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CarGurus (CARG) Earnings Preview: What’s in Store?
Stock Analysis & Ideas

CarGurus (CARG) Earnings Preview: What’s in Store?

Online automotive marketplace CarGurus (CARG) will announce its Q2 financials after the market closes on August 5. Before trading its stock ahead of earnings, let’s take a look at what analysts on the Street are expecting.

Q2 Expectations

Before jumping to Q2 projections, one should note that CarGurus’ prior-year quarter took a significant hit from the COVID-19 pandemic, implying that the company faces easier year-over-year comparisons. 

The Street expects CarGurus to report earnings of $0.25 a share on revenues of $190.27 million in Q2, implying year-over-year growth of 32% and 101%, respectively. In comparison, management expects to report revenues in the range of $186 million to $192 million. Meanwhile, management forecasts adjusted earnings in the range of $0.23 to $0.25 per share. 

CarGurus’ Prior Quarter Snapshot

The easing of pandemic-led restrictions and acquisition of the majority stake in CarOffer supported CarGurus’ Q1 financials. Its revenue increased 9% year-over-year to $171.4 million. Moreover, its adjusted EPS jumped approximately 74% to $0.33. 

While its top and bottom lines improved, weakness in its key performance indicators or KPIs failed to impress, as reflected in its stock price. Notably, CarGurus stock continues to trade lower and is down about 9% so far this year. (See CarGurus stock charts on TipRanks)   

In Q1, CarGurus’ QARSD (Quarterly Average Revenue per Subscribing Dealer) in the U.S. increased by 7% year-over-year. It declined by 6% in the international markets. Also, its total paying dealers stood at 31,213 on March 31, reflecting a decline of 6% compared to the prior year. Furthermore, the company’s average monthly unique users fell by 6% in the U.S., while it decreased by 26% in the international market. 

Needham Sets Expectations on Q2

While CarGurus’ KPIs remained weak in Q1, Needham analyst Chris Pierce is “interested in the transformation happening” at the company. The analyst highlights the acquisition of the CarOffer platform, management change, and launch of finance in advance, among others, as key transformation moves that could “increase revenues and retention from its dealer partners.” 

In the short term, Pierce expects “CarOffer’s robust growth trajectory and cross sell potential” to boost CarGurus’ financial and operating performance. 

Despite the ongoing transformation, Pierce’s Q2 revenue estimate is at the lower end of the management’s guidance. The analyst said that the “current vehicle inventory issues putting a crimp on CARG’s lead-gen business, causing US net dealer adds to slow vs Q1 on an absolute basis.” 

Pierce maintains a Hold rating on CarGurus and expects to “see further positive evidence and data points” before becoming constructive on the stock. 

Meanwhile, the rest of the Street leans to the bullish side. CarGurus’ Moderate Buy consensus rating is based on 3 Buys and 2 holds. The average CarGurus price target of $34.25 implies approximately 19% upside potential to current levels. 

Furthermore, TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on CarGurus stock ahead of earnings, with 17.2% of investors who hold portfolios on TipRanks having increased their exposure in the last 30 days.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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