Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CarGurus Inc (CARG, Financial) reported a 14% year-over-year growth in its marketplace business, marking the fifth consecutive quarter of acceleration.
- The company's non-GAAP consolidated adjusted EBITDA grew 23% year-over-year, with a margin expansion of 650 basis points to 25%.
- CarGurus Inc (CARG) achieved the highest quarterly revenue increase since 2021, driven by growth in its global dealer base and increased adoption of add-on products.
- The international business of CarGurus Inc (CARG) grew revenue by 21% year-over-year, with strong performance in the UK and Canada.
- The OEM advertising business delivered strong year-over-year growth as new vehicle inventory levels recovered, increasing impressions on the website.
Negative Points
- Consolidated revenue for CarGurus Inc (CARG) was down 9% year-over-year, primarily due to lower wholesale and product volumes.
- Wholesale revenue declined by 59% year-over-year, driven by a decrease in dealer-to-dealer transaction volume.
- Product revenue fell by 72% year-over-year, reflecting a decline in Instant Max Cash Offer revenue.
- CarOffer's digital wholesale business faced challenges, with a non-cash goodwill impairment charge of $127 million recognized.
- The process of rebuilding and integrating CarOffer's leadership and operations has been slower than anticipated.
Q & A Highlights
Q: Can you help us size the impact of the CDK outage on revenue and EBITDA in 2Q and 3Q, if any? And what still needs to be done with CarOffer?
A: (Elisa Palazzo, CFO) We have not seen any impact from the CDK outage on billing or collections, and we don't anticipate any carryover impact for the third quarter. (Jason Trevisan, CEO) Regarding CarOffer, we are restructuring the sales organization and enhancing the product with data integration to boost customer confidence. The timeline for ramping up volume is taking longer than initially expected, but we are making progress with new leadership.
Q: You're seeing higher adoption of add-on products driving marketplace strength. What are you learning from this, and is there more potential for deeper integrations?
A: (Jason Trevisan, CEO) The increased adoption is due to developing more insights and products that support dealers with market analytics. Dealers using these insights, like the Next Best Deal Rating, see better results. We are also doing a better job educating customers on using these tools effectively. (Sam Zales, President & COO) The shift towards larger dealers with higher advertising budgets is due to their sophistication and focus on ROI, which aligns with our platform's capabilities.
Q: Can you discuss the momentum with dealer pricing and how your salesforce is helping integrate wholesale relationships with the marketplace?
A: (Jason Trevisan, CEO) Pricing momentum is driven by signing dealers at higher rates, upgrading to higher tiers for more insights, and adopting additional products. Our sales team is focused on growing the marketplace business, and we are being targeted in building back CarOffer's customer acquisition. We are enhancing operations and analytics to ensure product-market fit before expanding sales efforts.
Q: What is driving the margin expansion and network effects in your business?
A: (Jason Trevisan, CEO) The margin expansion is due to a combination of factors, including post-COVID marketing investments by dealers, continued innovation, and a focus on helping dealers run better operations. Our platform's large consumer audience and dealer engagement create a flywheel effect, enhancing our market position.
Q: Can you provide more clarity on OEM ad revenue and marketing spend in the second half?
A: (Sam Zales, President & COO) OEM ad revenue is growing due to new car inventory and our strong consumer platform. Advertisers are moving from programmatic buys to direct purchases with us. (Elisa Palazzo, CFO) We expect operating expenses to remain constant in dollar terms through Q3 but decline as a percentage of revenue. Marketing expenses are expected to decrease in Q4 due to lower media spend.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
