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TrueCar's Losses Widen on Partner Challenges

By John Rosevear - Nov 7, 2017 at 6:05PM

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A key partner's website overhaul put a damper on the vehicle pricing and information website's third-quarter results.

Car-shopping website operator TrueCar (TRUE 1.56%) reported on Tuesday that it lost $9.5 million in the third quarter, or $0.10 per share, a worse result than it posted in Q3 2016, when it lost $7.4 million.

TrueCar also reduced its full-year 2017 sales and revenue guidance.

TrueCar earnings: The key numbers

Metric Q3 2017 Q3 2016 Change
Revenue $82.4 million $75.1 million 10%
Vehicles purchased ("units") 253,527 220,633 15%
Adjusted EBITDA $8.0 million $5.8 million  38%
Franchise dealers 12,286 10,579 16%
Net income ($9.5 million) ($7.4 million) ($2.1 million)
Net income per share ($0.02) ($0.01) ($0.01)

Data source: TrueCar. 

The entrance to TrueCar's office space in Santa Monica, California.

Image source: TrueCar.

What happened last quarter

In the first and second quarters of 2017, TrueCar had a good story to tell: Nearly all of its business metrics improved year-over-year each time. 

But the story in the third quarter was a little different: While "units" (TrueCar's term for vehicles purchased via its service), the total number of new-car ("franchise") dealers using its service, and traffic to TrueCar's site all rose from a year ago, its average fee per sale and total revenue per franchise dealer both fell. 

  • TrueCar's website had an average 7.7 million unique visitors per month, up 1% from a year ago.
  • Acquisition cost per sale was $151, down from $180 a year ago. 
  • Monetization (the average fee collected by TrueCar for a vehicle sold via its service) was $306, down from $319 in Q2 and $319 in Q3 2016. 
  • Average transaction revenue per franchise dealer was $5,319, down 5% from $5,600 in Q3 2016. 
  • The number of franchise dealer partners rose 14% year over year to 12,286. 

What TrueCar's CEO had to say

CEO Chip Perry, who joined TrueCar late in 2015 after a management shakeup, spent last year revamping TrueCar's business and improving its often-difficult relationships with new-car dealers, including giant AutoNation (AN 0.70%)

In the earnings presentation, Perry explained that an important partner (USAA) had redesigned its website, introducing several new steps into its car-buying section. The result was a big drop in traffic, prospects, and units for TrueCar from that source in the quarter. But, Perry expects that situation will improve:

It is important to note that USAA and we are working on site optimizations and that USAA is supporting their car buying experience with a significant marketing campaign that started in early Q4. For Q3, however, we saw a decline in traffic, prospects and units on USAA.

We support USAA's mission and believe that together we can make the needed improvements to produce great results for the car buying service, while ensuring that members are better served. In addition, we've begun the annual planning process with USAA, and both of us expect to grow the program significantly in 2018.

Looking ahead: TrueCar's guidance

TrueCar also released guidance for the fourth quarter and adjusted its full-year expectations -- and not all favorably.

For Q4 2017:

  • Total units are expected to be in the range of 240,000 to 245,000, up 11% from the fourth quarter of 2016.
  • Revenue in the range of $81 million to $83 million.
  • Adjusted EBITDA between $6 million and $7 million.

For the full year:

  • Total units between 953,000 and 958,000, versus 806,953 in 2016. (Prior guidance: between 975,000 and 985,000.)
  • Revenue between $321 million and $323 million, versus $277.5 million in 2016. (Prior guidance: between $325 million and $329 million.)
  • Adjusted EBITDA between $27.4 million and $28.4 million, versus $15 million in 2016. (Prior guidance: between $26 million and $28 million.)

Long story short: TrueCar scaled back its full-year guidance around units and revenue, but raised its adjusted-EBITDA expectations slightly.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends TrueCar. The Motley Fool has a disclosure policy.

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