Curious about CarGurus as an investment

[unclejack123]

On March 26, 2021, I posted the below blurb regarding CarGurus stock market valuation on this forum:

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"The valuation is interesting. $2.7B or thereabouts for a company that will probably earn $150-200M in five or six years if they keep up their net income growth trajectory. Of course, that'll need this company to double its revenues in five years, which in turn requires them to jack up their dealership fees by 15% each year, sign up 15% more dealerships, or some combination of the above. It isn't outside the realm of the reasonable that this company will devise new ways to generate revenues through acquisitions or what not. They have a pretty spotless balance sheet. It's kind of an incredible business from every metric (return on assets, return on tangible assets, return on equity) and virtually no debt.​

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Very curious about the current valuation."​

Two years ago,

• CarGurus had 30,631 dealers (worldwide) paying them $4,382/quarter ($536M/year).
• CarGurus had $290M in cash, no debt, and a net worth of $373M.
• CarGurus had generated $100M in free cash flows.
• CarGurus generated $1M in "interest income" thanks to its cash pile.
• How much did the stock market value the business then, net of its cash pile? $2.4B

Since then:

• CarGurus has 31,307 dealers (worldwide) paying them $4,921/quarter ($616M/year, i.e., +15% over the last two years).
• CarGurus has $469M in cash, no debt, and a net worth of $734M.
• CarGurus earned $110M in average annual free cash flows in the last two years.
• CarGurus will generate $10-12M in "interest income" thanks to a 61% bigger cash pile and 350% higher risk-free interest rates.
• How much does the stock market value the business now, net of its cash pile? $1.4B

The stock market has shaved off a cool billion dollars off the valuation of this enterprise, despite the fact that it has more paying dealers, each paying more money to CarGurus.

That brings me here. What're your thoughts on CarGurus? Are you a paying member? If so, do you intend to cancel your membership because of the hard times that are upon us?

 

[Alex Snyder]

The overall market was cooling on technology companies before Silicon Valley Bank failed. Once SVB failed, things came crashing down quickly. Tech company valuations dropped overnight, and the combination of other failures has signaled instability in smaller financial institutions (although I'd argue the whole system is unstable).

I'm writing from a general market standpoint. It is not meant to be a precise explanation for CarGurus.

There was a time when Tesla was valued higher than Ford. That made no sense to me. A giant hype bubble on tech that was bound to burst one day. I think we're in the bursting period now, and decent options like CarGurus will feel some fallout due to the association.

 

[unclejack123]

Does your dealership subscribe to CG? Do you have a view on whether you're getting a good ROI there?

 

[bnbautos]

We just cancelled CG after a 30% price increase. Had been on since we had free listings years ago. Looked at the ROI and as I have seen in the last few years that 3rd parties aren't performing as well as they use to. Looks to me that with their stockpile of cash they probably should be giving dealers a rebate to keep their subscriptions up.

 

[Justin Rindos]

We cancelled CG also. So no impact of less sales. We actually sold more vehicles after we cancelled.

 

[irina_n]

For us in SoCal CarGurus are doing great. I'm more concerned about autotrader with their super high pricing and poor lead generation

 

[joe.pistell]

I'm a fan of $LAZR these days. CEO is youngest billionaire ever. He's built a LIDAR biz, taking direct aim at Elon's belief that LIDAR is not needed for robo-driving. He just bought millions of stock. To keep up with Elon's buy of Twitter, he bought Fortune publishing for $800mill.