Cars.com Faces Profit Challenges Amid Inventory Stabilization
Cars.com Inc. Reports Earnings and Analyst Adjustments
On the financial landscape, Cars.com Inc. recently found itself under the microscope as analyst Rajat Gupta from JP Morgan made headlines by revising the price forecast for the company. The forecast plummeted from $21.00 to $17.00, alongside a Neutral rating, reflecting growing concerns over profit pressures facing the company.
Earnings and Revenue Report Highlights
In its latest earnings report, Cars.com delivered a fourth-quarter adjusted EPS of $0.49, which fell short of analysts’ predictions of $0.56. Additionally, while the revenue stood at $180.43 million, it did not meet the street's expected revenue of $183.90 million, further heightening concerns among investors.
Future Revenue Projections
Looking ahead, Cars.com is guiding for first-quarter revenue estimates between $178 million and $181 million, alongside a full-year revenue forecast ranging from $745 million to $755 million, which still lags behind the consensus estimate of $756.399 million.
Analysis of Quarterly Performance
The disappointing earnings can be attributed to reduced dealer spending amid a stabilization in inventory levels, which the analyst remarked on. The drop in dealer spending caught many by surprise, especially when looking at the overall industry trend.
Dealer Inventory Trends
An intriguing point noted was that industry dealer inventory levels at the close of December were down by approximately 5% from the previous quarter's levels. Such a dip typically signals a tightening market, which can strain sales, thus contributing to Cars.com’s revenue miss.
Management's Position on Profit Compression
Gupta also highlighted management's ambiguous stance regarding profit compression. Despite a sluggish market and dealer performance, the decline in new gross profit per unit (GPU) for franchised dealers was reportedly only around $100 sequentially, indicating a deceleration in previous year-over-year drops.
Adoption and Revenue Growth
Interestingly, the adoption rate of Accu-Trade, a service provided by Cars.com, increased to about 1,000 dealers from 950 in the previous quarter. Added to this, the company's original equipment manufacturers (OEM) and national revenue showcase a growth of 15% year-over-year, which signifies potential future opportunities.
Investor Sentiment and Future Directions
Despite the underwhelming results and growth metrics substantially lagging behind peers, investors are maintaining a cautious watch on the firm. A second-half improvement could potentially shift sentiment and restore confidence in management's execution abilities.
Revisions in Financial Estimates
Due to current performance and market conditions, the analyst lowered EBITDA estimates for first-quarter 2025 to $47 million, down from an earlier forecast of $53 million. The longer-term projections for EBITDA in 2025 and 2026 were also adjusted downwards to $215 million and $235 million respectively.
Current Stock Performance
Presently, Cars.com Inc. (CARS) shares are trading at $12.79, exhibiting an increase of approximately 6.32%. This uptick may provide a glimmer of hope amid the prevailing uncertainties surrounding the company’s profitability and revenue growth.
Frequently Asked Questions
What is the latest price forecast for Cars.com Inc.?
The price forecast for Cars.com Inc. has been revised from $21.00 to $17.00.
What were Cars.com's earnings for the fourth quarter?
Cars.com reported an adjusted EPS of $0.49, missing the analyst estimate of $0.56.
How much revenue did Cars.com generate last quarter?
The revenue for the last quarter was $180.43 million, below the expected $183.90 million.
What are the future revenue projections for Cars.com?
The company guides for first-quarter revenue between $178 million and $181 million.
What is the current stock price of Cars.com?
As of now, Cars.com shares are trading at approximately $12.79.
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