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    CarGurus Inc (CARG)

    Q1 2024 Earnings Summary

    Reported on Feb 25, 2025 (After Market Close)
    Pre-Earnings Price$22.28Last close (May 9, 2024)
    Post-Earnings Price$23.43Open (May 10, 2024)
    Price Change
    $1.15(+5.16%)

    What went well

    • CarGurus achieved a 28% year-over-year increase in net new bookings, indicating strong future revenue growth in the Marketplace segment.
    • Quarterly Average Revenue per Subscribing Dealer (QARSD) increased by 14% year-over-year, driven by dealers migrating to higher subscription tiers and new dealers joining at market rates, suggesting sustained revenue growth potential.
    • CarGurus' mobile app is the #1 automotive app in terms of downloads, with 70% of app users registering and high engagement, significantly enhancing lead generation and competitive advantage.

    What went wrong

    • The company's CarOffer platform requires significant investment to rebuild and integrate, highlighting potential challenges in operational efficiency and prior underinvestment, which may impact near-term profitability.
    • Elevated operating expenses due to increased marketing spend in Q1 might indicate that the company needs higher spending to drive growth, raising concerns about the sustainability of growth as they plan to reduce marketing spend in future quarters. ,
    • The heavy investments in new data products and insights increase costs, and there is uncertainty whether these investments will yield the expected returns, posing a risk to profitability if they do not result in significant upsell or retention benefits.

    Q&A Summary

    1. Sustainability of QARSD Growth
      Q: Can the strong QARSD growth continue over the next quarters?
      A: Management believes the double-digit QARSD growth is sustainable, driven by adding more value to dealers through package upsells, value-added features, and insights. They expect to maintain strong ROI as they are still less expensive than competitors.

    2. Operating Expenses and Marketing Spend
      Q: Are elevated operating expenses and marketing spend trends expected to continue?
      A: The elevated marketing expenses in Q1 were due to front-loaded branding spend related to a new advertising campaign. Management expects marketing spend to decline throughout the year, with OpEx as a percentage of revenue decreasing sequentially in the second half.

    3. International Business Growth
      Q: What's the outlook for international business growth?
      A: The international marketplace is experiencing 24% growth, fueling fast growth and profitability. Management sees huge opportunities to launch new products, leading to more QARSD growth and dealer additions, aiming to catch up with market leaders.

    4. CarOffer Investments and Efficiency
      Q: Are there learnings to make CarOffer investments more efficient when relaunching the wholesale offering?
      A: Management is focusing on product capabilities and analytics to optimize customer results. Investments are being made to retool and rebuild business demand, emphasizing data analytics and AI to match consumer demand with inventory strategies, showing growth in transaction activity.

    5. Marketplace Margins and Operating Leverage
      Q: Are strong marketplace margins the right basis to look at, and what's the marketing cadence?
      A: The Marketplace business continues to experience strong top-line growth and demonstrates operating leverage, expected to continue. Marketing spend was highest in Q1 due to branding expenses and is anticipated to decline in Q4, aligning with typical media spend patterns.

    6. Leveraging Data for Dealer Value
      Q: How is leveraging data enhancing monetization opportunities?
      A: Management is increasing focus on leveraging data to help dealers sell cars better, using insights on market share, pricing trends, and consumer demand. Tools like the Next Best Deal Rating and inventory acquisition recommendations are creating stickier customers and promoting upsells into higher tiers.

    7. Dealer Count Growth and Contracts
      Q: Can you share trends in dealer count growth and contract pricing?
      A: Dealer count increased, registering the highest number of new dealers since Q1 2021. 30% of contracts for new dealers are longer than one year, suggesting higher future retention. Annual contracts are priced similarly to monthly ones, with possibly slight discounts but nothing significant.

    8. Impact of New Products like Top Dealer Offer
      Q: How significant was Top Dealer Offer in driving QARSD improvement?
      A: Top Dealer Offer is a new product contributing to QARSD growth, alongside bringing new customers at market rates and upgrading dealers to higher package tiers by adding more tools, insights, and features.

    9. Investments in the Mobile App
      Q: What investments are being made in the app to drive gains?
      A: Investments are centered on product and technology, enhancing engagement and features unique to the app environment. This has led to increased downloads, engagement, and a 25% lead contribution from the app. The app offers unique features like Top Dealer Offer, boosting user registration and engagement.

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