Logo of jester cap with thought bubble.

Image source: The Motley Fool.

CarGurus, Inc. (CARG -0.55%)
Q1 2019 Earnings Call
May. 09, 2019, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, and welcome to the CarGurus first-quarter 2019 earnings results conference call. [Operator instructions] As a reminder, this conference is being recorded. I'd like to turn the conference over to your host, Rodney Nelson. Thank you, you may begin.

Rodney Nelson -- Head of Investor Relations

Thank you, operator. Good afternoon, and welcome to CarGurus' first-quarter 2019 earnings call. We'll be discussing the results announced in our press release issued today after the market closed and posted on our investor relations website. With me on the call today is Langley Steinert, CarGurus' founder and chief executive officer; Jason Trevisan, chief financial officer; and Sam Zales, president and chief operating officer.

During the call, we will make statements related to our business that may be considered forward looking, including statements concerning our financial guidance for the second quarter and full-year 2019, management's expectations for our future financial and operational performance; our business and growth strategy and our plans to execute on our growth strategy, including our ability to expand our global audience; our ability to realize benefits from our acquisition of PistonHeads and successfully implement related integration plans; our brand awareness efforts including investments in audience and brand building across our U.S. and international businesses; our ability to achieve our 2019 strategic initiatives; our investments in and ability to drive adoption of new and existing products, and their benefits; our expectations for our consumer finance offering, including our ability to expand through additional lenders; the value proposition of our products, including the ability of new products to drive AARSD growth; the growth levers we expect to drive our business; our ability to maintain existing and acquire new customers; our expansion into international markets and our international growth strategy; our expected expenses, our ability to successfully grow our product and engineering organization; and other statements regarding our plans, prospects and expectations. Forward-looking statements may include words and phrases such as we expect, we believe, we intend, we anticipate, we plan, may, likely, upcoming and similar terms. These statements reflect our views only as of today and should not be considered our views as of any subsequent date.

10 stocks we like better than CarGurus, Inc.
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.* 

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and CarGurus, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

We undertake no obligation to update or revise these forward-looking statements except as required by law. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained under the heading Risk Factors in our quarterly report on Form 10-Q filed after today's market close as may be updated by our other SEC filings. Further, during the course of today's call, we will refer to certain non-GAAP financial measures.

A reconciliation of GAAP to non-GAAP measures is included in our press release issued after market close today. The press release and our SEC filings can be found at the Investor Relations section of our website at investors.cargurus.com and the SEC's website at sec.gov. Finally, as a reminder, we'll be hosting our first Investor Day near our Cambridge headquarters on June 11, 2019. If you have not already registered, I encourage you to do so as soon as possible as space for the event and our room block is limited.

If you have questions about the event, please contact me directly or at [email protected]. With that, I'll turn it over to Langley.

Langley Steinert -- Founder and Chief Executive Officer

Thanks, Rodney, and thanks to everyone for joining us today. 2019 is off to a strong start for CarGurus as we exceeded our first quarter guidance for revenue, operating profit and earnings per share, and we are raising our full-year 2019 guidance. We are growing our leadership position in the U.S. as we continue building both sides of our marketplace, including solid audience and paying dealer growth, and we are delivering strong progress in our international segment.

We are committed to bringing trust and transparency to the car shopping process, which we believe will drive an unparalleled consumer experience in our industry and translate into a critical offering for dealers. In 2018, we achieved several important goals, such as dramatically increasing our brand recognition, developing three new digital marketing products, launching marketplaces in two new countries and delivering a strong financial results. This year, we have set our goals that we believe will build upon our leadership position and help our business grow over the long term. Before I review our first-quarter results in depth, I'll go over the strategic initiatives we have laid out for the business in 2019.

As a reminder, each year, our business leaders identify the most important initiatives that can meaningfully impact enterprise value over a multi-year time horizon and thus, deserve dedicated organizational attention. These initiatives are also vetted by our board at the beginning of each year. As we did in 2018, we have identified five areas of strategic importance that the company is focusing on in 2019. Two of these initiatives center on our core U.S.

business. First, we still have a meaningful opportunity to grow our brand awareness and increase connection volume; and second, we are focusing on increasing monthly recurring revenue with our paying dealers through our revolving listings offering and expanding digital marketing suite. Our third initiative involves making the appropriate investments to scale our international marketplaces and driving toward profitability in our most advanced markets. Finally, as we contemplate long-term big bets, we're investing in two important product areas.

We are committed to building and scaling a consumer finance offering, and we are digitizing more elements of our peer-to-peer marketplace to create a best-in-class transaction experience in consumer value proposition. These targets represent a combination of high-ROI initiatives and large addressable market opportunities that we believe will fuel sustained growth and expand margins, and elevate our leadership position. We'll provide updates on these initiatives when appropriate throughout the year, and I'll start by shedding light on the consumer finance offering we announced last week. We believe CarGurus is the leading U.S.

automotive marketplace because we work tirelessly to help consumers find great deals from top-rated dealers. But we know that finding the right car is just the first step in the buying process. Based on TransUnion data, we believe there are roughly 30 million auto loan originations in 2018, yet consumers rarely contemplate financing until the last minute, effectively minimizing their options. We want to bring trust and transparency to as many elements of the car shopping experience as possible.

And dealers want us to deliver as many high quality car buyers as possible. When we set out to build a consumer finance offering, these mandates were our primary considerations. I'm excited to announce that Cargurus has partnered with Capital One auto finance to deliver an integrated loan prequalification experience on our U.S. site.

CarGurus users can now see if they prequalify for an auto loan with no impact to their credit score on cars from more than 10,000 dealerships that already offer Capital One financing. Prequalified shoppers will see their rate and monthly payment on CarGurus and complete a credit application at the dealership to finalize the financing terms for that vehicle in store. In our view, this offering is a win-win for consumers and dealers. CarGurus users can gain greater clarity on financing options before they ever set foot in the dealership, ultimately yielding a more qualified lead to the dealer.

Participating dealers can now deliver a more seamless in-store experience for consumers while still having the opportunity to offer additional financing options. We will iterate on this offering with the goal of maximizing the experience for consumers and dealers alike, and we're planning to bring more lenders onboard to power a transparent consumer-centric financing offering that delivers similar benefits we've brought to car shopping, including transparency, selection and trust. Turning to our first-quarter results. We produced another quarter of strong U.S.

audience growth. Our marketplace averaged 38 million unique monthly visitors in the first quarter, up 24% year over year and our highest average monthly visitor total to date. And in March, specifically, we exceeded 40 million visitors for the first time ever. We generated 102 million monthly average sessions for the first quarter, up 20% year over year and representing our best average monthly sessions total in our history.

We continue to successfully execute a diversified multichannel consumer acquisition strategy, and our first-quarter results are a direct reflection of the quality of our marketplace and the efficiency and breadth of our consumer marketing strategy. Since the start of 2017, we have generated compound annual growth of 28% in both U.S. unique visitors and sessions, and our audience spends more time on our site than the next three major U.S. automotive marketplaces combined, according to comScore data as of Q1 2019.

Yet, we believe we still have significant headroom to grow our U.S. audience and engagement, particularly as we build our brand and increase awareness over the long term. We think the combination of our large audience and growing product portfolio is fueling an industry-leading digital marketing platform for our dealers. Between listings, delivery, display, SEM Plus and audience retargeting, we offer dealers a holistic digital marketing portfolio that we believe provides a robust return on investment.

Over time, we believe we can become a one-stop shop for dealers, leveraging the industry's largest U.S. audience for a dealer's digital marketing needs, which we're confident will attract even more paying dealers. To that end, we added 527 net new U.S. paying dealers in the first quarter compared with 406 in the fourth quarter.

As a reminder, we expect net dealer adds to slow over time and become a less material driver of revenue growth going forward. But our sales staff is working diligently to unearth new business opportunities for CarGurus. More importantly, we delivered strong U.S. AARSD growth in Q1.

Our growing connection volume and expanding product portfolio helped drive U.S. AARSD growth of 24%. As noted on our last call, connection volume will remain the primary driver of U.S. AARSD growth in 2019.

And we are making progress with new products and rolling out a broad array of listing packages to our dealers that we believe will yield strong ROI on our platform. Dealers, such as Markosian Auto in Utah are overhauling their entire marketing strategy to capitalize on our value proposition. In 2017, Markosian reevaluated their marketing budget and made the decision to shift spend to digital channels with more measurable and attractive ROI. As a result, Markosian has embraced our commitment to transparency and is finding success on our marketplace.

Nick Markosian, owner of Markosian Auto said, "we believe CarGurus -- we started with CarGurus about a year ago, and there's no question it helped us generate more sales overall. If anything, CarGurus has made us a better dealer. I think the only thing we can change is improving our customer experience and improving the product and CarGurus has helped us with all of that. Markosian is a perfect example of a dealer that has embraced our transparent marketplace and ROI-driven ethos to drive great business outcomes.

Turning to our international business. We are seeing several positive developments to start the year. We generated strong audience growth in the first quarter as average unique monthly visitors eclipsed 11 million, and average monthly sessions surpassed 25 million, inclusive of PistonHeads. As we shared last quarter, we have made meaningful investments in building our international audience, including launching brand campaigns in Canada and the U.K.

and our acquisition of PistonHeads. While these investments remain in the early innings, we are pleased with the impact they're having on our audience thus far. We have a long-held belief that the marketplace that wins the consumer will win the dealers in the market. We are -- there more than 55,000 dealers in the five international countries in which we compete.

We are scaling our marketplaces to create a compelling customer acquisition channel for these dealers, as well as forging important partnerships to make it easy for dealers to join our platform. Earlier this quarter, we announced a partnership with Cox Automotive Canada, that will enable dealer.com customers in Canada to syndicate their vehicle inventory to CarGurus. Partnerships like these exemplify how we prioritize inventory maximization through our freemium model providing the consumer with a rich experience, differentiated by access to inventory, transparency on cars and dealers and a sort order that help consumers find great deals from top-rated dealers. We also expanding our new product to better serve our international customers.

In the first quarter, we officially launched our dealer search engine marketing product in the U.K. enabling dealers to leverage our rigorous approach to long-tail keyword bidding to drive down-funnel traffic to the dealer's website. Overall, we believe our growing marketplace is an attractive offering for international dealers and we enjoyed a strong quarter of international net dealer adds. In the first quarter, we added 1,236 international paying dealers, inclusive of PistonHeads.

And we had our best quarter ever for organic international net dealer adds. Dealers, such as Westwood Honda in Canada are benefiting from the growth of our platform. Jonathan Wilson, General Sales Manager at Westwood said, "when we first started with CarGurus, we were getting five to 10 leads per month. But we're up to 80 leads per month from CarGurus on average.

And our closing rate from CarGurus is 40%." dealer experiences such as these are the best indications that our international business is scaling effectively. And we're excited about the opportunities we have in each of our international markets. In summary, we are laser focused on executing on our strategic initiatives in 2019, and I'm pleased with the progress we made in the first quarter. We delivered the first iteration of our integrated consumer finance experience, generated strong audience growth across our businesses and are raising our full-year guidance on the back of strong first-quarter financial results.

With that, I'll turn the call over to Jason to discuss our financial performance.

Jason Trevisan -- Chief Financial Officer

Thank you, Langley. I'll provide a detailed overview of our first-quarter performance, followed by our guidance for the second quarter, and updated outlook for the full-year 2019. Please note that we acquired PistonHeads on January 8th, and our results and guidance include PistonHeads impact from that date forward unless otherwise specified. Total first-quarter revenue was $135.3 million, up 37% year over year, and roughly $5 million ahead of the high end of our guidance range.

Our marketplace subscription revenue grew 36% year over year to $120.8 million, and advertising and other revenue grew 53% to $14.4 million. In the first quarter, we observed better-than-expected U.S. advertising revenue as OEMs continue to shift ad spend into digital channels, and recognize our audience leadership position and the resulting strong performance of our platform. Unlike previous years, we observed more ambitious OEM spending to start the year and our ad sales team delivered large OEM advertising deals that were not in our pipeline entering the quarter, factors that benefited our advertising revenue.

We're pleased with our first-quarter advertising performance but we also note this revenue stream is not recurring and will be less predictable than our marketplace subscription segment on a quarterly basis. Parsing performance by geography, the U.S. accounted for 95% of total revenue in the first quarter. U.S.

revenue rose 35% versus the year-ago period to $128.4 million. International revenue grew 95% year over year to $6.9 million, inclusive of PistonHeads. As we noted on our previous earnings call, we expect PistonHeads to contribute mid-single-digit millions of dollars to revenue over the full year. While we won't to break out financial performance for PistonHeads on a quarterly basis, the business is performing to our plan since we closed the deal in January.

Turning to our paying dealer count. We surpassed 33,000 total global paying dealers in the first quarter. We ended Q1 with 33,235 paying dealers, representing an increase of 1,763 from the end of the fourth quarter. In the U.S, we finished the quarter with 28,061 paying dealers, up 7% year over year and an increase of 527 from the end of the fourth quarter.

This compares to 406 U.S. net dealer additions in the fourth quarter, and 1,139 in the first quarter of 2018. As we've stated often, quarter-to-quarter net dealer adds will be variable, but over the long term, U.S. net dealer adds will become more gradual as our paid dealer market share increases.

In our international business, we added 1,236 net paying dealers in the first quarter. As Langley referenced, this figure includes the de-duplicated paying dealers brought on from PistonHeads. Yet aside from that, this was our strongest quarter ever in terms of organic international net paying dealer additions. In total, we ended the quarter with 5,174 international paying dealers, up 87% year over year.

We delivered our sixth consecutive quarter of U.S. AARSD growth acceleration as we grow our audience, bringing new products to market and refine our pricing and packaging strategies. U.S. AARSD grew 24% year over year in the first quarter to $15,440.

We continue to reap the benefits of our connection volume growth as we renew and expand dealers, but we also face more challenging connection volume growth comparisons for the remainder of the year. For instance, we are lapping periods of outstanding brand-driven audience growth, particularly in Q2 and Q3 as we generated year over year U.S. unique visitor growth of 56% and 43%, respectively in the comparable 2018 quarters. We continue to expect connection volume growth to be the strongest driver this year but over time, we believe new products and pricing and packaging will become larger contributors to U.S.

AARSD growth. International AARSD was $4,883, a decline of 3% year over year and in line with the previous quarter. Given AARSD is calculated on a trailing 12-month basis, we will exclude the impact of PistonHeads from this metric until we have four trailing quarters of operating results to accurately render its contribution. We expect international AARSD to be lumpy on a quarter-to-quarter basis as we experience high percentage growth in paying dealer count in our international segment.

And we view audience growth and paying dealers as the best indicators of international business strength. I will discuss our expenses and profitability on a non-GAAP basis, which backs out our stock-based compensation expense and amortization of acquired intangible assets. First-quarter non-GAAP gross margin was 94.4%, roughly in line with prior quarters. Total first-quarter non-GAAP operating expenses were $112 million, up 36% year over year.

Non-GAAP sales and marketing expense grew 31% year over year to $89 million and represented 66% of revenue, down from 69% in the year-ago quarter. Our U.S. business is exhibiting increasing operating leverage via sales and marketing but we will prudently continue to invest in brand building and traffic acquisition across both our U.S. and international businesses.

Our non-GAAP product, technology and development expenses grew 72% year over year to $12.8 million and represented 9% of first-quarter revenue. As we contemplate business needs for 2019 and beyond, adding engineering headcount remains a critical focus and we will prioritize investment in this expense line for the foreseeable future. We achieved non-GAAP operating income of $15.3 million, nearly $6 million ahead of the high end of our guidance range. Our first-quarter operating income beat was driven by two key factors: first, our advertising revenue outperformance contributed meaningfully to operating income.

And these results may not recur on a quarterly basis as OEMs vary advertising strategies. Second, as I noted in our previous call, our expense timing will track closely with automotive shopping seasons, particularly with respect to consumer marketing. As such, we recognized a relatively smaller portion of these expenses in the first quarter, and we expect this expense line to represent a larger percent of revenue in the second quarter. Non-GAAP diluted earnings per share were $0.12 for the quarter, $0.05 ahead of the high end of our guidance range.

On a GAAP basis, we delivered first-quarter gross margin of 94.3% and total operating expenses of $120.1 million. The increase in operating expenses is primarily the result of increased sales and marketing expenses. We also recognized PistonHeads operating cost for the first time in Q1, adding to the year over year expense increase. First-quarter operating income grew 15% year over year to $7.4 million.

First-quarter GAAP net income attributable to common shareholders totaled $12.6 million. Similar to recent quarters, we recognized a tax benefit, which in the first quarter totaled $3.5 million, stemming from stock deductions from the taxable benefits of equity-based compensation, as well as federal and state research and development tax credits. GAAP diluted earnings per share were $0.11 in the quarter. Geographically, our first-quarter GAAP operating income was $17.4 million in the U.S.

and we had a GAAP operating loss of $9.9 million in our international business. We ended the first quarter with $138.4 million in unrestricted cash and short-term investments, a decrease of $19.2 million from the end of the fourth quarter. The sequential decrease in our cash balance reflects our $19.1 million cash outlay to acquire PistonHeads in January. We generated $9.7 million in cash from operations in the first quarter and $3.2 million in non-GAAP free cash flow, which includes capital expenditures and capitalized website development costs of roughly $7 million.

The increase in capital expenditures primarily relates to additional office space built out near our Cambridge headquarters. During the first quarter, we withheld and remitted $4 million in withholding payments from RSU share settlements, stemming from our equity compensation plan, roughly in line with our fourth-quarter payment. We continue to evaluate this practice and may explore other avenues for managing tax withholding related to equity compensation going forward, though no change to this practice is imminent. I'll close my prepared remarks with our outlook for the second quarter and full year 2019.

As a reminder, a meaningful portion of our first-quarter revenue outperformance came from nonrecurring advertising revenue. Advertising revenue exhibits greater quarter-to-quarter variability than our marketplace subscription revenue and as a dollar of advertising bookings does not flow through the rest of the year as a dollar of subscription bookings does. Further, as we noted on our last call, we're working to align our consumer marketing spend with car shopping seasonality and thus, we expect to incur the greatest portion of our full-year consumer marketing expenses in the second quarter. With this in mind, we are raising our full-year revenue outlook to a range of $569 million to $578 million, implying roughly 26% year-over-year growth at the midpoint.

This compares to our prior guidance of $554 million to $566 million. We are raising our full-year outlook for non-GAAP operating income to a range of $50 million to $56 million, up from $46 million to $54 million previously. Our operating income outlook accounts for continued investments in audience and brand building initiatives, both domestically and abroad, expansion of product, and engineering headcount and resources needed to pursue our strategic initiatives. We are raising our full-year non-GAAP EPS guidance to a range of $0.39 to $0.43, up from $0.35 to $0.40 previously.

Focusing on the second quarter, we expect total revenue to be in the range of $138 million to $141 million, non-GAAP operating income in the range of $8 million to $10 million and non-GAAP earnings per share in the range of $0.06 to $0.08 per share. Overall, we are executing well against our financial objectives, realize increasing sales and marketing leverage in our U.S. business and observing positive unit economic trends in our most advanced international markets. We believe the launch of our integrated consumer financing offering creates an even more compelling consumer experience in our marketplace.

And our growing brand is ensuring CarGurus is top of mind for end market car shoppers. We're positioned well to attack our strategic initiatives in 2019 as we remain committed to building the world's most trusted and transparent automotive marketplace. With that, we'll open up the call for Q&A.

Questions & Answers:


[Operator instructions] Our first question is from Mark Mahaney from RBC Capital Markets. Please go ahead.

Mike Chen -- RBC Capital Markets -- Analyst

This is Mike Chen, on for Mark. I have two. So it looks like there is a pretty strong net ads performance internationally. I was wondering if you can break down a little more of how much of that was PistonHeads versus organic.

I know you said it was the strongest like organic quarter, but just any more color there? And then in terms of the consumer financing offering. I was wondering if you could talk a little bit about the pricing structure and how that works, and what type of revenue or financial impact we can see from that?

Jason Trevisan -- Chief Financial Officer

So on international. This is Jason. On international, we're not breaking out PistonHeads but we did try and give some directional guidance for folks that -- in saying that it was our strongest organic quarter, so you can roughly probably back into what the PistonHeads contribution would have been. And then, the second question on consumer financing, was the question specifically around the revenue model?

Mike Chen -- RBC Capital Markets -- Analyst

Yeah. Like just, yeah, yeah -- the revenue model and then like what type of pricing trends and how that works? Yeah.

Jason Trevisan -- Chief Financial Officer

So the revenue model at this stage of our development is largely a lead generation model, where we get compensated for funded loans, which is fairly standard in the industry. There aren't -- you asked about trends, I mean there aren't really trends because it's a new launch for us. But we feel very good about our ability to drive funded loans given the volume of connections and leads that we're generating for our dealers. And when you look at the unit pricing of how large a loan is -- your typical loan is, what percentage of cars get -- have loans associated with them, we think there's a sizable opportunity here.

Mike Chen -- RBC Capital Markets -- Analyst

Got it. Thanks for the color.


Our next question is from Tom White from D.A. Davidson. Please go ahead.

Tom White -- D.A. Davidson -- Analyst

Great. Thanks. So one on guidance and then maybe, a bigger picture one for Langley. Just on the guidance, if my arithmetic is right, it looks like the non-GAAP operating income for the year, that raised maybe a little bit less than the magnitude of the first-quarter beat, Jason.

Is there any kind of color you can give there? Obviously, you've got a lot of stuff to invest in, but has you're kind of plan and what you're going to invest in changed a bit since last quarter? And then kind of bigger picture. This is a big week in the world of mobility, and sort of evolving models for transporting people from point to point. I was hoping maybe you guys could just share your latest thoughts on this trend, this broader market trend. How you think it might impact the role of dealership over say, the next five to 10 years, and how your business might look to adjust?

Jason Trevisan -- Chief Financial Officer

So it's Jason. Hey, Tom, it's Jason. So on the first one, we tried to give a little color that spoke to the fact that given the seasonality of the industry, our marketing, particularly our consumer marketing spend, is you know not perfectly linear with revenue. And we try and market when consumers are more likely to buy cars.

So part of that is a seasonality thing. To some extent, there's a little bit of a small timing issue between Q1 and Q2 as it relates to consumer marketing. But you should expect, and we expect that our consumer marketing will be a higher percent of revenue in Q2 than it was in Q1. And so it's probably going to be a better indicator if you would look at first half margin, I would say, and even then, you've still got some seasonality, but rather than looking at just Q1 when you've got a little bit of seasonality and a little bit of timing that created an inflated margin this quarter.

Langley Steinert -- Founder and Chief Executive Officer

So, Tom, it's Langley, I'll take the second one on mobility. I assume you're referring to Uber. You know, I think we've been pretty consistent since the IPO in terms of our outlook on ridesharing and autonomous vehicles. I think companies like Lift and Uber are going to continue to do well in urban settings.

I think in urban settings for the most part, they're going to continue to displace traditional livery services like cabs. I don't see for the foreseeable future ridesharing being a particular threat to car ownership. Just because I think if you live outside of a densely urban market, the ability to hail even an Uber on quick notice, I've noticed myself, is not particularly great. So I think in an urban setting, it probably works.

In a suburban or rural area, I don't think it works particularly well at all. So I think in city dwelling, it continues to be popular but probably no more than traditional livery services. As I said, I think it probably represents a bigger threat to traditional cabs services than necessarily car ownership.

Tom White -- D.A. Davidson -- Analyst

OK. Thank you.


Our next questions from Jed Kelly from Oppenheimer. Please go ahead.

Jed Kelly -- Oppenheimer -- Analyst

Great. Thanks for taking my question. I guess just on your U.S. traffic.

Can you give us a sense what's growing faster between your direct channels and your paid channels? And then, I guess as you get to a certain amount of scale, can you talk about -- you have 38 million monthly active users, the ability to, you know sort of drive more connection volumes. And can you still optimize the site to send more connection volumes to dealers?

Jason Trevisan -- Chief Financial Officer

Sure. It's Jason, Jed. On the traffic source trends, as you know, we don't break those out. But what we have said is that our organic channel has been decreasing over time.

And more share has been consumed by both paid channels and direct. It's also worth unpacking paid and organic into both branded, and unbranded. And so a used Ford Focus 2015 search versus a used Ford Focus 2015 CarGurus search. And while we can't break those out in organic, we, in paid we know that branded is one of our highest growth channels because of the positive effect that our TV advertising has had.

And we have every reason to think that that's the case in organic as well. So direct is growing. Paid is staying strong, both of those are stealing share from organic, and then branded is stealing share against nonbranded across all channels. As it relates to headroom in the consumer market, I think there's sort of two angles in which we believe we still have a lot of headroom.

The first is -- because we would agree that thinking about 35 million, 40 million uniques coming to our site a month when there are fewer than that cars bought each month in the U.S. might -- you might ask, how much room there is to go. But the two that we look at number one is unaided brand awareness. And that is still really quite low, and we think that we have -- we know we have a long way to go there to catch up to the incumbents, and to ultimately, hopefully, be a leader there.

And until we have that, we feel that we have both volume to grow, as well as propensity and intent to grow. The second thing is around the fact that most people who buy a car, still don't submit a lead on a site like this, like ours. And so the more things that we can do on our platform around features, the more things that -- for the consumer, more things that we can do to make it easier for dealers to handle a lead and to create a positive experience for the consumer is going to create more consumers who are interested in submitting a lead. And so we have a lot of effort against that about -- around improving conversion, and improving the user experience for the consumer.

Because that's still less than half of the circumstances.

Jed Kelly -- Oppenheimer -- Analyst

Thank you.


Our next question is from Dan Kurnos from Benchmark Company. Please go ahead.

Dan Kurnos -- Benchmark Company -- Analyst

Great. Thanks. Obviously, we have the metrics that you guys have given around international, but maybe if you could just give us some more color on kind of how the market has reacted since your acquisition of PistonHeads, and you guys have put some more money there, how either dealers or consumers are reacting? And then, I know you guys called out international AARSD, obviously is always going to be lumpy on strong dealer growth. But now that you have kind of critical mass there in a couple of other places, do you think you'll continue to maybe consider using that as a tool to drive dealer growth? Or is it really just going to be necessitated by size of dealer and geographic mix?

Sam Zales -- President and Chief Operating Officer

Hi, Dan. Sam Zales. Thanks for the questions. International growth was mentioned in the comments, both organic and with PistonHeads has been solid for us, we're proud of the results.

I'd say PistonHeads acquisition has been positive for us on both the consumer brand and the dealer branding perspective. One, PistonHeads is an iconic brand. It's got a significant following. It's got a user-based that's highly engaged with the content and capabilities on the site.

And that will only continue to reinforce the positive nature of the CarGurus brand that has made tremendous inroads in the U.K. Dealers look at that twofold. One is there's product sets on both sides, and they can take advantage of the consumer audience that we're driving to both the U.K. site, CarGurus U.K., and the PistonHeads site.

So with the product offerings, and the technology and data expertise and customer acquisition, consumer acquisition expertise we'll bring to PistonHeads, we think this is a big opportunity. They also see this as a investment in our furthering number one, growth rate. We are the fastest growing consumer website in the automotive marketplace space in the U.K. This is further investments with a halo effect of investing on the consumer side means growth on the dealer side.

From an AARSD perspective, you're asking a good question but it's a reminder that we have multiple countries moving at the same time, all in different stages of our development. We've talked about this previously. We first acquire inventory to bring our freemium model to base so consumers have a better experience in that marketplace. We then build out the consumer experience on the website.

We then acquire the consumers, and that drives the connections to dealers to sign them up as paid dealer base. As Jason says, lumpy results in AARSD is the fact that one, each market is at a different stage of development. But number two, is we are not going to use that lever initially. Our growth in those markets in the early stages is to sign dealers up at a cost-effective return on investment of their customer acquisition program and then, over time, just like we're doing in the U.S, growing AARSD through the growth of connections, the growth of new products, which we launch over time in those markets and the growth of the unit price economics.

But we're in the early stages so you'll see that AARSD at a slightly lower level than you'll see in the U.S., and it will be lumpy over time.

Dan Kurnos -- Benchmark Company -- Analyst

Details were helpful. Thanks, Sam.


Our next question is from Ralph Schackart from William Blair. Please go ahead.

Ralph Schackart -- William Blair and Company -- Analyst

Good evening. Thanks for taking the question. Just in terms of international on the strong growth that you saw there? Was there any particular geographic region that was driving the growth? Or was growth pretty strong across international markets? And then just in terms of the big bets, you talked about consumer finance a little bit but just curious if you could frame of the P2P opportunity, both in monetization and sort of the impact for the overall platform.

Sam Zales -- President and Chief Operating Officer

Thanks, Ralph. It's Sam Zales. On the international front, we don't break out country-by-country specifics, but I'd say to you that the countries we've been in the longest, which are Canada and the U.K. are showing solid growth from a consumer and dealer perspective.

So you see the visitor growth and the session growth, but you also see the paid dealer acquisition growing tremendously. Langley has said this before on multiple occasions, if you are driving growth on the consumer side, and driving a down funnel quality audience from a consumer perspective, the return on investment and decisions for those dealers are pretty simple when they move from the free to the paid program. And we've been able to, not only acquire through the freemium model, dealers who get on the program and test it, but then the move to the paid program because of the quality and quantity in the growth we're driving. So as the fastest growing consumer audience in the automotive marketplace is in both Canada and the U.K., that's driving that growth you're seeing in those financial numbers.

So each of those markets, and even our new markets, are taking off with the same perspective that we're bringing transparency to the consumers that they don't see from competitor models and dealers saying, I want a player that can drive customer acquisition for me at a high ROI. So that's been the basis of the growth.

Jason Trevisan -- Chief Financial Officer

Hi, Ralph, it's Jason. On P2P, so I guess I'd start by just taking the opportunity to reframe the -- or frame the market -- market size again. Almost a third, call it 25% of used cars in the country are sold peer to peer, so it's about $10 million cars. If you think about the fees and the opportunity to make money on a car transaction, at least at a dealership, it's in the -- at a minimum, several hundred dollars per.

And the way that, in P2P, one can make money is consumers are willing to pay for the right -- or the ability to market their car and the convenience to market their car. And so on our sites and on other sites out there, consumers will pay anywhere from $50 to $150, $200 to market their car. And then when you start to wrap services around that, including an escrow service and warranty and financing, and potentially insurance and vehicle service contracts, you can get to easily a few hundred dollars of value that's created in each transaction. So there are 10 million cars that are sold peer to peer and there's, call it, $300, $400 of value per transaction, a $3 billion to $4 billion market.

What has us excited and there's -- what has us excited is that today, nobody has digitized that transaction at scale. And so it's still, you hear us often say this is often done in a Dunkin' Donuts parking lot. And so right now, we're getting to the point where we're taking each of those elements of the transaction and moving them online so that two people can transact, both buyer and seller, on their phone. And they can have a lot of the services that they're getting in the dealership today.

And so we think we're going to make it -- we're making it much more seamless for the buyer and seller. We think over time, people will start to think of us as not only a place to find a car to buy, but also to sell their car, and we think there's value to be created and money for us to make in providing a digitized version of the services.

Ralph Schackart -- William Blair and Company -- Analyst

That's really helpful. Thanks, Jason. Thanks, Sam.


Our next question here is from Marvin Fong from BTIG. Please go ahead.

Marvin Fong -- BTIG -- Analyst

Oh, thanks for taking my question. Just to follow on the Capital One relationship, it's covering 10,000 dealers. You guys had 28,000 total. Is there opportunity to grow the coverage from 10,000? Or do you feel like you've pretty much captured all of the relevant dealers? And then I have a follow-up.

Jason Trevisan -- Chief Financial Officer

So the -- thanks very much, it's Jason. The 10,000 dealers is the sort of overlapping footprint of who Capital One work -- which dealers Capital One works with overlapping with, which dealers we work with. They've tended to focus on franchise dealers, which is a subset of the 28,000, it's about 16,000, 17,000 franchises. So they have a large share within franchise and 10,000 is the amount that overlaps.

But yes, longer term, we think there's absolutely an opportunity to get more dealer coverage, and provide consumers as we've said with the same sort of transparent financing solution that we give them with the car shopping solution. But Cap One is a great first partner for us that we view the 10,000 as very strong coverage in franchise.

Marvin Fong -- BTIG -- Analyst

OK. Great. And I guess, my follow-up is at a higher level, just stepping back, I know you guys are doing so much with addressing P2P and consumer finance, but as we think about -- and you launched retargeting recently, are there any large or meaningful buckets of dealer spending, digital advertising spending that you feel are still areas that you are still not addressing fully with a product? Or if you could just kind of rank order what's kind of left in that whatever, $13 billion of dealer spending on digital advertising that you guys can still address? I'd appreciate some insight on that.

Sam Zales -- President and Chief Operating Officer

Yeah. Hi, it's Sam Zales. I think you're asking a good question. Our aim is to be the customer acquisition channel of choice for dealers.

And certainly with our listings and then, our paid search or SEM Plus product, our display advertising and now audience retargeting products, we think we've got a big mix there to grow our AARSD over time and certainly, drive a very highly efficient customer acquisition for our dealer base. There are other areas that we look at and see from a dealer digital marketing expense perspective. I think when you look at social media and you see that those channels becoming big ones for testing in all kinds of verticals, marketing spend and customer acquisition spend, we are watching that and think that's interesting. We think online video, and other formats for our customers to connect in to consumers is a great way to create customer acquisition and retention as well.

So I think we've got a large swath of that digital marketing spend covered. We will not stop there as we launch of those products and become successful, penetrating the customer base with those, and those next set of arenas, we think, are interesting as ones to look at if you look at that whole pie of spend. We're still moving significant dealers spend from off-line to online. So that's the big TAM opportunity right now that has floated the AARSD growth for us because we're driving such a down funnel audience from a trackable means as opposed to off-line marketing that is moving away from the dealer's spend.

Marvin Fong -- BTIG -- Analyst

OK. Great. Thank you, all. Thanks, Sam.

Thanks, Jason.


Our next question is from Daniel Powell from Goldman Sachs. Please go ahead.

Daniel Powell -- Goldman Sachs -- Analyst

Thanks. Thanks for taking the question. I wanted to follow-up real quick, if I can. On the relationship between AARSD growth and traffic growth, I was just wondering if you guys could give us a little bit more insight into how you think about or how we should think about the growth that we're seeing in traffic versus the accelerating growth that you've been able to drive in AARSD? Anything that we should keep in mind in terms of the forward between what you're seeing on the traffic side and AARSD growth?

Jason Trevisan -- Chief Financial Officer

Yeah. I would, you know we have often tried to, I guess, dispel the ability to have a tight linkage between those two for a couple of reasons, and not to go too far into the weeds, but I'll give some examples. One is that average traffic growth does not reflect the traffic growth that an individual dealer has. And there is decent disparity among individual dealer lead volume growth rates that create very different experiences for dealers as opposed to just an average audience growth of 24% or whatever the case may be.

The second one is there's a timing element and so traffic growth -- significant traffic growth in Q4 of 2018 may not necessarily impact a dealer who signed up in Q3 of 2018 from a pricing standpoint because they are oftentimes going to be locked into a subscription rate for a year. And then the third is that there definitely exists a phenomenon, which says that when our traffic grows very, very rapidly on a relative basis, that we either choose not to, or decide not to grow AARSD for that particular dealer as quickly as traffic growth does. We're trying to build long-term partnerships with dealers. And if they get to enjoy the benefit of some great traffic growth, we may take the long-term approach and say, we'll get paid for that down the road.

We don't need to get paid for it today. So those are sort of the three examples as to why traffic and AARSD growth don't tie perfectly. And then, you add into that the fact that AARSD is a composite of not only that, but also new products, and also pricing and packaging changes, which exist. So I mean, it's rare that they would be out of whack for a multiple-quarter period.

But they're also not going to travel in lockstep.

Daniel Powell -- Goldman Sachs -- Analyst

Thanks. That's really, really helpful. And then one last one. There's obviously a lot of focus on traffic during the quarter, and you had mentioned that in March, you actually hit 40 million monthly uniques.

Just curious if you could just give us a sense of how traffic trended throughout the quarter? Or if there's anything that you're kind of seeing quarter-to-date relative to that 40 million you hit in March?

Langley Steinert -- Founder and Chief Executive Officer

This is Langley, Daniel. So we were pleased with the traffic growth across all the channels. I mean I think there was some -- yeah, we spent a lot of time focused on brand growth, paid traffic growth and organic growth. So we saw growth across all of those channels.

I would say that I think one of the themes we saw in the public discussion was that there was -- I would argue, kind of an inordinate amount of focus on organic traffic growth, specifically Google. And I guess, our only response to that is that over the last 12 years that I've been involved with this company, we've been through ups and downs and different Google algorithm changes and in the long call, we've benefited really by building a good product. We don't -- as a company, we don't spend a ton of time focused on how we optimize our site for a given search engine. And I would even argue that like five years ago, it probably would've -- any given change in a Google organic algorithm change might have had a bigger effect on our company, but at this point, given especially all the investment we've made in brand, organic traffic specific for any given search engine just isn't an enormous part of our business.

So it isn't -- we've kind of grown up as a company to have a really varied number of sources of traffic. So it's really not -- we're not dependent on any one source of traffic.

Daniel Powell -- Goldman Sachs -- Analyst

Thanks, guys. I appreciate the detail.


Our next question is from Naved Khan from SunTrust. Please go ahead.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Yeah. Thanks a lot. Maybe just to piggyback on your answer, Langley, about the organic not being as important to the overall business. Can you maybe just give us some sense about the quality of the traffic as it compares to paid traffic? And how you can convert maybe more of the paid traffic into clickable leads downstream versus organic? And then, I have a follow-up question.

Langley Steinert -- Founder and Chief Executive Officer

I mean as we've said in the past, we don't really comment on any, you know either breakout of traffic sources or even downstream convergence on some of those sources. I would say that our -- the work we do with both in terms of algorithmic traffic, kind of SEM traffic acquisition we do in-house, as well as our brand efforts, there is an enormous amount of quantitative work we do to focus on the return on investment on all those channels. So it's very mathematically based, it's very quantitative and it's done at very large scale. So I can assure you we're pretty maniacally focused on just that, return on investment, but I can't really comment on the quality of organic versus paid channels.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Understood. And then, the follow-up question I had was just around the add-on offerings that you've been launching over the last, maybe four, five, six quarters SEM Plus, retargeting delivery. Can you give us some sense of what the option levels are for maybe these offerings? I think display -- I think at one point you disclosed it's less than 20%. What about these newer offerings?

Sam Zales -- President and Chief Operating Officer

Yes. It's Sam Zales and thanks for the question. I don't think we're reporting on penetration rate. I think we qualified in the fourth quarter, we were at 26% of customers adopting a second product with us, which was up significantly year over year.

That trend continues where we typically hear from dealers, I love your audience, both the quantity and quality, how do I get in front of more consumers that you can drive it to me and drive to my website, which is a lot of what some of those products do. They allow us to move a consumer who is looking at a competitive offering to other dealers in the marketplace, and by providing their retargeting effort, or the display, or the paid search process, you're driving that traffic to a noncompetitive situation at that dealer's website. Delivery has been a huge success because we're both benefiting consumers who don't have enough choice in their local search results. And dealers having an opportunity to get their inventory in front of more consumers and close more business.

So all of those have -- they're fairly recent to the market in some of those products, but I think having a broader toolset to dealers when they're looking to continue to grow their return on investment from customer acquisition channels, they're going to the player that provides the largest audience, and the most down funnel shopping experience so that they can close new business with a high ROI.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Very helpful. Thank you.


Our next question here is from Ron Josey from JMP Securities. Please go ahead.

Ron Josey -- JMP Securities -- Analyst

Great. Thanks for taking thre question. I just wanted to ask about AARSD growth and Jason, you mentioned the continued growth here, and I think it's the third quarter 20-plus-percent growth. I constantly get the question of whether this is a pricing -- whether pricing is going up on a like-for-like basis? Or AARSD is going up before traffic is -- as traffic is growing.

So can you just comment on where you're seeing just on that part of AARSD, knowing there's lots of different components, but just on the leads part, what's driving the growth there. Is it traffic or maybe an increase? And then, Sam, just as a corollary, and we know we got some questions just now about the different products you're offering, just walk us through the sales process. Instead of a dealer coming to you, how else can I -- how are you all going to the dealer to sort of increase the retargeting SEM Plus awareness? Thanks.

Sam Zales -- President and Chief Operating Officer

Yeah. I'll take them, Ron. Sam Zales. Thanks for the question.

On AARSD growth, and I hope I'm answering your question. We've said there are three levers that drive AARSD growth. The biggest over the last period of time and as we look at it certainly with our success from an audience perspective is going to be connection growth. So Jason just described a situation in which there are some dealers who have a larger audience growth or connection growth in a particular 1-year period and we may not even match that price point growth against the audience growth or the connection growth.

But the largest growth over the last period of time and for the foreseeable future will be that driving connection growth will be the biggest driver of AARSD growth. The second bucket is product penetration and getting additional products into the mix of that dealer base so that they're paying more for their overall subscription because they've adopted multiple products. I think we've had good success with the display product, with the paid search product, with the audience retargeting product. With delivery, we've continued to open up the bucket and that is showing some nice growth for us and it's becoming an interesting part of that mix for AARSD.

The third is a unit price economics, and while we've said over the past, that is one we're going to be deliberate about. We're not going into dealers and saying, we want to grow your unit price dramatically because we're also driving significant connection growth. That is a lever that we're seeing some progress on because we are packaging our offerings in a way that does grow unit price. So those second two levers are smaller, but they are showing real promise for us as we go forward.

To the process we use and your good question of how we go to market, and we are fortunate because we have the largest audience and an incredible down funnel quality shopper, that dealers do come in-bound to ask about the next set of products. But our process in a really highly efficient inside sales organization is to target the customers that we think are most thoughtful about the digital marketing suite. So it's typically a larger, more complex and more educated digital marketing organization, the larger franchises and larger independent dealers, that are thinking about digital marketing and saying, there are these other channels for which the CarGurus audience, if I can target it, will be highly effective for me to get in front of. So the display product, the audience retargeting product, obviously, the SEM Plus product is using the CarGurus expertise to target and through technology, driving that down funnel shopper into the dealer base.

So we do that through, not talking to every customer about every product but targeting the sales process to those dealers who are more likely to convert at an early stage, and that's the success we've seen in penetrating the customers with multiple products sales.

Ron Josey -- JMP Securities -- Analyst

Great. Thank you.


This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Langley Steinert -- Founder and Chief Executive Officer

So I just want to thank everyone for their questions tonight. I look forward to -- brfore that because Rodney mentioned, hopefully those of you that haven't registered for the investor conference will do so. We look forward to seeing you, hopefully, here in Boston soon. Good night, everyone.


[Operator signoff]

Duration: 63 minutes

Call participants:

Rodney Nelson -- Head of Investor Relations

Langley Steinert -- Founder and Chief Executive Officer

Jason Trevisan -- Chief Financial Officer

Mike Chen -- RBC Capital Markets -- Analyst

Tom White -- D.A. Davidson -- Analyst

Jed Kelly -- Oppenheimer -- Analyst

Dan Kurnos -- Benchmark Company -- Analyst

Sam Zales -- President and Chief Operating Officer

Ralph Schackart -- William Blair and Company -- Analyst

Marvin Fong -- BTIG -- Analyst

Daniel Powell -- Goldman Sachs -- Analyst

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Ron Josey -- JMP Securities -- Analyst

More CARG analysis

All earnings call transcripts