CarGurus Hits Connected Economy Speed Bump as US Monthly Users Slide 15%

Growth, yes, in the rearview mirror, and growth still lies ahead, for CarGurus — certainly on the company’s top line.

But for the online auto platform, the question is what happens to margins, and what happens, too, with a user base that seems to be declining — at least in terms of headcount, and where wholesale pricing has been volatile.

CEO Jason Trevisan said that consumer demand continued to moderate, tied to higher pricing and rising auto loans.

Trevisan noted that “macroeconomic factors continue to challenge the automotive industry.”

But in signals that show the overall digital shift in car buying and sourcing, the company’s dealer-to-dealer business generated $105 million in revenue in the first quarter, growing about 12% quarter over quarter and over 575% year over year.

Revenue for the quarter from the company’s CarOffer business inclusive of its dealer-to-dealer business and instant max cash offer was $267 million, growing 50% quarter over quarter and over 1600% year over year. Supplemental materials released by the company show that the overall paying dealer count, globally, stood at 30,900, down from 31,210 last year.

As to the consumer side of the business, per the report, U.S. average monthly unique users fell 15% from 2021 to 31.1 million, while international monthly unique users declined 13%. And in the U.S, the monthly sessions were up 6% to 84.9 million year on year.

As they continue to navigate the ongoing semiconductor chip shortage, two factors drove relatively more subdued dealer wholesale behavior in Q1. Per the CEO, “We had an increase in transportation services, revenue, which is low margin revenue relative to transactions.”  That growth came as CarGurus assumed transportation for a large customer “who is experiencing a material backlog of vehicle pickups in spite of continued unpredictability of the effects of the global pandemic and supply chain issues on the used and new car markets.”

But in signs of the great digital shift, management noted on the conference call that its online appointment scheduling system — which affords customers the ability to schedule driveway pickups online — was utilized by 85% of consumers.

In the fourth quarter, as relayed in commentary on the conference call, the company tested and launched new digital retail pilots for deposits and hard pull financing that allowed consumers even greater flexibility and optionality in completing their purchase.

The headwinds of macro uncertainty and the tailwinds of pricing slowed some of the growth.  CFO Scott Fredo said that drilling down into results, marketplace revenue was $163.3 million for the first quarter, up 2% from the prior quarter and up 5% from $155.8 million in the prior year.

And looking ahead, the company increases marketing spend to drive consumer awareness, which will impact operating income.

Management seemed sanguine on long term trends.

Trevisan told analysts that “we continue to see a share shift from physical to digital — and that is, in the grand scheme of things, still in its early days, but it’s a pretty steep transition now, and we think that’s going to continue for quite some time.”