CarGurus stock target cut to $40 by BTIG amid EBITDA performance

On Friday, BTIG analyst Marvin Fong adjusted the price target for CarGurus Inc. (NASDAQ:CARG) shares to $40, down from $41, while still maintaining a Buy rating on the stock. The company, currently valued at $3.89 billion, has demonstrated strong financial health with an impressive gross profit margin of 82.62%. According to InvestingPro analysis, CarGurus maintains a robust financial position, earning a "GOOD" overall health score. Fong’s revision followed CarGurus’ fourth-quarter 2024 earnings, which showed the company’s EBITDA meeting guidance rather than exceeding it as it had for the previous eight quarters. This quarter also recorded a slight miss in U.S. Quarterly Average Revenue per Selling Dealer (QARSD) at $7,337, just below the $7,339 estimate.

CarGurus reported a year-over-year growth and a quarter-over-quarter increase in QARSD, which was the lowest since the first quarter of 2023. Despite this, the QARSD performance was considered respectable, with a 2.2% rise quarter-over-quarter and a $160 increase in dollar terms. The company’s strong financial position is reflected in its excellent liquidity, with a current ratio of 4.2, indicating robust ability to meet short-term obligations. Discover more insights about CarGurus’ financial metrics and 13 additional ProTips with InvestingPro. Marketplace revenue was reported at $210 million, slightly missing the analyst’s $211 million estimate but falling within the company’s guidance of $208 to $212 million. Adjusted EBITDA reached $76 million, compared to Wall Street’s expectation of $75 million and the company’s forecast of $72 to $80 million.

The marketplace EBITDA stood at $79 million, demonstrating a strong 35% margin, while CarOffer, a part of CarGurus’ business, reported a reduced EBITDA loss of $3 million, improving from a $5 million loss in the third quarter of 2024 due to lower operating expenses. The most positive aspect of the quarter was the addition of 131 U.S. dealers, which far exceeded the Street’s expectation of 48 new dealers.

Looking ahead, CarGurus anticipates total revenue for the first quarter of 2025 to be between $216 and $236 million, which falls short of the consensus estimate of $239 million. However, the forecast for marketplace revenue, which is considered more significant, is within the range of expectations at $209 to $214 million, compared to the Street’s $214 million projection. The company noted potential headwinds to marketplace revenue, including seasonally light OEM advertising and foreign exchange effects. For the remainder of the year, marketplace revenue growth is expected to slow modestly, primarily due to easier comparisons.

Following the earnings release, CarGurus’ stock fell 7% in aftermarket trading, which was attributed to the revenue miss. Fong believes that a closer examination of key performance indicators, particularly marketplace revenue, will reveal solid results. Despite the recent dip, CarGurus has delivered impressive returns, with the stock up 64.15% over the past year. Based on InvestingPro’s Fair Value analysis, the stock currently appears to be trading near its fair value. For comprehensive analysis including valuation metrics and growth prospects, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers. The price target adjustment reflects a slight decrease in the valuation of CarOffer by $1 per share to $4, as the timeline for this business segment to return to growth is extended, and visibility remains low. The core marketplace continues to be valued at 10 times the forecasted FY26 EBITDA, equating to $31 per share. Along with an anticipated $6 per share in net cash by the end of FY25 and the $4 per share value for CarOffer, the new $40 price target was established.

In other recent news, CarGurus reported its fourth-quarter 2024 earnings, showcasing a mixed performance with an earnings per share (EPS) of $0.55, surpassing analyst expectations of $0.52. However, the company’s revenue fell short, reaching $229 million compared to the forecasted $231.85 million. This revenue shortfall was accompanied by a 2% year-over-year increase in consolidated revenue, with marketplace revenue growing by 15%. Despite the positive EPS outcome, the company’s first-quarter 2025 revenue guidance was approximately 5% below consensus estimates, highlighting potential challenges ahead.

Analysts from Citi and JMP made adjustments to CarGurus’ stock price targets following these results. Citi reduced its price target to $40 from $43, maintaining a Neutral rating, while JMP lowered its target from $46 to $43 but retained a Market Outperform rating. These changes reflect the mixed financial results and ongoing pressures within CarGurus’ CarOffer segment. CarGurus’ marketplace business showed promising growth, particularly in the U.S., driven by increased adoption of premium tier packages and new products like Digital Deal.

However, the Digital Wholesale segment continues to face difficulties, ending the year with an $18 million adjusted EBITDA loss. Despite these challenges, CarGurus remains focused on product development, international expansion, and AI integration, with plans to invest in these areas throughout 2025. Observers will be watching closely to see how these strategic investments impact the company’s profitability and market position.

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