Online auto marketplace CarGurus (NASDAQ:CARG) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 7% year on year to $215.8 million. On the other hand, next quarter's revenue guidance of $212 million was less impressive, coming in 5.6% below analysts' estimates. It made a GAAP profit of $0.20 per share, improving from its profit of $0.10 per share in the same quarter last year.

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CarGurus (CARG) Q1 CY2024 Highlights:

• Revenue: $215.8 million vs analyst estimates of $216.8 million (small miss)

• EPS: $0.20 vs analyst estimates of $0.14 (45.1% beat)

• Revenue Guidance for Q2 CY2024 is $212 million at the midpoint, below analyst estimates of $224.5 million

• Gross Margin (GAAP): 81.1%, up from 66.8% in the same quarter last year

• Free Cash Flow of $17.83 million is up from -$17.89 million in the previous quarter

• Paying Dealers: 31,175, down 116 year on year

• Market Capitalization: $2.38 billion

“We are pleased with our first quarter results, as we achieved sustained marketplace revenue acceleration, driven by double-digit QARSD growth and an increase in the number of paying dealers,” said Jason Trevisan, Chief Executive Officer at CarGurus.

Bringing transparency to a sometimes opaque process, CarGurus (NASDAQ:CARG) is a digital marketplace where auto dealers can connect with potential customers and where car buyers can browse, purchase, and obtain financing.

Online Marketplace

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Sales Growth

CarGurus's revenue growth over the last three years has been impressive, averaging 40.8% annually. This quarter, CarGurus reported a year on year revenue decline of 7%, missing analysts' expectations.

CarGurus is expecting next quarter's revenue to decline 11.6% year on year to $212 million, improving on the 53.1% year-on-year decrease it recorded in the comparable quarter last year. Ahead of the earnings results, analysts were projecting sales to grow 3.9% over the next 12 months.

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Usage Growth

As an online marketplace, CarGurus generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Over the last two years, CarGurus's users, a key performance metric for the company, grew 0.6% annually to 31,175. This is one of the lowest rates of growth in the consumer internet sector.

Unfortunately, CarGurus's users decreased by 116 in Q1, a 0.4% drop since last year.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like CarGurus because it measures how much the company earns in transaction fees from each user. Furthermore, ARPU gives us unique insights as it's a function of a user's average order size and CarGurus's take rate, or "cut", on each order.

CarGurus's ARPU growth has been decent over the last two years, averaging 6.9%. The company's ability to increase prices while growing its users demonstrates the value of its platform. This quarter, ARPU grew 13.9% year on year to $5,664 per user.

Key Takeaways from CarGurus's Q1 Results

We struggled to find many strong positives in these results. Its revenue growth regrettably slowed and its revenue guidance for next quarter missed Wall Street's estimates. Overall, this was a bad quarter for CarGurus. The company is down 2.3% on the results and currently trades at $21.75 per share.

CarGurus may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.