% year over year.
Product Innovation: Continued investment in innovation and a new product pipeline, including enhancements to existing products and new services.
Executive Team Strengthening: Strengthened executive team with new Chief People Officer and Chief Revenue Officer.
Dealer Engagement: Increased dealer engagement and retention, with over 60% adoption of value-added products and services.
Fourth Quarter Revenue Guidance: Expect fourth quarter consolidated revenue to be in the range of $219 million to $239 million, down 2% and up 7% year-over-year, respectively.
Marketplace Revenue Guidance: Marketplace revenue expected to be in the range of $208 million to $213 million, up between 14% and 17% year-over-year.
Fourth Quarter EBITDA Guidance: Expect fourth quarter non-GAAP consolidated adjusted EBITDA to be in the range of $72 million to $80 million.
Earnings Per Share Guidance: Expect fourth quarter non-GAAP earnings per share to be in the range of $0.50 to $0.55.
Share Repurchase Program: Board authorized a $200 million share repurchase program effective January 2025.
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Shareholder Return Plan
Share Repurchase Program: During the third quarter, CarGurus repurchased 164,000 shares for an aggregate purchase price of $3.7 million. As of September 30th, the total repurchased amount in 2024 reached $146 million, with approximately $104 million remaining available for share repurchases under the 2024 program. Additionally, the Board has authorized a $200 million share repurchase program effective January 2025.
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Key Q&A
Q:Can you just kind of update us on how you're thinking about investing in the brand?
A:From a brand perspective, you can expect an increase at the New Year. We are getting more sophisticated with our marketing and advertising to capture a bigger audience at different parts of the shopping journey. We have historically been low funnel oriented, and a lot of our brand effort is to go mid funnel and higher funnel to grow our brand awareness.
Q:Can you dive a little deeper into the decision to discontinue CG Buy Online?
A:We concluded that it was appropriate for us to redeploy the resources of CG Buy Online pilots to other projects after careful consideration and a detailed analysis.
Q:How should we think about Car Spend over time?
A:We feel very good about the quality of our growth, as we believe that the drivers of expansion are durable. We are seeing higher dealer engagement and adoption of value-added products, resulting in stronger retention and long-term contracts.
Q:Can you speak to the product pipeline as a way to continue to drive a catch rate?
A:We do feel really good about our pipeline. We continue to pack more value and features into our higher-tier packages and introduce new marketing products.
Q:What innings of growth would you say the company is in for the international business?
A:We are following the playbook from the US, gaining adoption of dealers and upselling them to premium packages, which is driving growth in both the UK and Canada.
Q:Can you elaborate on the incremental monetization opportunities with the manufacturers?
A:We are seeing growth in our advertising business, which comes from the normalization of new car supply and the ability to target down funnel shoppers.
Q:How does pricing work in the business today?
A:Pricing is based on lead volume and quality, not seasonally based. We assess the value we think we can drive to that dealer and adjust prices accordingly.
Q:How would you assess the health of the consumer and activity you're seeing at your dealer customers?
A:The third quarter saw a stronger used retail market, partly due to interest rates coming down. Q4 is typically weaker for used vehicle sales, but dealers will turn to us for the largest audience and quality of leads.
Q:Review of Unclear Management Responses
A:Management did not provide a direct answer regarding the specific reasons for discontinuing CG Buy Online, only stating it was a decision made after careful consideration. Additionally, there was a lack of clarity on the exact metrics or data supporting the growth expectations for Car Spend in 2025.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CG
Deal Rating
Dealer
Digital Deal
OEM advertising
Rating dealer
adoption value
app
basis point
brand
channel
competitor market
contract
conversion
cost base
criterion
day
dealer base
dealer count
dedication
digit
expansion dealer
experience consumer
fit
franchise
functionality
funnel
intent
page
platform dealer
playbook
price point
product service
product volume
recommendation
retention
satisfaction
search
survey
unit economics
update
user experience
value product
workflow
CARG Transcript
CarGurus, Inc. (CARG) Q3 2024 Earnings Call Transcript
Positive11-9
The earnings call summary shows strong financial performance with a 5% revenue increase and significant EBITDA growth. The Q&A reveals strategic focus on brand marketing and product pipeline, despite some unclear responses. The new $200 million share repurchase program is a positive catalyst, and the market cap suggests moderate stock price sensitivity. Overall, the positive financials and strategic initiatives outweigh any negative aspects, predicting a stock price increase of 2% to 8%.
CarGurus, Inc. (CARG) Q2 2024 Earnings Call Transcript
Neutral8-9
CarGurus, Inc. (CARG) Q1 2024 Earnings Call Transcript
Neutral5-10
CarGurus, Inc. (CARG) Q4 2023 Earnings Call Transcript
Unknown2-27
The earnings call presents mixed signals: positive growth in Marketplace Adjusted EBITDA and international profitability, but concerning GAAP losses and reduced cash reserves due to acquisitions and share repurchases. The Q&A highlights operational improvements and product adoption but lacks full-year guidance. Given the company's mid-sized market cap, these factors suggest a neutral stock price movement in the short term.
CARG Slides
CARG Report
Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
