Cars.com's (NYSE:CARS) Q1 Earnings Results: Revenue In Line With Expectations But Usage Drops

Anthony Lee /
2023/05/04 7:43 am EDT

Online new and used car marketplace Cars.com (NYSE:CARS) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 5.6% year on year to $167.1 million. The company expects that next quarter's revenue would be around $169 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Cars.com made a GAAP profit of $11.5 million, improving on its profit of $4.34 million, in the same quarter last year.

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Cars.com (CARS) Q1 FY2023 Highlights:

  • Revenue: $167.1 million vs analyst estimates of $166.9 million (small beat)
  • EPS: $0.17 vs analyst estimates of $0.06 ($0.11 beat)
  • Revenue guidance for Q2 2023 is $169 million at the midpoint, roughly in line with what analysts were expecting
  • Gross Margin (GAAP): 82.2%, up from 69% same quarter last year
  • Dealer Customers: 19.2 thousand, down 314 year on year

"We drove strong first quarter performance with year-over-year growth in key metrics - revenue, Adjusted EBITDA, and traffic. Our subscription business continues to deliver strong recurring revenue driven by increased product sales and customer retention. Based on our momentum, we are confident in our growth prospects for the second quarter and reaffirm our full-year guidance," said Alex Vetter, Chief Executive Officer of CARS.

Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE:CARS) is a digital marketplace that connects new and used car buyers and sellers.

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

Cars.com's revenue growth over the last three years has been unimpressive, averaging 4.76% annually. This quarter, Cars.com reported an mediocre 5.6% year on year revenue growth, roughly in line with what analysts expected.

Cars.com Total Revenue

Guidance for the next quarter indicates Cars.com is expecting revenue to grow 3.76% year on year to $169 million, slowing down from the 4.72% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 4.29% over the next twelve months.

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Usage Growth

As a online marketplace, Cars.com generates revenue growth both by growing the number of buyers on the platform and the average spend per transaction of the buyers.

Over the last two years the number of Cars.com's active buyers, a key usage metric for the company, grew 2.12% annually to 19.2 thousand buyers. This is one of the lowest levels of growth in the consumer internet sector.

Cars.com Dealer Customers

Unfortunately, in Q1 the number of active buyers decreased by 314, a 1.61% drop year on year.

Key Takeaways from Cars.com's Q1 Results

With a market capitalization of $1.29 billion Cars.com is among smaller companies, but its more than $18.8 million in cash and positive free cash flow over the last twelve months give us confidence that Cars.com has the resources it needs to pursue a high growth business strategy.

We struggled to find many strong positives in these results. On the other hand, it was less good to see that the revenue growth was quite weak and there was a churn in number of users. Overall, this quarter's results could have been better. The company is down 1.75% on the results and currently trades at $19.04 per share.

Cars.com may have had a tough quarter, but does that actually create an opportunity to invest 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.