CarGurus Falls 17% After Mixed Q4 Results, Downbeat Revenue Outlook

CarGurus (NASDAQ: CARG), the leading online auto platform for shopping, buying, and selling new and used vehicles, reported its fourth-quarter and full-year 2024 financial results on February 20, 2025. The company's shares fell by 17% following the release of its mixed quarterly results and a downbeat revenue outlook for the coming year.

Q4 and Full-Year 2024 Results:

* Marketplace revenue grew 15% year-over-year (YoY) to $210.2 million, driven by a 2% increase in paying dealers and a 12% increase in Quarterly Average Revenue per Subscribing Dealer (QARSD) to $7,337.
* Digital Wholesale segment revenue plummeted 55% YoY to $9.9 million, leading to a $115 million goodwill impairment related to the CarOffer reporting unit.
* Total revenue decreased by 2% YoY to $894.4 million, as weakness in the Digital Wholesale segment offset gains in the U.S. Marketplace.
* Consolidated Adjusted EBITDA increased 26% YoY to $247.2 million, showcasing improved profitability and cost management across the organization.
* The company recorded a substantial goodwill impairment charge of $115 million related to the CarOffer reporting unit, reflecting a significant devaluation of this business segment.

Revenue Outlook for 2025:

* CarGurus expects revenue growth of 14% YoY in 2025, driven by continued strength in the U.S. Marketplace segment.
* The company's guidance for 2025 implies a significant slowdown in revenue growth compared to the 14% YoY growth experienced in 2024.

Stock Performance and Valuation:

* CarGurus' shares fell by 17% following the release of its mixed quarterly results and downbeat revenue outlook.
* The company's market capitalization stands at $3.46 billion, with an enterprise value of $3.32 billion after netting out its $144 million cash balance.
* CarGurus' enterprise value of 7.97x EV/FY18 revenues is not particularly cheap, but investors should consider the company's high growth rate, positive GAAP profits, and recurring revenue base.

Key Takeaways and Next Steps:

* CarGurus' strong performance in the U.S. Marketplace segment suggests that the company can continue to grow revenue by focusing on this core business.
* The Digital Wholesale segment's poor performance raises concerns about the long-term viability and integration of CarOffer, which could impact CarGurus' overall financial health.
* Investors should monitor CarGurus' progress in addressing the challenges in the Digital Wholesale segment and its ability to maintain growth in the U.S. Marketplace segment.
* The company's future revenue is uncertain due to macroeconomic factors and potential impacts from the recent U.S. presidential election, which could further pressure performance, particularly in the fourth quarter of 2024.

In conclusion, CarGurus' mixed quarterly results and downbeat revenue outlook have led to a 17% decline in the company's shares. While the U.S. Marketplace segment's strong performance indicates continued growth potential, the Digital Wholesale segment's challenges raise concerns about the company's overall financial health. Investors should closely monitor CarGurus' progress in addressing these issues and its ability to maintain growth in the U.S. Marketplace segment.