CarGurus (NASDAQ:CARG) Beats Q1 Sales Targets, Next Quarter Growth Looks Optimistic

Jabin Bastian /
2023/05/09 4:06 pm EDT

Online auto marketplace CarGurus (NASDAQ:CARG) reported Q1 FY2023 results beating Wall St's expectations, with revenue down 46.1% year on year to $232 million. The company expects that next quarter's revenue would be around $230 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. CarGurus made a GAAP profit of $16.1 million, down on its profit of $18.8 million, in the same quarter last year.

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CarGurus (CARG) Q1 FY2023 Highlights:

  • Revenue: $232 million vs analyst estimates of $214.4 million (8.22% beat)
  • EPS: $0.10 vs analyst estimates of $0.05 ($0.05 beat)
  • Revenue guidance for Q2 2023 is $230 million at the midpoint, above analyst estimates of $228.3 million
  • Free cash flow of $60.5 million, down 33.2% from previous quarter
  • Gross Margin (GAAP): 66.8%, up from 42.2% same quarter last year
  • Total paying dealers: 31.3 thousand, up 424 year on year

“We have made tremendous progress in becoming the #1 digital destination for consumers and dealers to confidently and conveniently buy and sell any vehicle, anywhere, with the best selection and price,” 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.

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 which feed back into further customer acquisition.

Sales Growth

CarGurus's revenue growth over the last three years has been impressive, averaging 49% annually. This quarter, CarGurus beat analyst estimates but reported a rather lacklustre 46.1% year on year revenue decline.

CarGurus Total Revenue

CarGurus is guiding for revenue to decline next quarter 55% year on year to $230 million, reverse on the 135% year-over-year increase in revenue the company had recorded in the same quarter last year. Before the earnings results were announced, Wall St analysts covering the company were estimating revenues to decline -25.6% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Usage Growth

As a online marketplace, CarGurus generates revenue growth both by growing the number of users on the platform and the average user size in dollars.

Over the last two years the number of CarGurus's paying users, a key usage metric for the company, grew 1.13% annually to 31.3 thousand. This is one of the lowest levels of growth in the consumer internet sector.

CarGurus Total paying dealers

In Q1 the company added 424 paying users, translating to a 1.37% growth year on year.

Key Takeaways from CarGurus's Q1 Results

With a market capitalization of $1.86 billion CarGurus is among smaller companies, but its more than $456.7 million in cash and positive free cash flow over the last twelve months give us confidence that CarGurus has the resources it needs to pursue a high growth business strategy.

We were impressed by how strongly CarGurus outperformed analysts’ revenue and EPS expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see that the revenue growth was quite weak. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 5.68% on the results and currently trades at $17.3 per share.

Should you invest in CarGurus right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.