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Cars.com CEO on Q3 earnings beat, outlook

Cars.com CEO Alex Vetter joins Yahoo Finance Live to discuss his company’s third-quarter results, which topped estimates for the top and bottom lines, as well as his outlook for the business.

Video Transcript

MYLES UDLAND: Let's turn our attention now to what's going on in the automotive space. Cars.com coming out with their earnings yesterday. We're joined now by the company's president and CEO, Alex Vetter, to discuss. Alex, great to have you on the show. So let's start, I guess, with what you guys have seen in the business during the pandemic-- how it has changed. And I guess I wouldn't just ask how it's changed the last couple of quarters, but has it changed your vision on where the business can go longer-term, given some of the habits we've seen pushed into this last couple of months?

ALEX VETTER: Sure, Miles. Well, look, like every small business category, the pandemic was extremely difficult to manage through as governors shut down their states or forced closures of dealerships across the country. And so our business was impacted because our customers' business was impacted. But the business actually proved to be highly resilient. We saw while traffic plunged initially, days if not a week later, we saw huge surges in traffic despite reduced marketing expense. Everyone was sheltering at home and in every category digital channels surged.

And so we've seen a real pickup in momentum in consumer intent to buy cars. You know, cars are now the safest bet to travel and get around safely. They are extensions of our home. And 57% of recent car buyers cited the pandemic as being a key factor which is bringing them into the automotive market today. Alex,

BRIAN SOZZI: How is the rise in Carvana, in Vroom, and more recently, in Shift? How has that impacted your business?

ALEX VETTER: Well, it's been a good thing. They're all customers of ours, so all of these digital dealerships want to source sales. And Cars.com is a research platform that allows people to compare and contrast both makes, models, and different dealerships to buy from. So as these digital dealerships have grown, so has their spending with us. And you see this coming through in our financials, where our average revenue per dealer continues to decline, because more and more dealerships are realizing if they can't compete online, they're going to have a hard time in physical showrooms in a pandemic-based world.

JULIE HYMAN: At the same time, if you look at the number of dealerships that you all have signed up, I believe the increase, quarter-over-quarter, was relatively modest. So is that a number-- it's just over 18,000. Do you have a target for where you want that number to be a year from now? And how do you sign up more dealerships?

ALEX VETTER: Yeah, we see the market size at about 40,000 dealerships across the US. We tend to skew to the franchise in larger independent dealers across the country. So we've got tons of room to grow. But coming out of a pandemic, the dealer growth has been modest. What's been probably the biggest exciting development in our business is the growth of our digital solutions strategy. I mean, we are really a Shopify of automotive, and we are now selling technologies directly to dealerships.

And many people think of Cars.com-- they think of the website or the app. But right now we're powering over 4,000 dealers' primary websites. And they're using that to compete for traffic and to convert sales digitally. And we had a recent partnership announced with General Motors.

We've got 800 websites contracted there. We rolled out 200 in the quarter. We've got another 200 in sight between now and the end of the year, and another 400 going into 2021. So the digital solutions side of the business is now growing much faster than our marketplace business, which is exciting for us.

BRIAN SOZZI: Alex, I am surprised to see the stock down about 28% here today. It hasn't really played in the move higher. We've seen some OEM auto manufacturer stocks. Certainly, a company like Carvana still at all-time highs. Why do you think that is happening, and what can you do to get the stock price moving in the other direction?

ALEX VETTER: Well, we pre-released our earnings a few weeks back, because we had a bond deal we were trying to get done. And we saw a nice rally in the stock when we pre-announced Q3. I think yesterday was an odd day. It seemed like a lot of tech companies got pulled back hard, thinking that a vaccine was coming and everything would snap back to normal.

But we don't see it that way. We think digital retail channels are going to thrive long after a cure is found. Consumers are overwhelmingly telling us that they prefer cars over mass transit and ride-sharing services, and our dealers are seeing that. You're going to see dealers report record profits throughout the country, all the publics driven by the strength in people both upgrading their fleets and/or servicing and repairing their existing cars.

MYLES UDLAND: And Alex, you know, you talked about the Shopify model of kind of powering the back end for a lot of these auto dealers that are coming more online, probably doing a significant number of lead generation online and so forth. What do you think auto sales are in their e-commerce maturation cycle, as you think about the next couple of decades of car buying habits?

ALEX VETTER: You know, look. Most dealerships would claim they've got digital operations today and they've been advertising digitally for years, but I think when you look at the consumer trends, very durable growth. Our consumer traffic was up 10% in the quarter, despite reduced marketing investments. So organic traffic channels continue to serve, showing that there's a natural bias towards third-party marketplaces like Cars.com. With only 18,000 1,000 dealers subscribing to our business, I think that the market can double. I mean, if you're a dealership in 2021 and you're not embracing digital channels, I think you're going to be more likely one of those dealerships who will consolidate or find ways to have to sell off to larger stores who've advanced to a digital-first strategy.