Online new and used car marketplace Cars.com (NYSE:CARS) fell short of the market’s revenue expectations in Q4 CY2024, with sales flat year on year at $180.4 million. Next quarter’s revenue guidance of $179.5 million underwhelmed, coming in 3.8% below analysts’ estimates. Its GAAP profit of $0.26 per share was 95.2% above analysts’ consensus estimates.
Revenue: $180.4 million vs analyst estimates of $184.8 million (flat year on year, 2.4% miss)
EPS (GAAP): $0.26 vs analyst estimates of $0.13 (95.2% beat)
Adjusted EBITDA: $55.49 million vs analyst estimates of $54.88 million (30.8% margin, 1.1% beat)
Management’s revenue guidance for the upcoming financial year 2025 is $750 million at the midpoint, missing analyst estimates by 1% and implying 4.3% growth (vs 4.4% in FY2024)
Operating Margin: 11%, up from 8.3% in the same quarter last year
Free Cash Flow Margin: 13.5%, down from 26.3% in the previous quarter
Dealer Customers: 19,206, down 298 year on year
Market Capitalization: $990.5 million
"Our fourth quarter was highlighted by strong OEM and National revenue, which was up 15% year-over-year, and robust Adjusted EBITDA margin of nearly 31%, capping a year of solid growth and consistent profitability improvement. As the automotive industry looks for efficiency, the benefits of leveraging our platform of connected solutions are leading to measurable benefits and meaningful sales impact for our customers," said Alex Vetter, Chief Executive Officer of Cars Commerce.
Company Overview
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE:CARS) is a digital marketplace that connects new and used car buyers and sellers.
Online Marketplace
Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Unfortunately, Cars.com’s 4.9% annualized revenue growth over the last three years was sluggish. This fell short of our benchmark for the consumer internet sector and is a poor baseline for our analysis.
Cars.com Quarterly Revenue
This quarter, Cars.com’s $180.4 million of revenue was flat year on year, falling short of Wall Street’s estimates. Company management is currently guiding for flat sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 5.8% over the next 12 months, similar to its three-year rate. This projection is underwhelming and suggests its newer products and services will not accelerate its top-line performance yet.
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Dealer Customers
Buyer Growth
As an online marketplace, Cars.com generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Cars.com struggled to engage its audience over the last two years as its dealer customers were flat at 19,206. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Cars.com wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.
Cars.com Dealer Customers
In Q4, Cars.com’s dealer customers decreased by 298, a 1.5% drop since last year. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t moving the needle for buyers yet.
Revenue Per Buyer
Average revenue per buyer (ARPB) is a critical metric to track for online marketplace businesses like Cars.com because it measures how much the company earns in transaction fees from each buyer. ARPB also gives us unique insights into a user’s average order size and Cars.com’s take rate, or "cut", on each order.
Cars.com’s ARPB growth has been mediocre over the last two years, averaging 3.5%. This raises questions about its platform’s health when paired with its flat dealer customers. If Cars.com wants to grow its buyers, it must either develop new features or lower its monetization of existing ones.
Cars.com ARPB
This quarter, Cars.com’s ARPB clocked in at $2,475. It declined 1.9% year on year, mirroring the performance of its dealer customers.
Key Takeaways from Cars.com’s Q4 Results
It was good to see Cars.com narrowly top analysts’ EBITDA expectations this quarter. On the other hand, its full-year revenue guidance slightly missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2.1% to $15 immediately following the results.
Cars.com’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
