On Friday, BTIG updated its price target for CarGurus Inc. (NASDAQ: NASDAQ:CARG) shares to $30.00 from the previous $28.00, maintaining a Buy rating on the stock.
CarGurus reported marketplace revenue surpassing the high end of its guidance, with figures reaching $195 million compared to the anticipated $189-$194 million.
The company's projection for third-quarter marketplace revenue is between $199-$204 million, exceeding both the Street's estimate of $195 million and BTIG's projection of $197 million.
The company's performance indicates a potential 10% growth in the fourth quarter of 2024, assuming marketplace revenue remains consistent with the third quarter, despite facing tougher comparisons from the previous year.
A key performance metric, the average revenue per subscribing dealer (QARSD), saw a year-over-year increase of 14%, reaching $6,942, outpacing BTIG's expectation of a 12% rise to $6,849.
CarGurus attributes the success to several factors, including the onboarding of new dealers at market pricing, higher unit pricing, and the upselling of more comprehensive subscription packages and additional value-added services.
The rate of adoption for add-on products grew by 37% year-over-year. The company's Top Dealer Offer has expanded to 388 dealers, contributing an estimated $8-$12 million in annual revenue, which equates to an additional $100 to the QARSD.
Advertising revenue also remained strong, aligning with trends seen across industry peers. CarGurus showcased impressive profitability, with marketplace and consolidated EBITDA at $61 million and $56 million, respectively, surpassing BTIG's estimates of $57 million and $52 million. The marketplace EBITDA margin expanded by over 700 basis points, with more than 80% of incremental revenue contributing to profit.
Despite these achievements, CarGurus management remained noncommittal regarding the growth trajectory of CarOffer, a platform within the company's portfolio. CarOffer itself reported a $6 million EBITDA loss, which was $1 million worse than BTIG's model. However, the Top Dealer Offer, associated with CarOffer, is experiencing strong growth and higher gross profits.
Looking forward, CarGurus expects total revenue to be in the range of $212-$232 million, with marketplace revenue forecasted at $199-$204 million.
While CarOffer's revenue guidance is slightly below Street estimates, BTIG does not view this as a significant concern due to its current turnaround phase and negative margins.
BTIG commends CarGurus for its innovation pace and data advantages, which are believed to be driving market share gains in comparison to other marketplaces. The raised price target reflects higher EBITDA estimates and reaffirms the firm's confidence in CarGurus with a continued Buy rating.
In other recent news, CarGurus Inc. reported mixed first-quarter results, showing both strengths and challenges in different sectors. The company reported a year-over-year increase in marketplace revenue by 12% to $187 million, indicating resilience despite a 7% decline in consolidated revenue. However, its Digital Wholesale segment experienced a significant 56% decline in revenue, standing at $29 million.
JMP Securities recently upgraded its rating on CarGurus to Market Outperform from Market Perform, based on a positive outlook for the company's marketplace business.
Meanwhile, RBC Capital Markets raised the price target for CarGurus from $26.00 to $27.00, maintaining a Market Perform rating. Both firms' assessments are based on recent developments and financial projections for CarGurus.
The company has also introduced new features such as the Next Best Deal and the CG Buy Online platform, aiming to enhance customer experience and dealer engagement. It has also shown a strategic focus on profitability, repurchasing $81.1M worth of shares in the first quarter. These are some of the recent developments that investors should be aware of.
InvestingPro Insights
Recent insights from InvestingPro provide a deeper look into CarGurus Inc.'s (NASDAQ: CARG) financial health and market performance. Notably, the company's aggressive share buyback strategy and strong balance sheet, with more cash than debt, are strategic moves that could reassure investors about the company's commitment to shareholder value (InvestingPro Tips). Additionally, the expectation of net income growth this year and the stock being in the oversold territory according to the Relative Strength Index (RSI) suggest potential for upside (InvestingPro Tips).
InvestingPro Data highlights that CarGurus has a market capitalization of $2.33 billion and trades at a high earnings multiple, with a P/E ratio of 69.08. However, the adjusted P/E ratio for the last twelve months as of Q1 2024 is slightly lower at 64.07. Despite a decrease in revenue growth by 38.34% over the last twelve months as of Q1 2024, CarGurus maintains a robust gross profit margin of 74.78%. These metrics, combined with the company's profitability over the last twelve months and analysts' predictions of continued profitability this year, present a nuanced view of CarGurus' financial dynamics (InvestingPro Data).
For readers interested in a comprehensive analysis, there are additional InvestingPro Tips available at: https://www.investing.com/pro/CARG. These tips delve into various aspects of CarGurus' business and market performance, offering valuable insights for potential investors.
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