{"id":75224,"date":"2023-10-21T09:35:51","date_gmt":"2023-10-21T13:35:51","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/cars-com-driving-in-cruise-control-nysecars\/"},"modified":"2023-10-21T09:35:59","modified_gmt":"2023-10-21T13:35:59","slug":"cars-com-driving-in-cruise-control-nysecars","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=75224","title":{"rendered":"Cars.com: Driving In Cruise Control (NYSE:CARS)"},"content":{"rendered":"
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Investment Thesis<\/h2>\n

Cars.com (NYSE:CARS<\/span>) had a strong run post-COVID as improving car inventory levels and vehicle sales lead to an improvement in dealer spends. In addition, the company has done well in growing its value added services upselling\/ cross selling to the dealers which drove about 50% growth within the average revenue per dealer. We believe the company is likely to report mid-single digit revenue growth and improving EBITDA margins going forward driven by pricing initiatives, higher ad spends by the dealers and growth in high margin value added services. We initiate at Buy ascribing a target price of $19 (at 9.3x EV\/ EBITDA in line with its peer).<\/span><\/p>\n

Company Background<\/h2>\n

Cars.com is a leading automotive marketplace platform connecting shoppers with dealers through its wide network of ~20k dealers (including franchised and independents) on its platforms with bulk of the dealers being franchised. It boasts about 26 mn monthly unique visitors on to its platform looking to browse through its 2.5 mn+ listings. In addition, it also provides additional services through its different brands such as Dealer Inspire (offering digital connected services to its dealers), FUEL (advertising solution for dealers and OEMs), CreditIQ (financing tools) and Accu-Trade (offering valuation and appraisal services)<\/span><\/p>\n

Resilient Auto Sales<\/h2>\n

According to NADA, Total sales of new vehicles continue to remain strong driven by significant improvement in the inventory from domestic manufacturers compared to imports, however, average revenue per dealership dipped slightly but remains above significantly higher than pre-pandemic average. Consumers are more inclined to visit platforms such as Cars.com to get details on vehicle, comparisons with other cars, make and model, car reviews, dealer reviews and pricing which are critical in the overall purchasing decision.<\/p>\n

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\"Vehicle<\/span>
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NADA<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

New Vehicle inventories improved significantly with about 2 mn units through June YTD 2023 compared to the 1 mn inventory as a result of easing supply chain with the semiconductor shortage issues ending last year. As the inventory levels increase, dealers are generally inclined to spend more on platforms to drive sales growth.<\/p>\n

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\"Vehicle<\/span>
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NADA<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Used Vehicle sales also reported a steady demand, however, declined compared to previous years and still remains below pre-COVID levels as a result of a stronger growth in new car sales.<\/p>\n

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\"Used<\/span>
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NADA<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Total dealership advertising expenditure declined significantly in 2020 and still remains below the pre-covid levels, however, on a per unit basis, the advertising spend continues to be near 2022 highs at $692 and above the pre-covid levels of $655. Also, comparing the advertising spend per $ value of a vehicle comes to ~1.8% currently which is lower than ~2.2% during the pre-COVID days which provides further room for expansion.<\/p>\n

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\"Advertising<\/span>
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NADA<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

However, the ongoing UAW strikes against the three Detroit auto makers could potentially lead to production delays as well as can impair its ability to drive further pricing initiatives or maintain its pricing. Despite that, the three Detroit makers form about a third of the overall market and the targeted strikes can mean there could be limited impact on the auto production.<\/p>\n

Historical Track Record<\/h2>\n

<\/span><\/p>\n\n\n\n\n\n\n\n\n\n
($ mn)<\/td>\n2017<\/td>\n2018<\/td>\n2019<\/td>\n2020<\/td>\n2021<\/td>\n2022<\/td>\n<\/tr>\n<\/thead>\n
Dealer Revenue<\/td>\n333<\/td>\n458<\/td>\n477<\/td>\n463<\/td>\n549<\/td>\n579<\/td>\n<\/tr>\n
OEM \/ National<\/td>\n114<\/td>\n105<\/td>\n81<\/td>\n73<\/td>\n65<\/td>\n59<\/td>\n<\/tr>\n
Other<\/td>\n179<\/td>\n99<\/td>\n49<\/td>\n11<\/td>\n9<\/td>\n16<\/td>\n<\/tr>\n
Tot. Revenue<\/strong><\/td>\n626<\/strong><\/td>\n662<\/strong><\/td>\n607<\/strong><\/td>\n547<\/strong><\/td>\n623<\/strong><\/td>\n654<\/strong><\/td>\n<\/tr>\n
EBITDA<\/td>\n198<\/td>\n173<\/td>\n113<\/td>\n132<\/td>\n150<\/td>\n162<\/td>\n<\/tr>\n
% margin<\/td>\n32%<\/td>\n26%<\/td>\n19%<\/td>\n24%<\/td>\n24%<\/td>\n25%<\/td>\n<\/tr>\n<\/table>\n

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