CarGurus, Inc. Q1 FY2025 earnings call

In 2024, CarGurus achieved consistent double-digit marketplace revenue growth, accelerated product introductions, and improved operating leverage. In 2025, the focus is on transformative innovation centered on three value creation drivers: expanding data-driven solutions for dealers, meeting evolving consumer needs, and enabling more online transaction completion. For dealers, enhancements like VIN level targeting, Dealer Data Insight suite adoption, and in-person engagement programs have driven growth. For consumers, improvements in app experience, conversational AI for discovery, and extended car ownership lifecycle support were noted. In transaction enablement, Digital Deal and CarOffer progress was highlighted, though CarOffer faced structural limitations and is under strategic assessment.

First quarter total revenue was $225 million, up 4% year-over-year. Marketplace revenue was $212 million, up 13% year-over-year, contributing significantly to overall revenue. International revenue expanded 20% year-over-year driven by steady traffic growth, approximately 22% year-over-year aggregate lead growth in Canada and the UK, and continued product innovation. OEM advertising sustained double-digit revenue growth. Wholesale revenue was about $8 million, down 52% year-over-year, and product revenue was $5 million, down 58% year-over-year. International revenue accounted for a portion of the total, with Canada and UK showing strong lead growth and dealer adoption.

Second quarter total revenue is expected to be in the range of $222 million to $242 million, up 2% to 11% year-over-year. Marketplace revenue is expected to be $219.5 million to $224.5 million, up 12% to 15% year-over-year. Digital Wholesale volumes are expected to decrease sequentially. Non-GAAP adjusted EBITDA for second quarter is in the range of $71.5 million to $79.5 million, up 29% to 43% year-over-year. Second quarter non-GAAP earnings per share is expected to be $0.52 to $0.58, with diluted weighted average common shares outstanding approximately 100 million. Outlook for the rest of the year anticipates low double-digit growth, though market conditions may influence the exit rate.

Rising market volatility has posed challenges for CarOffer, which lacks flexibility to adapt to rapidly shifting market conditions and requires broader automation for efficiency. Structural limitations in the CarOffer model have been exposed by macro changes, and a strategic assessment of the wholesale business model is underway to address sustainability and profitability.

Q: There were recent reports that Amazon is planning to display used vehicles from dealers on its marketplace. Curious how CarGurus might view their entry into this space and if there were any differences in trends with new Hyundai vehicles since Amazon went live with their offering.

A: Jason Trevisan stated that Amazon's entry into used vehicles is a different arena than new, and used is where CarGurus is more active. He also mentioned that no change in trends with new Hyundai vehicles has been seen.

Q: On OEM ad spending, thoughts on how it's factored into guidance and on CarOffer's need for changes to adapt to volatility.

A: Sam Zales said OEM ad business had strong first quarter results, and CarOffer is under review with considerations on operations, product market fit, and go-to-market strategies to achieve profitability.

Q: On revenue algorithm, how dealer count versus QARSD affects guidance and insights on dealer behavior regarding tariffs.

A: Jason Trevisan explained that revenue growth is driven by dealer count and QARSD, and conversations with dealers show a flight to quality due to tariff uncertainty, with consumer sentiment and spending patterns being fluid.

Q: On reinvestment and CarOffer's potential auction model, thoughts on why invest and CarOffer's direction.

A: Jason Trevisan said reinvestment is to continue momentum in a two-sided marketplace, and Sam Zales mentioned CarOffer is open to new revenue models but focuses on strengths and predictive insights rather than a me-too auction model.