What Happened:
Shares of online new and used car marketplace Cars.com (NYSE:CARS) fell 23.5% in the morning session after the company reported second quarter revenue that missed Wall Street's expectations. Adjusted EBITDA missed slightly. Revenue growth was weak, and there was a churn in its user base. Additionally, while next quarter's revenue guidance was above Wall Street analysts' expectations, adjusted EBITDA guidance was below. Overall, it was a mediocre quarter for Cars.com.
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What is the market telling us:
Cars.com's shares are not very volatile than the market average and over the last year have had only 18 moves greater than 5%. Moves this big are very rare for Cars.com and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move was three months ago, when the stock dropped 15.1% on the news that the company reported first quarter results that narrowly beat analysts' revenue expectations. Gross margin and EPS also came in above Consensus estimates. In addition, revenue for the next quarter came in roughly in line with Consensus. However, the number of dealer customers fell, and the revenue growth remained weak. The declining customer count will likely raise concerns given the growing challenges auto dealers face as post-pandemic demand growth continues to moderate.
Cars.com is up 49.8% since the beginning of the year, and at $20.82 per share it is trading close to its 52-week high of $22.81 from July 2023. Investors who bought $1,000 worth of Cars.com's shares 5 years ago would now be looking at an investment worth $736.94.
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