CarGurus (NASDAQ:CARG) Posts Better-Than-Expected Sales In Q4 But Stock Drops 15%
Online auto marketplace CarGurus (NASDAQ:CARG) reported results ahead of analysts' expectations in Q4 FY2023, with revenue down 22.2% year on year to $223.1 million. On the other hand, next quarter's revenue guidance of $211 million was less impressive, coming in 11.5% below analysts' estimates. It made a GAAP loss of $0.21 per share, down from its profit of $0.21 per share in the same quarter last year.
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CarGurus (CARG) Q4 FY2023 Highlights:
Revenue: $223.1 million vs analyst estimates of $219.8 million (1.5% beat)
EPS: -$0.21 vs analyst estimates of $0.18 (-$0.39 miss)
Revenue Guidance for Q1 2024 is $211 million at the midpoint, below analyst estimates of $238.4 million
Free Cash Flow was -$17.89 million, down from $17.22 million in the previous quarter
Gross Margin (GAAP): 75.3%, up from 47.8% in the same quarter last year
Total paying dealers: 30,935, down 372 year on year
Market Capitalization: $2.68 billion
"We are extremely pleased with our performance, as our Marketplace business continued to accelerate in the fourth quarter, achieving the fastest pace of growth in nearly three years," said Jason Trevisan, Chief Executive Officer at CarGurus.
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 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
CarGurus's revenue growth over the last three years has been impressive, averaging 42.1% annually. This quarter, CarGurus beat analysts' estimates but reported a year on year revenue decline of 22.2%.
CarGurus is expecting next quarter's revenue to decline 9% year on year to $211 million, improvement on the 46.1% year-on-year decrease it recorded in the same quarter last year.
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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 dealers, a key performance metric for the company, grew 0.5% annually to 30,935. This is one of the lowest rates of growth in the consumer internet sector.
Unfortunately, CarGurus's dealers decreased by 372 in Q4, a 1.2% drop since last year.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like CarGurus because it measures how much the company earns in transaction fees from each user. Furthermore, ARPU gives us unique insights as it's a function of a user's average order size and CarGurus's take rate, or "cut", on each order.
CarGurus's ARPU growth has been exceptional over the last two years, averaging 23.4%. The company's ability to increase prices while growing its users demonstrates its platform's value, as its users are spending significantly more than last year. This quarter, ARPU declined 21.3% year on year to $7,213 per user.
Key Takeaways from CarGurus's Q4 Results
It was good to see CarGurus narrowly top analysts' revenue expectations this quarter. On the other hand, its revenue is still in decline and revenue guidance for next quarter missed Wall Street's estimates. Overall, the results could have been better. The company is down 15% on the results and currently trades at $20.3 per share.
CarGurus may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
