CarGurus Q3 2025: Contradictions in Dealer Growth, Marketplace Strategy, and AI Investments

Date of Call: November 6, 2025

Financials Results

• Revenue: $239 million, up 3% year-over-year
• EPS: $0.57 per diluted share, up $0.13 or 30% year-over-year
• Gross Margin: Non-GAAP gross margin 90%, up ~650 basis points year-over-year; Marketplace non-GAAP gross margin 93% (stable)
• Operating Margin: Adjusted EBITDA margin 33%, up ~490 basis points year-over-year; Marketplace adjusted EBITDA margin 36%, up ~120 bps year-over-year but down slightly sequentially

Guidance:

• Q4 Marketplace revenue expected $236M–$241M, up 12%–15% year-over-year.
• Full-year Marketplace revenue expected $902M–$907M, up 13%–14% year-over-year.
• Q4 Marketplace adjusted EBITDA $83M–$91M, up 5%–15% year-over-year; full-year Marketplace adjusted EBITDA $313M–$321M, up 18%–21% year-over-year.
• Q4 consolidated non-GAAP EPS $0.61–$0.67 (up 13%–24% YOY); full-year EPS $2.19–$2.25 (up 29%–32% YOY).
• Expect discontinued operations criteria met in Q4; CarOffer wind-down charges ~$13M–$15M total with Marketplace absorbing ~ $1M ongoing quarterly; ~$2M to be recast to continuing ops.
• Diluted shares: Q4 ~97M; full-year ~101M.

Business Commentary:

• Marketplace Revenue Growth and Profitability:
• CarGurus reported a 14% year-over-year growth in Marketplace revenue, with Marketplace adjusted EBITDA up 18% for the third quarter.

• The growth was driven by the expansion in active dealer engagements, particularly through dealer upgrades to higher tiers and the broader adoption of add-on products like PriceVantage and inventory insights.

• Product Innovation and AI Integration:

• The introduction of new products like PriceVantage and Dealership Mode has significantly enhanced customer engagement and lead conversion rates.

• The use of AI is transforming the company's ability to offer data-driven insights, improve product offerings, and streamline internal operations.

• International Market Performance:

• CarGurus' international operations contributed to a 27% year-over-year increase in revenue, with international CarSID growth of 15%.

• This growth is attributed to increased adoption by dealers seeking better ROI and competitive pricing strategies in markets like Canada and the U.K.

• Digital Deal and Transaction Capabilities:

• The adoption of Digital Deal surpassed 12,500 dealers, with an increase of 45% year-over-year in high-value actions like financing applications and reservations.
• The expansion of Digital Deal offerings is facilitating more seamless online-to-offline transactions, driving higher conversion rates and dealer engagement.

Sentiment Analysis:

Overall Tone: Positive

• "delivered double-digit year-over-year Marketplace revenue growth"; "Marketplace revenue grew approximately 14% year-over-year"; "adjusted EBITDA was approximately $79 million, up 21% year-over-year"; raised margins: non-GAAP gross margin 90% (up ~650 bps) and adjusted EBITDA margin 33% (up ~490 bps); provided Q4 and full-year Marketplace growth and EBITDA guidance.

Q&A:

• Question from Christopher Pierce (Needham & Company): You disclosed 25% of dealers only pay for CarGurus — any trend data (1–2 years) or upper bound on that stat?
  Response: No trend provided for the 25% stat; management noted a broader consolidation trend where dealers use fewer marketplaces (historically ~3 → now ~1.8), concentrating spend on highest-ROI platforms.

• Question from Christopher Pierce (Needham & Company): Are dealers increasingly willing to adopt Digital Deal and when might you flex pricing given improved conversion and dealer readiness?
  Response: Digital Deal adoption (12,500 dealers) is growing; high-value actions (appointments, deposits, financing) drive materially higher lead quality and ROI, creating opportunity for future pricing power.

• Question from Marvin Fong (BTIG): International CarSID is growing fast — how much can you accelerate CarSID and close revenue-per-dealer gaps with incumbents in the U.K. and Canada?
  Response: Strategy is to win share first with lower pricing and demonstrable ROI; as adoption and market position mature, pricing can be increased — international still earlier stage with more runway.

• Question from Marvin Fong (BTIG): When selling the ~$4B solutions opportunity to dealers, are you positioning integrated analytics/software plus listings as wallet consolidation?
  Response: Yes — they position integrated products around profit maximization tied to dealer workflows, using marketplace signals to unlock new software/data wallets beyond listings.

• Question from Vincent Kardos (Jefferies): Rooftop adds accelerated while CarSID growth slowed slightly; how should we think about the relationship and drivers (retention vs net adds)?
  Response: CarSID is revenue per rooftop so rapid rooftop growth can mechanically depress CarSID growth; retention, product-led adoption and faster ramp/AOS among new cohorts are improving and driving combined revenue growth.

• Question from Jamesmichael Sherman-Lewis (Citigroup): How does CG Discover differ from traditional search and how will its contribution evolve longer term?
  Response: Discover is a conversational, reasoning-driven GenAI assistant (not filters) that increases engagement, yields much higher VDP→lead conversion and provides richer shopper signals for dealers.

• Question from Jamesmichael Sherman-Lewis (Citigroup): Any change to investment intensity for 2026 across product, international or other areas?
  Response: No change in relative intensity; company will continue disciplined, increased investment in product, go-to-market, international and mostly AI-centric innovation while maintaining margin focus.

• Question from Ryan James Powell (B. Riley Securities): What consumer insights does Dealership Mode generate and does it improve recommendations?
  Response: Dealership Mode captures who visits lots, comparison interests and financing signals, enriching leads, improving dealer cross-sell and attribution and feeding recommendation/refinement signals.

• Question from Ryan James Powell (B. Riley Securities): What drove the sharp increase in CG Discover adoption this quarter?
  Response: Wider availability drove adoption — notably rollout into the app (fastest-growing channel) increased exposure and accelerated usage and conversion.

• Question from Rajat Gupta (JPMorgan Chase & Co): Given dealer margin pressure and rising inventory, what are you hearing on dealer budgets heading into 2026 and how resilient is demand?
  Response: While macro shows higher inventory and weaker consumer sentiment, CarGurus' subscription model, scale, ROI and broad dealer base make demand resilient and support continued share gains.

• Question from Rajat Gupta (JPMorgan Chase & Co): Is the prior comment about exiting the year at double-digit revenue still on track, and how should we think about the growth vs. margin trade-off into 2026?
  Response: Q4 guidance implies double-digit Marketplace year-over-year growth (addressing exit-rate comment); no 2026 guidance yet — company intends to balance continued growth investments with margin discipline.

• Question from Briana (Citizens) on for Andrew Boone: Where can AI further reduce friction in dealer workflows and how will that show up in margins?
  Response: Biggest AI opportunities are integrating workflow steps (sourcing→pricing→conversion) and improving predictability (real-time retail signals vs outdated wholesale data); benefits will primarily accelerate growth/ramp and dealer ROI rather than immediate margin expansion.

Contradiction Point 1

Dealer Count and Revenue Growth Dynamics

It reflects differing perspectives on the relationship between dealer count and per-dealer revenue in driving revenue growth, which is crucial for understanding the company's growth strategy and financial performance.

Are recent investments driving accelerated growth in U.S. and international dealer rooftops? - Vincent Kardos(Jefferies)

2025Q3: Rooftops growth depresses CarSID growth. In this past quarter, CarSID was up about 8% year-over-year, rooftops were up about 5% year-over-year, reflecting marketplace revenue growth of about 13%. - Jason Trevisan(CEO)

How does the revenue algorithm balance dealer count and QARSD, and what signals do dealers show about future spending amid tariff uncertainties? - Rajat Gupta(JPMorgan)

2025Q1: Revenue growth is driven by dealer count and per-dealer revenue. Recent strong dealer count growth moderates QARSD expansion but maintains trajectory. - Jason Trevisan(CEO)

Contradiction Point 2

Dealer Distinctiveness and Market Penetration

It involves the company's strategy and approach to differentiate itself in the market, focusing on the number of marketplace partners dealers use and the exclusivity of CarGurus.

How has the metric of 25% of CarGurus dealers exclusively paying CarGurus evolved over the past year and two years, and what is its potential upper limit as you differentiate from peers? - Christopher Pierce(Needham & Company)

2025Q3: What we have seen is that dealers use fewer and fewer marketplace partners. Over the last few years, it has gone from using about 3 to under 2, around 1.8. So there's consolidation and concentration with those that typically offer the best ROI. - Jason Trevisan(CEO)

How should we evaluate dealer count, revenue per dealer, and Marketplace growth in relation to existing products and new product adoption? Can you clarify the available white space? - Christopher Alan Pierce (Needham & Company)

2025Q2: There is significant opportunity for existing products with over 50% runway on most cross-sell products. The core 26,000 paying dealers in the U.S. have runway for core products, and engagement with insights and analytics is growing, leading to more dealer retention. - Jason M. Trevisan(CEO)

Contradiction Point 3

Dealer Consolidation and Marketplace Revenue Growth

It involves differing perspectives on how dealers are consolidating their spend and the expected growth in marketplace revenue, impacting investor expectations and strategic planning.

Have your recent investments started to pay off, as U.S. and international dealer rooftops grew rapidly in the quarter? - Vincent Kardos (Jefferies)

2025Q3: Rooftops growth depresses CarSID growth. In this past quarter, CarSID was up about 8% year-over-year, rooftops were up about 5% year-over-year, reflecting marketplace revenue growth of about 13%. - Jason Trevisan(CEO)

What drove the strong net dealer additions this quarter, and how is Marketplace revenue growth expected to trend in 2025? - Ralph Schackart (William Blair)

2024Q4: Marketplace revenue is expected to grow 12-14% year-over-year in Q1, with growth tapering due to tougher comparables later in the year. - Elisa Palazzo(CFO)

Contradiction Point 4

Investment Strategy and Priorities

It highlights differing views on the company's investment strategy, including the focus on product innovation and international expansion, which are key areas for growth and competitive positioning.

Looking ahead to 2026, what are the key investment areas in products, international brands, or other areas, and how does the investment intensity compare to 2025? - Jamesmichael Sherman-Lewis(Citigroup)

2025Q3: Investment intensity remains similar. Focus will be on product innovation, international expansion, and engaging consumers and dealers through AI-centric solutions. - Jason Trevisan(CEO)

Why reinvest rather than pursue sequential margin expansion? - Jed Kelly(Oppenheimer)

2025Q1: Reinvestment is based on strong marketplace growth, focusing on brand, product innovation, and account management. - Jason Trevisan(CEO)

Contradiction Point 5

AI and Product Innovation

It addresses the strategic importance and expected outcomes of AI-driven product innovation, impacting the company's competitive advantage and market positioning.

What are the key investment areas for 2026 across products, international brands, and other areas, and how will investment intensity compare to 2025? - Christopher Pierce (Needham & Company)

2025Q3: Investment intensity remains similar. Focus will be on product innovation, international expansion, and engaging consumers and dealers through AI-centric solutions. We'll continue to grow investments primarily across AI-driven dealer and consumer products. - Jason Trevisan(CEO)

How are you approaching marketing and advertising channels, and what role does AI play in the automotive industry? - Nicholas Jones (Citizens JMP)

2024Q4: We're continuing to use AI to provide improved product offerings and solutions like predictive lead scoring and dynamic pricing tools, which we believe will generate more value for our dealer clients. - Jason Trevisan(CEO)