CarGurus, Inc. Q3 FY2024 earnings call

• Provide more value to dealers: Focused on enhancing existing product offerings, increasing adoption of dealer data insights products, and introducing new services beyond leads. Listings revenue grew 15% year-over-year. Over half of dealers with more than two years of partnership increased their spend, and adoption of value-added products globally rose by 60% over two years. - Build a better consumer experience: Enhanced the website and mobile app for a faster, more seamless journey. The mobile app, rated 4.9 stars on iOS, drove nearly 30% of leads. Launched a new homepage and rebranded key pages, increasing personalization and lead conversion on recommendations. Ended the quarter as the number one visited listing site. - Enable digital transactions: Digital Deal is the fastest-growing product in the US, with penetration growing approximately 14% quarter over quarter and nearly 150% year over year. Launched Digital Deal in Canada. Top Dealer offers expanded to 80 metro areas with around 500 dealers participating. - Rebuild and integrate digital wholesale: Focused on improving operations, refining product market fit, and reigniting the commercial engine. Reduced transaction fulfillment times by nearly 12% year-to-date, piloted enhanced matrix functionality, and pilot dealers had better-than-average satisfaction scores.

In the third quarter, marketplace revenue stood at $204 million, marking a 15% year-over-year increase. International business revenue grew by 23% year-over-year. The OEM advertising business achieved two consecutive quarters of double-digit year-over-year revenue growth. Wholesale revenue was $12 million, a 44% year-over-year decline. Product revenue was $15 million, down 23% year-over-year but up 46% sequentially. Marketplace EBITDA saw a 36% year-over-year growth with margins expanding approximately 540 basis points. The international business growth was driven by the expansion of the dealer base and car seat growth. The OEM advertising business benefited from the normalization of new car supply.

For the fourth quarter, consolidated revenue is expected to be in the range of $219 million to $239 million, a 2% year-over-year decrease and a 7% year-over-year increase respectively. Marketplace revenue is projected to be between $208 million and $213 million, up 14% to 17% year-over-year. Non-GAAP consolidated adjusted EBITDA is expected to be in the range of $72 million to $80 million. Non-GAAP earnings per share is anticipated to be between $0.50 and $0.55, with diluted weighted-average common shares outstanding around 106 million.

• Market competition: The auto marketplace industry is highly competitive, posing a risk of losing market share to competitors. - Economic environment: Fluctuations in the overall economy could impact consumer and dealer spending on the platform. - Execution risks: Challenges in executing strategic priorities such as product innovation, digital transaction enablement, and wholesale business integration may affect performance.

Q: Marvin Fong asked about brand marketing and the discontinuation of CG Buy Online.

A: Jason Trevisan stated that they are becoming more sophisticated with marketing, exploring new channels, and will continue to build the brand. Elisa Palazzo mentioned that a disciplined capital allocation process led to discontinuing CG Buy Online to redeploy resources to other growth initiatives.

Q: Nick Jones inquired about Car Spend growth and the product pipeline.

A: Elisa Palazzo said they are confident in the growth pipeline with durable drivers like higher dealer engagement. Jason Trevisan added that there are upsells and cross-sells in products, leveraging data to inform dealers' workflows across various aspects.

Q: Rajat Gupta asked about international business initiatives and OpEx.

A: Sam Zales said international businesses are growing rapidly, following the US playbook. Elisa Palazzo mentioned a one-off sales tax impact in Canada causing an increase in OpEx for the quarter, which is expected to normalize in the next quarter.

Q: Doug Arthur questioned the Car Spend comparison in 2025.

A: Jason Trevisan stated that with a focus on ROI and a robust product pipeline, there is a runway for Car Spend growth.

Q: Zach (ph) asked about pricing and consumer health.

A: Sam Zales said pricing is based on lead volume and quality. On consumer health, he mentioned the third quarter had stronger used retail and wholesale markets despite the typical Q4 weakness in the industry.