When newly appointed Chip Perry took over TrueCar (NASDAQ:TRUE), there were doubts about whether it could make it as a viable business and public company. It was a middleman between skeptical consumers and critical dealers, which was hardly an envious position. Investors at the time could be forgiven for giving up on owning shares, but that would have been a mistake. Fresh on the job, Perry tackled the dealership relationship issues and kicked off a surprisingly quick turnaround for TrueCar. It's amazing to look at the difference in results in just a few short quarters; these four graphs make it clear.
On the upswing
Of all the graphs, this one might be the most impressive. TrueCar went public in May 2014 and proceeded to have a couple of strong quarters before its relationship with dealers went south, executives left the company, and adjusted earnings plunged.
It took about a year of madness before Perry took control of the company, and as CEO, he has consistently improved results leading up to the third and fourth quarters of 2016 -- reaching $5.8 million in adjusted EBITDA -- the two single strongest quarters since the company went public.
For many quarters, investors wondered how TrueCar's year-over-year sales growth had declined so rapidly. Of course, young companies can't be expected to grow sales by double digits forever -- that's not reasonable. That said, for such a young company, there's no question its growth evaporated far too quickly. The good news is, as you can see below, it's rebounded quite significantly in 2016. Management expects that it can continue to grow unit sales by double digits year over year, which would be great news for investors.
Seasonality and unique visits
Like the automotive industry in general, TrueCar's business does have some seasonality to it. As you can see in the graph below, the fourth quarter is historically much weaker in terms of unique visitors and units sold compared to the third quarter. Looking at those points in the graph, you'll also notice that for the first time it was nearly flat in 2016 -- which emphasizes how great the fourth quarter was compared to the strongest quarter of the season (third quarter).
(Sometimes) more is better
This next graph isn't as positive for TrueCar or its dealership group as the previous graphs have been, but it's to be expected as the company's dealership network count hit an all-time high. While TrueCar's number of visitors and consumers will fluctuate, there's a finite number of purchases to be spread throughout the network at any given time. When dealership counts shrink, TrueCar sends a potential consumer to another dealership and more revenue is spread across fewer dealerships. Thus, when the count shrinks as it did in Q3 2015, revenue per dealership spikes.
The best-case scenario, which is difficult to pull off, is an increase in the number of dealerships while revenue per dealership still rises. That happened between the first and second quarters of 2016, as you can see above, but revenue per dealership declined as one would expect during the fourth quarter. It's not necessarily a negative, but something for investors to watch to better understand amid fluctuations of the dealership count. In general, if dealerships are generating more on average, it creates a healthier and more secure relationship with TrueCar.
Ultimately, 2016 was an incredible year for TrueCar's turnaround and the progress made was nothing short of impressive, even if surprising. The company beat estimates on both the top and bottom lines and reignited growth in multiple metrics. Look for the company to focus on improving its products and information to help optimize units sold, and if it can continue the recent rate of double-digit year-over-year sales growth, 2017 will be equally impressive.