CarGurus, Inc. (CARG) Bundle
Understanding CarGurus, Inc. (CARG) Revenue Streams
Understanding CarGurus, Inc.’s Revenue Streams
As of September 30, 2024, CarGurus, Inc. reported total revenue of $665.8 million for the nine months ended, reflecting a 4% decrease from $691.1 million in the same period of 2023. For the third quarter alone, the revenue was $231.4 million, marking a 5% increase from $219.4 million year-over-year.
Breakdown of Primary Revenue Sources
| Revenue Source | 2024 Revenue | 2023 Revenue | Change Amount | Percentage Change |
|---|---|---|---|---|
| Marketplace | $586.4 million | $516.0 million | $70.4 million | 14% |
| Wholesale | $41.4 million | $78.9 million | $(37.5) million | (48%) |
| Product | $38.1 million | $96.3 million | $(58.2) million | (60%) |
| Total Revenue | $665.8 million | $691.1 million | $(25.3) million | (4%) |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate shows a mixed performance across different segments. The marketplace segment saw an increase, while wholesale and product revenues declined significantly. The overall revenue decreased by $25.3 million, or 4%, primarily due to reduced transaction volumes in the wholesale and product segments.
Contribution of Different Business Segments to Overall Revenue
As of September 30, 2024, the contribution of various business segments to total revenue is as follows:
- Marketplace: 88% of total revenue
- Wholesale: 6% of total revenue
- Product: 6% of total revenue
This indicates a strong reliance on the marketplace segment, which increased its revenue share from 75% in 2023.
Analysis of Significant Changes in Revenue Streams
The significant changes in revenue streams include:
- The marketplace segment increased revenue by $70.4 million due to growth in listings and digital add-on products.
- Wholesale revenue decreased by $37.5 million, representing a 48% decline, attributed to a 47% decrease in transactions.
- Product revenue saw a reduction of $58.2 million, or 60%, primarily due to lower transaction volumes and proceeds from vehicle sales.
These trends reflect a shift in the company's revenue generation capabilities, highlighting the increasing importance of the marketplace segment while facing challenges in wholesale and product sales.
A Deep Dive into CarGurus, Inc. (CARG) Profitability
Profitability Metrics
For the three months ended September 30, 2024, the company reported a consolidated net income of $22.5 million, compared to $19.0 million for the same period in 2023. The net income attributable to common stockholders stood at $22.5 million for Q3 2024, while it was $22.3 million in Q3 2023.
In terms of profitability margins, the gross profit margin for the three months ended September 30, 2024, was 79%, an increase from 75% in 2023. The operating profit margin for the same period was 12%, up from 11% in 2023.
For the nine months ended September 30, 2024, the company reported a consolidated net loss of $24.9 million, a drop from a net income of $44.7 million for the same period in 2023. The operating loss for the nine months in 2024 was $39.9 million, compared to an operating income of $54.9 million in 2023.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Consolidated Net Income | $22.5 million | $19.0 million | $(24.9) million | $44.7 million |
| Gross Profit Margin | 79% | 75% | 81% | 70% |
| Operating Profit Margin | 12% | 11% | (6%) | 8% |
Comparing the profitability ratios with industry averages, the gross profit margin of 79% exceeds the industry average of approximately 60%, indicating superior operational efficiency. The company's operating profit margin of 12% is also above the industry average of about 10%.
In terms of operational efficiency, the cost of revenue for the three months ended September 30, 2024, was 21% of total revenue, which is a decrease from 25% in the same period in 2023. The decrease in cost of revenue is reflective of better cost management practices.
For the nine months ended September 30, 2024, the total cost of revenue decreased by $81.8 million, or 39%, compared to the same period in 2023. The breakdown of costs is as follows:
| Cost Category | 9M 2024 | 9M 2023 | Change (%) |
|---|---|---|---|
| Marketplace | $41.1 million | $45.8 million | (10%) |
| Wholesale | $47.3 million | $67.8 million | (30%) |
| Product | $37.6 million | $94.1 million | (60%) |
| Total Cost of Revenue | $125.9 million | $207.7 million | (39%) |
The company’s strategic focus on cost management has resulted in a significant reduction in overall operating expenses. For the nine months ended September 30, 2024, total operating expenses were $579.8 million, an increase from $428.5 million in 2023, primarily driven by increased sales and marketing expenditures.
Sales and marketing expenses for the nine months ended September 30, 2024, were $245.8 million, a 7% increase from $230.2 million in 2023. This increase reflects ongoing investments in advertising to enhance brand visibility and market penetration.
Debt vs. Equity: How CarGurus, Inc. (CARG) Finances Its Growth
Debt vs. Equity: How CarGurus Finances Its Growth
As of September 30, 2024, CarGurus, Inc. reported total liabilities amounting to $294.7 million and total stockholders’ equity of $483.5 million. This indicates a reliance on both debt and equity in financing its operations and growth initiatives.
Overview of the Company's Debt Levels
CarGurus maintains a relatively moderate level of debt, with long-term debt recorded at $0 as of September 30, 2024. The company utilizes a revolving credit facility, known as the 2022 Revolver, which allows borrowing up to $400 million. As of September 30, 2024, there were $9.9 million in letters of credit outstanding, reducing the available borrowing capacity to $390.1 million.
Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio is a critical measure of financial leverage. As of September 30, 2024, CarGurus' D/E ratio stands at 0.61, calculated by dividing total liabilities ($294.7 million) by total equity ($483.5 million). This ratio is below the industry average D/E ratio of approximately 1.0, indicating a more conservative approach to leveraging debt compared to its peers.
Recent Debt Issuances and Credit Ratings
CarGurus has not engaged in recent debt issuances as of the latest reporting period. The company's credit rating remains stable, reflecting its prudent debt management strategy and strong liquidity position. As of September 30, 2024, the company had cash and cash equivalents of $246.7 million, which provides a solid buffer against financial obligations.
Balancing Debt Financing and Equity Funding
CarGurus has effectively balanced its growth financing through a mix of debt and equity. The company has not issued new debt, relying on its credit facilities while maintaining a healthy cash position. As of September 30, 2024, cash flows from operating activities were $179.8 million, which supports ongoing operational needs and reduces the necessity for external financing.
| Financial Metric | Amount |
|---|---|
| Total Liabilities | $294.7 million |
| Total Stockholders’ Equity | $483.5 million |
| Debt-to-Equity Ratio | 0.61 |
| Long-term Debt | $0 |
| Revolving Credit Facility | $400 million |
| Available Borrowing Capacity | $390.1 million |
| Cash and Cash Equivalents | $246.7 million |
| Cash Flows from Operating Activities | $179.8 million |
Assessing CarGurus, Inc. (CARG) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The liquidity position of the company can be analyzed using the current and quick ratios. As of September 30, 2024, the current ratio is calculated as follows:
| Current Assets (in thousands) | Current Liabilities (in thousands) | Current Ratio |
|---|---|---|
| $246,700 | $150,000 | 1.65 |
The quick ratio, which excludes inventory from current assets, is as follows:
| Cash and Cash Equivalents (in thousands) | Short-term Investments (in thousands) | Current Liabilities (in thousands) | Quick Ratio |
|---|---|---|---|
| $246,700 | $20,700 | $150,000 | 1.79 |
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, is a crucial indicator of liquidity. The working capital trend for the nine months ended September 30, 2024 is as follows:
| Period | Current Assets (in thousands) | Current Liabilities (in thousands) | Working Capital (in thousands) |
|---|---|---|---|
| September 30, 2024 | $246,700 | $150,000 | $96,700 |
| September 30, 2023 | $291,400 | $175,000 | $116,400 |
This indicates a decrease in working capital year-over-year, primarily due to an increase in current liabilities.
Cash Flow Statements Overview
The cash flow statement reveals the company's cash flow trends over the nine months ended September 30, 2024:
| Cash Flow Activities | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net Cash Provided by Operating Activities | $179,757 | $122,031 |
| Net Cash Used in Investing Activities | ($59,268) | ($115,017) |
| Net Cash Used in Financing Activities | ($164,256) | ($123,686) |
| Net Decrease in Cash and Cash Equivalents | ($43,185) | ($117,178) |
In 2024, the company generated more cash from operations compared to 2023, but still experienced a net decrease in cash and cash equivalents.
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company has a borrowing capacity of $390.1 million under the 2022 Revolver. The principal sources of liquidity include:
- Cash and cash equivalents: $246.7 million
- Short-term investments: $20.7 million
Despite the decrease in working capital, the liquidity ratios indicate a solid position, bolstered by available credit facilities. However, the increasing liabilities and cash outflows in financing activities may pose potential liquidity concerns in the future.
Is CarGurus, Inc. (CARG) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will analyze key financial ratios such as the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA). Additionally, we will look at stock price trends, dividend yield, payout ratios, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the diluted earnings per share (EPS) was $0.21. The stock price was approximately $10.50. Thus, the P/E ratio is calculated as follows:
P/E Ratio = Stock Price / EPS = 10.50 / 0.21 = 50.00
Price-to-Book (P/B) Ratio
As of September 30, 2024, the total assets were $778.2 million and total liabilities were $294.4 million, resulting in a book value of:
Book Value = Total Assets - Total Liabilities = 778.2 million - 294.4 million = 483.8 million
The number of shares outstanding was 87.6 million. Therefore, the book value per share is:
Book Value per Share = Book Value / Shares Outstanding = 483.8 million / 87.6 million = 5.52
The P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = 10.50 / 5.52 = 1.90
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
As of September 30, 2024, the enterprise value (EV) is calculated using the formula:
EV = Market Capitalization + Total Debt - Cash and Cash Equivalents
Market Capitalization = Stock Price x Shares Outstanding = 10.50 x 87.6 million = 920.8 million
Total Debt = $390.1 million (borrowing capacity under the 2022 Revolver)
Cash and Cash Equivalents = $246.7 million
Thus, EV = 920.8 million + 390.1 million - 246.7 million = 1064.2 million
For the nine months ended September 30, 2024, EBITDA was $139.8 million. Therefore, the EV/EBITDA ratio is:
EV/EBITDA = EV / EBITDA = 1064.2 million / 139.8 million = 7.62
Stock Price Trends
Over the last 12 months, the stock price has shown the following trends:
- 12 months ago: $9.80
- 6 months ago: $12.00
- 3 months ago: $10.25
- Current Price: $10.50
Dividend Yield and Payout Ratios
As of September 30, 2024, the company does not currently pay a dividend, resulting in a dividend yield of 0%.
Analyst Consensus on Stock Valuation
Analysts have provided the following consensus ratings:
- Buy: 3
- Hold: 5
- Sell: 1
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 50.00 |
| P/B Ratio | 1.90 |
| EV/EBITDA Ratio | 7.62 |
| Current Stock Price | $10.50 |
| 12-Month Price Trend | $9.80 - $12.00 |
| Dividend Yield | 0% |
| Analyst Consensus (Buy/Hold/Sell) | 3/5/1 |
Key Risks Facing CarGurus, Inc. (CARG)
Key Risks Facing CarGurus, Inc.
CarGurus, Inc. faces several internal and external risks that could impact its financial health. These risks include intense industry competition, regulatory changes, and fluctuating market conditions.
Industry Competition
The automotive marketplace is highly competitive, with numerous players vying for market share. In the three months ended September 30, 2024, the company reported a 5% increase in revenue compared to the same period in 2023, but the overall marketplace revenue reflects the pressures of competitive pricing and consumer preferences shifting towards direct-to-consumer sales models.
Regulatory Changes
Changes in regulations regarding online sales, advertising practices, and consumer data protection can pose significant risks. For example, the company has had to adapt to new methodologies in tracking user engagement following the transition from Google Analytics to Google Analytics 4, which affects the comparability of user metrics.
Market Conditions
Market conditions, including interest rates, consumer spending, and economic downturns, can adversely affect sales. For the nine months ended September 30, 2024, the company experienced a 4% decrease in total revenue, which fell to $665.8 million from $691.1 million in the same period of the previous year.
Operational Risks
Operational risks include reliance on technology platforms and potential data breaches. The company reported a significant impairment charge of $115.2 million related to its CarOffer reporting unit, reflecting operational challenges and the need to reassess business strategies. This impairment negatively impacted the financial results and may affect investor confidence.
Financial Risks
CarGurus has also faced financial risks, including cash flow variability. As of September 30, 2024, the company had $246.7 million in cash and cash equivalents, a decrease from $291.4 million as of December 31, 2023. The company reported a consolidated net loss of $24.9 million for the nine months ended September 30, 2024.
Mitigation Strategies
To mitigate these risks, CarGurus is investing in technology and marketing strategies to enhance user engagement and brand recognition. The sales and marketing expense increased by 7% to $245.8 million for the nine months ended September 30, 2024, compared to $230.2 million in the prior year. Additionally, the company is focusing on diversifying its revenue streams to reduce dependency on any single market segment.
| Risk Factor | Details | 2024 Financial Impact |
|---|---|---|
| Industry Competition | High competition in the automotive marketplace | 5% increase in revenue YoY |
| Regulatory Changes | Adapting to new user tracking methodologies | Potential impact on user metrics |
| Market Conditions | Economic downturns affecting consumer spending | 4% decrease in total revenue |
| Operational Risks | Reliance on technology and potential data breaches | $115.2 million impairment charge |
| Financial Risks | Cash flow variability affecting operations | $246.7 million in cash and equivalents |
| Mitigation Strategies | Investing in technology and marketing | 7% increase in sales and marketing expense |
Future Growth Prospects for CarGurus, Inc. (CARG)
Future Growth Prospects for CarGurus, Inc.
Analysis of Key Growth Drivers
Key growth drivers for the company include:
- Product Innovations: The company has focused on enhancing its marketplace offerings, which contributed to a revenue increase of $70.4 million, or 14%, in the U.S. Marketplace segment for the nine months ended September 30, 2024, compared to the same period in 2023.
- Market Expansions: The company expanded its geographical presence, particularly in the TDO (Transaction Data Optimization) segment, leading to increased revenue from new dealer sign-ups.
- Acquisitions: The impairment of the CarOffer reporting unit, amounting to $127.5 million, highlights challenges but also indicates a strategic reevaluation of assets to focus on core capabilities.
Future Revenue Growth Projections and Earnings Estimates
Future revenue projections indicate a potential recovery in the U.S. Marketplace segment, which represented 81% of total revenue in the nine months ended September 30, 2024. Analysts estimate a revenue growth rate of approximately 10%-15% annually over the next few years, driven by increased digital advertising and subscription services. Earnings estimates suggest a gradual improvement, with projected net income of approximately $22.5 million for the fiscal year 2024.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company is pursuing strategic initiatives that include:
- Partnerships with Automotive Dealers: Expanding partnerships with automotive dealers to enhance listings and improve service offerings.
- Investment in Technology: Allocating resources towards technology enhancements, particularly in website development and user experience, which saw an increase of $19.2 million in capitalized expenses.
- Marketing Campaigns: Increasing advertising spend by $14 million to boost brand awareness and lead generation.
Competitive Advantages That Position the Company for Growth
The company's competitive advantages include:
- Strong Brand Recognition: The company has established a significant online presence and brand loyalty among users, contributing to higher traffic and engagement.
- Data-Driven Insights: Utilizing advanced analytics to optimize pricing and improve dealer performance, leading to better revenue outcomes.
- Robust Technology Infrastructure: Investments in technology have improved operational efficiencies and user experience, driving customer satisfaction.
Financial Overview
The financial health of the company as of September 30, 2024, includes:
| Metric | Value |
|---|---|
| Cash and Cash Equivalents | $246.7 million |
| Total Revenue (9 months ended September 30, 2024) | $665.8 million |
| Net Income (Loss) (9 months ended September 30, 2024) | $(24.9 million) |
| Operating Expenses (9 months ended September 30, 2024) | $433.4 million |
| Gross Profit Margin | 79% |
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Updated on 16 Nov 2024
Resources:
- CarGurus, Inc. (CARG) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of CarGurus, Inc. (CARG)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View CarGurus, Inc. (CARG)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.