Cars.com (NYSE: $CARS), a digital car shopping marketplace, reported a revenue of $174.3 million in Q3, 2023, a 6% year-over-year increase. However, its earnings per share (EPS) of $0.07 fell short of analysts’ expectations of $0.10. The EPS was based on a net income of $4.5 million, a vast improvement from the $2.9 million net loss reported at the same time last year. Despite a 4.44% decline in active buyers, Average Revenue per Buyer (ARPB) increased 10.8% to $9,320, signaling continued platform value. Free cash flow rose 33%, and margins expanded.
Competitor Performance
In comparison, MercadoLibre had exceptional Q3 results, with revenue up 39.8% to $3.76 billion, beating estimates. EPS jumped to $7.16 from $2.55. Daily active users grew 19.8% to 120 million over two years. ARPU increased 2.5% to $31.33. Efficiency is a key focus, with low sales and marketing spending. Profitability is strong, with a 19% average earnings before interest, taxes, depreciation, and amortization (EBITDA) margin. The stock is up 22.4% on the robust results.
Farfetch faced a challenging Q2 as revenue fell 1.3% to $572.1 million, missing estimates by 12.1%. EPS beat slightly at -$0.21 versus -$0.23 expected. Free cash flow improved to $42 million. But the gross margin dropped from 46.2% to 42.5%. Active buyers grew 7.5% to 4.13 million, but the stock plunged 91.2% on the weak results.
Etsy’s Q3 revenue grew 7.04% to $636.3 million, meeting expectations. EPS swung to a profit of $0.64 from a -$7.62 loss. Revenue growth has slowed from 32.7% historically. Active buyers grew 3.4% to 97.34 million. ARPB rose 3.52% to $6.54. Etsy beat on revenue and EPS estimates. Free cash flow jumped 54.2% to $207.6 million. The stock rose 15.6% post-results.
CarGurus Q3 revenue fell 48.5% to $219.4 million but beat by 1.6%. EPS and EBITDA guidance won. Paying dealers declined slightly, and revenue growth slowed. However, the gross margin jumped to 74.9% from 35.4% last year. EPS beat at $0.17 versus the expected $0.11. Free cash flow fell 26.9% but remained positive at $17.2 million. The stock gained 23.9% post-results.
MercadoLibre stands out with exceptional growth and profitability. Etsy performed reasonably well. Cars.com and CarGurus showed decelerating growth but stability. Farfetch struggled the most, missing estimates across the board.
Cars.com Guidance for Q4
For Q4, Cars.com’s revenue guidance is $178 million at the mid-point, in line with consensus. In Q3, free cash flow rose 33% to $30.4 million, and margins expanded, positioning the company for profitable growth. The stock’s current price is $17.17 as of January 15, 2024, with a $1.137 billion market cap.
Cars.com (NYSE: CARS) Could Be Your Safest Bet
Many investors are drawn to high-risk, high-reward stocks, hoping to hit it big. But more often than not, these speculative bets fail to pay off. Rather than chasing the next hot stock, investors may be better served by focusing on profitable, growing companies like Cars.com (NYSE: CARS). Though not necessarily the most exciting investment, profitability provides stability.
Growth investors tend to get caught up in seeking the next big thing, buying into money-losing “story” stocks. But revenue and earnings matter. The market favors strong profitability, measured by earnings per share (EPS). Cars.com has increased EPS dramatically from $0.059 to $1.82 in just one year – a huge accomplishment. Rapid EPS growth often signals good things ahead.
Looking at revenue growth and profit margins provides insights into the sustainability of recent gains. Cars.com has maintained stable earnings before interest and taxes (EBIT) margins while growing revenue by 5.2% to $678 million last year – a positive sign.
Owning shares in a company where insiders own stock aligns their interests with regular shareholders. Cars.com insiders hold $20 million in stock, motivating them to deliver shareholder value. Though they hold only 1.8% of the stock, this represents meaningful skin in the game.
Cars.com’s impressive EPS growth has caught the attention of investors. The sizeable insider holdings add confidence that this growth marks a real improvement in the business. On the surface, Cars.com is an attractive opportunity, given its fast growth, but the market may take time to price in this improvement. Profitable growth stories like Cars.com provide stability amidst speculative excess in today’s market.
Conclusion
Cars.com is a noteworthy digital marketplace player in the automotive sector, connecting buyers and sellers. The stock price surged 16.1% post-earnings, reflecting confidence in Cars.com’s business model. While historical ARPD growth has been moderate at 4.69% over two years, this quarter accelerated to 10.8%.
Positive financial trends were seen in free cash flow and margins. For context, MercadoLibre posted an exceptional 39.8% revenue growth in Q3, while Farfetch and CarGurus faced challenges.
Cars.com presents an appealing opportunity for investors seeking stability and growth in the dynamic digital automotive marketplace.
Disclaimer: This website provides information about cryptocurrency and stock market investments. This website does not provide investment advice and should not be used as a replacement for investment advice from a qualified professional. This website is for educational and informational purposes only. The owner of this website is not a registered investment advisor and does not offer investment advice. You, the reader / viewer, bear responsibility for your own investment decisions and should seek the advice of a qualified securities professional before making any investment.
