CarGurus NASDAQ: CARG highlighted its recent growth, artificial intelligence initiatives and dealer product strategy during a company discussion in which a CarGurus speaker identified as Jason addressed investor questions about valuation, guidance and the evolving online auto-shopping market.
Jason said the company is “very proud” of its recent performance, citing 15% year-over-year growth in the first quarter and multiple years of double-digit growth. He said that growth has been driven largely by product innovation and product expansion, while adjusted EBITDA margins remain “in the 30s.”
He also pointed to earnings per share and free cash flow per share growth as potentially underappreciated, saying EPS grew at a compound annual growth rate of more than 50% from 2023 to 2025 as the company repurchased shares.
AI Strategy Centers on Research, Consideration and Purchase
Jason said CarGurus views the consumer car-shopping journey in three segments: research, consideration and purchase. Research involves determining what type of vehicle a consumer may want, consideration focuses on identifying the right vehicle, and purchase covers the transaction experience with the dealer.
He said the company is working to make that journey a “full AI modal experience” for consumers. According to Jason, AI can shift the experience from curated information to an “expert guide” that makes recommendations, reduce the human effort involved in a process that often takes three to four months, and improve outcomes for both consumers and dealers by reducing information asymmetry.
“We don’t believe that car shopping is going to be a zero-click experience,” Jason said, adding that vehicle purchases are too important and complex for consumers to rely only on a superficial interaction.
CarGurus has launched an app in the ChatGPT app marketplace, which Jason said was the first in its category. He said traffic from large language models remains small at about 1% of total traffic, but converts at roughly twice the rate of normal traffic.
Much of that traffic enters through Discover, the company’s AI virtual assistant. Jason said users of Discover provide detailed information about their needs, such as family situation, weather conditions and desired driving characteristics, allowing CarGurus to recommend specific makes, models and trims.
Dealer Tools Focus on Conversion and Data
Jason said CarGurus is using consumer data to create more useful profiles for dealers through tools such as Shopper Signals. That product can give dealership staff information about why a consumer is interested in a particular vehicle, which he said can help improve conversion when the consumer arrives at the dealership.
Another product, Digital Deal, lets consumers complete parts of the transaction on CarGurus’ site before visiting a dealer. Those steps can include getting a trade-in value, placing a deposit, setting an appointment and buying finance and insurance products from the dealer.
Jason said the challenge for dealers is not a lack of data but changing dealership behavior. He said CarGurus’ Dealer Performance Partners group works with hundreds of dealers each year to help them use the company’s platform and best practices. He said that group can sometimes double a dealer customer’s conversion rate.
Data Advantage Described as Part of the Moat
Jason said data is an important part of CarGurus’ competitive position, though not the only part. He said there are about 42,000 to 45,000 dealers in the U.S. and about 65,000 dealers across the U.S., U.K. and Canada. In the U.S., he said CarGurus has about 26,000 paying dealers and more than 30,000 dealers on its site due to a freemium model.
He said the company collects about half a billion data points per day around pricing, inventory and consumer demand. CarGurus also receives feeds from dealers and integrates with dealer systems, converting unstructured vehicle information into data that can support comparisons, pricing validation, deduplication and deal ratings.
“That is all data, but it’s data over time, some of which is proprietary, and it’s what we do with that that makes that a moat,” Jason said.
In response to an analyst question, Jason said CarGurus has about 85% of U.S. vehicle inventory on its site, which he described as the largest of anyone. He said the missing inventory is more likely to come from very small dealers, rural dealers with high-price strategies or some “buy here, pay here” dealers where CarGurus does not view the listed price as fair or validated.
Product Expansion Drives Dealer Revenue
Jason said CarGurus maintained its full-year guidance after the first quarter and guided to double-digit growth. He said revenue growth is being driven primarily by quarterly average revenue per subscribing dealer, or QARSD, along with dealer rooftop growth.
In the U.S., Jason said QARSD is about $7,500 per quarter, or roughly $2,500 per month per dealer. He said QARSD has been growing at a high-single-digit to low-double-digit rate for many quarters. The main drivers are upselling dealers to higher package tiers and cross-selling additional products.
He cited New Car Exposure and PriceVantage as examples of recently launched products. New Car Exposure allows dealers to market specific new cars in more sophisticated ways, while PriceVantage is a pricing product in the inventory category. Jason said the two products, launched in the fourth quarter, are expected to grow 15-fold this year and become an eight-figure revenue stream combined.
He also discussed Dealership Mode, a feature in the CarGurus app designed to help consumers compare cars and understand financing while at the dealership. Jason said about 80% of consumers checking in through Dealership Mode had not submitted a traditional lead, suggesting another channel of value for dealers.
Capital Allocation Includes Investment, M&A and Buybacks
Jason said CarGurus’ capital allocation priorities are investing in the business, pursuing mergers and acquisitions, and returning capital to shareholders. He said the company continues to invest heavily in innovation, particularly as it expands into software, data and AI-driven consumer experiences.
He said CarGurus has repurchased nearly 30% of the company over the past three to four years, totaling almost $900 million of shares. In the first quarter, the company repurchased $175 million of stock and has a $250 million share repurchase authorization for the current calendar year.
Jason said the company evaluates buybacks based on free cash flow yield, adding that management believes the current level is attractive as the company sees a long runway for durable growth.
About CarGurus NASDAQ: CARG
CarGurus, Inc operates an online automotive marketplace designed to connect buyers and sellers of new and used vehicles. Through its proprietary search engine and data-driven pricing tools, the platform enables consumers to compare listings, assess fair market values and locate local dealers offering competitive deals. CarGurus also provides detailed vehicle history reports, dealer reviews and financing options to streamline the car-shopping process for both private parties and franchised dealerships.
The company's core product offerings include Instant Market Value (IMV), which leverages pricing algorithms to help buyers identify over- or under-priced vehicles, as well as dealer subscription services that grant automotive retailers access to lead generation tools, targeted advertising and dynamic pricing insights.
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