Cars.com Inc. (CARS) Bundle
Understanding Cars.com Inc. (CARS) Revenue Streams
Understanding Cars.com Inc.’s Revenue Streams
As of September 30, 2024, total revenue for the company was $538,721 thousand, representing a year-over-year increase of 6% compared to $509,577 thousand in 2023. The increase in revenue is primarily attributed to various segments of the business.
Breakdown of Primary Revenue Sources
The revenue streams are categorized into three main segments:
- Dealer Revenue: This is the largest revenue source, accounting for 89% of total revenue in 2024 and 90% in 2023. Dealer revenue increased by $20,903 thousand or 5%, reaching $481,171 thousand.
- OEM and National Revenue: This segment represented 9% of total revenue in 2024 and 8% in 2023. It saw an increase of $7,655 thousand or 19%, totaling $48,149 thousand.
- Other Revenue: This segment accounted for 2% of total revenue for both 2024 and 2023. Other revenue increased by $586 thousand or 7%, totaling $9,401 thousand.
| Revenue Source | 2024 Revenue (in thousands) | 2023 Revenue (in thousands) | Year-over-Year Change (in thousands) | Percentage Change |
|---|---|---|---|---|
| Dealer Revenue | $481,171 | $460,268 | $20,903 | 5% |
| OEM and National Revenue | $48,149 | $40,494 | $7,655 | 19% |
| Other Revenue | $9,401 | $8,815 | $586 | 7% |
| Total Revenue | $538,721 | $509,577 | $29,144 | 6% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for the first nine months of 2024 indicates a consistent upward trend. The total revenue increased by $29,144 thousand, reflecting a 6% growth rate compared to the prior year.
Contribution of Different Business Segments to Overall Revenue
The contribution of different business segments to overall revenue for the nine months ended September 30, 2024, is detailed as follows:
| Segment | Contribution to Total Revenue | Percentage of Total Revenue |
|---|---|---|
| Dealer Revenue | $481,171 | 89% |
| OEM and National Revenue | $48,149 | 9% |
| Other Revenue | $9,401 | 2% |
Analysis of Significant Changes in Revenue Streams
Dealer revenue experienced a modest increase driven by the addition of the D2C Media business and growth in digital experience revenue, which includes services such as website creation and hosting. Conversely, marketplace revenue has shown signs of decline, attributed to macroeconomic pressures impacting dealer profitability. The OEM and National revenue segment has seen a significant uptick due to increased spending from OEMs to boost consumer awareness amidst rising inventory levels.
Overall, the company's diverse revenue streams and strategic adaptations to market conditions illustrate a resilient financial performance through 2024.
A Deep Dive into Cars.com Inc. (CARS) Profitability
Profitability Metrics
In analyzing the financial health of Cars.com Inc. (CARS) as of 2024, key profitability metrics reveal significant insights into the company's performance.
Gross Profit, Operating Profit, and Net Profit Margins
The following table summarizes the gross profit, operating profit, and net profit margins for the nine months ended September 30, 2024, compared to the same period in 2023:
| Metric | 2024 (in thousands) | 2023 (in thousands) | Change ($) | Change (%) |
|---|---|---|---|---|
| Total Revenue | 538,721 | 509,577 | 29,144 | 6% |
| Cost of Revenue | 92,602 | 91,287 | 1,315 | 1% |
| Gross Profit | 446,119 | 418,290 | 27,829 | 7% |
| Operating Expenses | 505,004 | 470,396 | 34,608 | 7% |
| Operating Income | 33,717 | 39,181 | (5,464) | (14)% |
| Net Income | 30,884 | 110,096 | (79,212) | (72)% |
Trends in Profitability Over Time
Over the past year, Cars.com has experienced fluctuations in profitability. While total revenue increased by 6%, the company reported a 72% decline in net income, significantly impacted by prior year income tax benefits. The operating income also saw a 14% decrease compared to the previous year.
Comparison of Profitability Ratios with Industry Averages
As of September 30, 2024, Cars.com’s profitability ratios can be compared against industry averages:
| Ratio | Cars.com (2024) | Industry Average |
|---|---|---|
| Gross Margin | 82.9% | 75% - 80% |
| Operating Margin | 6.3% | 10% - 15% |
| Net Profit Margin | 5.7% | 5% - 10% |
Analysis of Operational Efficiency
Operational efficiency metrics reveal the following:
- Cost of revenue and operations represented 17% of total revenue for the nine months ended September 30, 2024, down from 18% in 2023.
- Product and technology expenses increased by 14%, reflecting higher compensation costs.
- General and administrative expenses surged by 25%, largely due to the D2C Media business.
These figures indicate a focus on cost management, although rising expenses in specific areas may pressure overall profitability moving forward.
The operational efficiency metrics illustrate a need for Cars.com to balance growth investments with cost controls to enhance profitability in the competitive online automotive marketplace.
Debt vs. Equity: How Cars.com Inc. (CARS) Finances Its Growth
Debt vs. Equity: How Cars.com Inc. Finances Its Growth
Debt Levels
As of September 30, 2024, the outstanding aggregate principal amount of indebtedness was $470.0 million, with an average interest rate of 6.4%. This includes $400.0 million under the 6.375% Senior Unsecured Notes due in 2028 and $70.0 million under a Revolving Loan at an interest rate of 6.8%.
Debt-to-Equity Ratio
The debt-to-equity ratio for Cars.com Inc. is calculated as follows:
As of September 30, 2024, total stockholders' equity stood at $481.450 million. Therefore, the debt-to-equity ratio is:
Debt-to-Equity Ratio = Total Debt / Total Equity = $470.0 million / $481.450 million ≈ 0.975
This ratio is slightly below the industry average, which typically hovers around 1.0.
Recent Debt Issuances and Refinancing Activity
During the nine months ended September 30, 2024, Cars.com made $10.0 million in mandatory Term Loan payments and repaid $10.0 million on its Revolving Loan. In connection with the Fifth Amendment, the company borrowed $80.0 million to repay $45.0 million of existing Term Loan and $35.0 million of existing Revolving Loan balances.
Credit Ratings
The company's debt is classified as Level 2 in the fair value hierarchy, with a fair value of $468.0 million as of September 30, 2024.
Balance Between Debt Financing and Equity Funding
As of September 30, 2024, Cars.com maintained $49.6 million in cash and cash equivalents, with total liquidity of $329.6 million when including undrawn Revolving Loan. The company has a share repurchase program authorized for up to $200.0 million.
| Debt Type | Principal Amount | Interest Rate | Due Date |
|---|---|---|---|
| Senior Unsecured Notes | $400.0 million | 6.375% | 2028 |
| Revolving Loan | $70.0 million | 6.8% | Not specified |
The company's strategy indicates a calculated approach to balancing debt and equity to finance growth, leveraging its existing capital structure while managing financial obligations effectively.
Assessing Cars.com Inc. (CARS) Liquidity
Assessing Cars.com Inc.'s Liquidity
Current and Quick Ratios
As of September 30, 2024, the current ratio for Cars.com Inc. was 1.36, indicating that the company had sufficient current assets to cover its current liabilities. The quick ratio stood at 1.12, reflecting a solid liquidity position when excluding inventory from current assets.
Analysis of Working Capital Trends
Working capital for Cars.com was reported at $66.2 million as of September 30, 2024. This is a significant increase from $49.1 million in the previous quarter, indicating improved operational efficiency and financial health.
Cash Flow Statements Overview
The cash flow statement for the nine months ended September 30, 2024, reveals the following trends:
- Net cash provided by operating activities: $122.5 million
- Net cash used in investing activities: ($19.0 million)
- Net cash used in financing activities: ($93.1 million)
This results in a net increase in cash and cash equivalents of $10.4 million.
Cash Flow Breakdown
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Operating Activities | $122,517 | $91,580 |
| Investing Activities | ($19,034) | ($15,575) |
| Financing Activities | ($93,055) | ($58,635) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the total liquidity, including cash and undrawn revolving loans, was reported at $329.6 million. However, the company also had total indebtedness of $470 million, which could pose potential liquidity concerns if not managed effectively.
In summary, the financial health of Cars.com Inc. shows a solid liquidity position with a healthy current and quick ratio, increasing working capital, and strong cash flows from operations, although the existing debt levels warrant careful monitoring.
Is Cars.com Inc. (CARS) Overvalued or Undervalued?
Valuation Analysis
To determine if Cars.com Inc. (CARS) is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio is a common valuation metric used to assess the relative value of a company's shares. As of September 30, 2024, the diluted earnings per share (EPS) was $0.28. Assuming a stock price of $19.32, the P/E ratio is calculated as follows:
P/E Ratio = Stock Price / EPS = $19.32 / $0.28 = 68.29
Price-to-Book (P/B) Ratio
The P/B ratio compares a company's market value to its book value. As of September 30, 2024, the book value per share can be derived from total stockholders' equity of $502,425,000 and shares outstanding of 65,022.
Book Value Per Share = Total Stockholders' Equity / Shares Outstanding = $502,425,000 / 65,022 = $7,724.06
Assuming a stock price of $19.32, the P/B ratio is:
P/B Ratio = Stock Price / Book Value Per Share = $19.32 / $7.724.06 = 2.50
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
To calculate the EV/EBITDA ratio, we need the enterprise value and EBITDA. As of September 30, 2024, the EBITDA can be derived from the operating income of $33,717,000 plus depreciation and amortization of $82,499,000.
EBITDA = Operating Income + Depreciation + Amortization = $33,717,000 + $82,499,000 = $116,216,000
Assuming net debt of $70,000,000 (from long-term debt) and a market capitalization of $1,257,034,000 (calculated as stock price multiplied by shares outstanding), the enterprise value is:
Enterprise Value = Market Capitalization + Net Debt = $1,257,034,000 + $70,000,000 = $1,327,034,000
The EV/EBITDA ratio is then:
EV/EBITDA = Enterprise Value / EBITDA = $1,327,034,000 / $116,216,000 = 11.41
Stock Price Trends
Over the past 12 months, the stock price has shown the following trends:
- 12-month high: $21.50
- 12-month low: $15.00
- Current stock price: $19.32
Dividend Yield and Payout Ratios
CARS does not currently pay dividends, resulting in a dividend yield of 0%.
Analyst Consensus
The following is the analyst consensus on the stock valuation:
- Buy: 5 analysts
- Hold: 3 analysts
- Sell: 1 analyst
| Metric | Value |
|---|---|
| P/E Ratio | 68.29 |
| P/B Ratio | 2.50 |
| EV/EBITDA | 11.41 |
| 12-Month High | $21.50 |
| 12-Month Low | $15.00 |
| Current Stock Price | $19.32 |
| Dividend Yield | 0% |
| Analyst Consensus | 5 Buy, 3 Hold, 1 Sell |
Key Risks Facing Cars.com Inc. (CARS)
Key Risks Facing Cars.com Inc.
The financial health of Cars.com Inc. is influenced by various internal and external risk factors that could potentially impact its operations and profitability.
Industry Competition
The online automotive marketplace is characterized by intense competition. Major players such as Autotrader, CarGurus, and TrueCar pose significant challenges. The competitive environment can lead to pricing pressures and reduced market share.
Regulatory Changes
Changes in federal and state regulations regarding online advertising and consumer protection can affect operational strategies. Compliance costs may increase, impacting profitability.
Market Conditions
The overall economic environment, including fluctuations in consumer spending, interest rates, and vehicle inventory levels, can significantly influence the company's revenue. For instance, the increase in vehicle retail prices and interest rates can deter potential buyers, affecting sales volumes.
Operational Risks
Operational risks include challenges in maintaining and upgrading technology platforms to meet consumer expectations. Any significant disruption in service could lead to a loss of customer trust and revenue. Additionally, the company reported a 2% decrease in average monthly unique visitors from 25,980 in 2023 to 24,547 in 2024, indicating potential engagement issues.
Financial Risks
As of September 30, 2024, the total outstanding aggregate principal amount of indebtedness was $470.0 million, with an average interest rate of 6.4%. This includes $400.0 million of 6.375% Senior Unsecured Notes due in 2028. The company's effective income tax rate for the nine months ended September 30, 2024, was affected by state income taxes and nondeductible expenses.
Strategic Risks
Strategic risks arise from the need to adapt to changing consumer preferences and technological advancements. The transition towards electric vehicles and online car buying presents both opportunities and challenges. The ability to innovate and offer relevant services is crucial for maintaining competitive advantage.
Mitigation Strategies
The company has implemented a share repurchase program to enhance shareholder value, with $35.7 million spent on repurchasing shares in the nine months ended September 30, 2024. Furthermore, the focus on enhancing digital solutions aims to address evolving consumer needs and improve engagement metrics.
| Risk Factor | Description | Current Impact |
|---|---|---|
| Industry Competition | Presence of major competitors impacting pricing and market share. | High |
| Regulatory Changes | Compliance with evolving federal and state regulations. | Medium |
| Market Conditions | Economic fluctuations affecting consumer buying behavior. | High |
| Operational Risks | Challenges in technology maintenance and customer engagement. | Medium |
| Financial Risks | High levels of debt and interest obligations. | High |
| Strategic Risks | Need to adapt to technological advancements and consumer preferences. | Medium |
Future Growth Prospects for Cars.com Inc. (CARS)
Future Growth Prospects for Cars.com Inc.
Analysis of Key Growth Drivers
The company is focusing on several key growth drivers, including product innovations, market expansions, and strategic acquisitions. Recently, the integration of the D2C Media business has contributed to an increase in dealer revenue.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total revenue increased to $538.7 million, up from $509.6 million in the same period of 2023, representing a growth of 6%. The net income for the same period was $30.9 million, a decline from $110.1 million in the previous year.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company is actively pursuing partnerships and strategic initiatives to bolster its market position. The D2C Media acquisition is expected to enhance its service offerings and customer base, with a purchase consideration of $80.1 million. Additionally, the integration of digital solutions and enhanced dealer services is anticipated to drive revenue growth.
Competitive Advantages That Position the Company for Growth
Cars.com Inc. holds a strong competitive position due to its extensive network of dealer customers, which numbered 19,255 as of September 30, 2024, up from 18,715 in the previous year. The monthly average revenue per dealer stood at $2,478, reflecting the value proposition of its platform.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Revenue | $179.7 million | $174.3 million | 3% |
| Net Income | $18.7 million | $4.5 million | 318% |
| Dealer Revenue | $159.5 million | $157.1 million | 2% |
| OEM and National Revenue | $17.0 million | $14.5 million | 17% |
| Other Revenue | $3.1 million | $2.7 million | 17% |
The company also reported an increase in operating expenses, with total operating expenses rising to $505.0 million for the nine months ended September 30, 2024, compared to $470.4 million in the prior year.
In terms of liquidity, as of September 30, 2024, cash and cash equivalents amounted to $49.6 million, with total liquidity reaching $329.6 million. The company's total indebtedness was $470.0 million at an average interest rate of 6.4%.
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Updated on 16 Nov 2024
Resources:
- Cars.com Inc. (CARS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Cars.com Inc. (CARS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Cars.com Inc. (CARS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.