Cars.com (CARS)

Online new and used car marketplace Cars.com (NYSE:CARS) met Wall Street’s revenue expectations in Q4 CY2025, with sales up 1.9% year on year to $183.9 million. Its non-GAAP profit of $0.44 per share was 19.7% below analysts’ consensus estimates.

Company Overview

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 that feed back into further customer acquisition.

Competitors in the online auto market include Carvana (NYSE:CVNA), CarGurus (NASDAQ:CARG), and Vroom (NASDAQ:VRM).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Cars.com’s sales grew at a sluggish 3.4% compounded annual growth rate over the last three years. This was below our standard for the consumer internet sector and is a poor baseline for our analysis.

This quarter, Cars.com grew its revenue by 1.9% year on year, and its $183.9 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.6% over the next 12 months, similar to its three-year rate. This projection doesn't excite us and implies its newer products and services will not lead to better top-line performance yet.

Buyer Growth

As an online marketplace, Cars.com generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Over the last two years, Cars.com’s dealer customers, a key performance metric for the company, increased by 1% annually to 19,544 in the latest quarter. This growth rate is one of the lowest in the consumer internet sector. If Cars.com wants to accelerate growth, it likely needs to engage users more effectively with its existing offerings or innovate with new products.

In Q4, Cars.com added 338 dealer customers, leading to 1.8% year-on-year growth. The quarterly print isn’t too different from its two-year result, suggesting its new initiatives aren’t accelerating buyer growth just yet.

Revenue Per Buyer

Average revenue per buyer (ARPB) is a critical metric to track because it measures how much the company earns in transaction fees from each buyer. ARPB also gives us unique insights into a user’s average order size and Cars.com’s take rate, or "cut", on each order.

Cars.com’s ARPB has been roughly flat over the last two years. This isn’t great when combined with its weaker dealer customers performance. If Cars.com tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether buyer growth would be sustainable.

This quarter, Cars.com’s ARPB clocked in at $2,472. It was flat year on year, worse than the change in its dealer customers.

For online marketplaces like Cars.com, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification.

Cars.com has robust unit economics, an output of its asset-lite business model and pricing power. Its margin is better than the broader consumer internet industry and enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 67.1% gross margin over the last two years. Said differently, roughly $67.11 was left to spend on selling, marketing, and R&D for every $100 in revenue.

This quarter, Cars.com’s gross profit margin was 67.5% , marking a 1.1 percentage point increase from 66.3% in the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Consumer internet businesses like Cars.com grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

It’s relatively expensive for Cars.com to acquire new users as the company has spent 48.6% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates that Cars.com operates in a competitive market and must continue investing to maintain an acceptable growth trajectory.

Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.

Cars.com’s EBITDA margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 29.2% over the last two years. This profitability was elite for a consumer internet business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Cars.com’s EBITDA margin might fluctuated slightly but has generally stayed the same over the last few years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Cars.com generated an EBITDA margin profit margin of 29.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Cars.com’s flat EPS over the last three years was below its 3.4% annualized revenue growth. However, its EBITDA margin didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

In Q4, Cars.com reported adjusted EPS of $0.44, down from $0.49 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Cars.com’s full-year EPS of $1.70 to grow 28.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Cars.com has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors while maintaining a cash cushion. The company’s free cash flow margin averaged 17.6% over the last two years, quite impressive for a consumer internet business.

Cars.com’s free cash flow clocked in at $31.25 million in Q4, equivalent to a 17% margin. This result was good as its margin was 3.4 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

Cars.com reported $56.24 million of cash and $451.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $211.1 million of EBITDA over the last 12 months, we view Cars.com’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $30.38 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Namely, EBITDA and EPS missed. Overall, this was a weaker quarter. The stock traded down 9.8% to $9.69 immediately after reporting.

Updated: February 26, 2026 at 7:54 AM EST

Before investing in or passing on Cars.com, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Cars.com isn’t a terrible business, but it isn’t one of our picks. To kick things off, its revenue growth was weak over the last three years, and analysts don’t see anything changing over the next 12 months. While its impressive EBITDA margins show it has a highly efficient business model, the downside is its declining EPS over the last three years makes it a less attractive asset to the public markets. On top of that, its growth in active buyers has been lackluster.

Cars.com’s EV/EBITDA ratio based on the next 12 months is 4.8x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $16.79 on the company (compared to the current share price of $9.69).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.