Online auto marketplace CarGurus (NASDAQ:CARG) reported results ahead of analysts' expectations in Q3 FY2023, with revenue down 48.5% year on year to $219.4 million. On the other hand, next quarter's revenue guidance of $218 million was less impressive, coming in 2% below analysts' estimates. Turning to EPS, CarGurus made a GAAP profit of $0.17 per share, improving from its profit of $0.14 per share in the same quarter last year.
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CarGurus (CARG) Q3 FY2023 Highlights:
- Revenue: $219.4 million vs analyst estimates of $216 million (1.6% beat)
- EPS: $0.17 vs analyst estimates of $0.11 (49.9% beat)
- Revenue Guidance for Q4 2023 is $218 million at the midpoint, below analyst estimates of $222.5 million
- Adjusted EBITDA and EPS Guidance for Q4 2023 both ahead despite revenue guidance miss
- Free Cash Flow of $17.2 million, down 26.9% from the previous quarter
- Gross Margin (GAAP): 74.9%, up from 35.4% in the same quarter last year
- Total paying dealers: 31,191, down 95 year on year
Bringing transparency to a sometimes opaque process, CarGurus (NASDAQ:CARG) is a digital marketplace where auto dealers can connect with potential customers and where car buyers can browse, purchase, and obtain financing.
Online MarketplaceMarketplaces 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 GrowthCarGurus's revenue growth over the last three years has been impressive, averaging 43.6% annually. This quarter, CarGurus beat analysts' estimates but reported a year on year revenue decline of 48.5%.
CarGurus is expecting next quarter's revenue to decline 24% year on year to $218 million, a further deceleration of the 15.5% year-on-year decrease it recorded in the same quarter last year. Ahead of the earnings results, analysts covering the company were projecting sales to grow 1.2% over the next 12 months.
Usage Growth As an online marketplace, CarGurus generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Over the last two years, CarGurus's users, a key performance metric for the company, grew 0.6% annually to 31,191. This is one of the lowest rates of growth in the consumer internet sector.
Unfortunately, CarGurus's users decreased by 95 in Q3, a 0.3% drop since last year.
Key Takeaways from CarGurus's Q3 Results With a market capitalization of $2.1 billion, CarGurus is among smaller companies, but its $447.2 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
It was good to see CarGurus narrowly top analysts' revenue expectations this quarter. Adjusted EBITDA and EPS beat by a more meaningful amount. On the other hand, its revenue growth regrettably slowed and its revenue guidance for next quarter and the full year missed Wall Street's estimates. However, adjusted EBITDA guidance for next quarter and the full year were ahead of expectations. Overall, the results were mixed. The stock is up 2.4% after reporting and currently trades at $18.82 per share.
The author has no position in any of the stocks mentioned in this report.
