Glancing at TrueCar, Inc.'s (TRUE +0.00%) roughly 30% spiral lower last Tuesday, investors could be forgiven for thinking the third quarter was a complete disaster filled with disappearing adjusted EBITDA, declining sales, and out-of-control costs -- but that wasn't the case. In fact, based on these important graphs, it doesn't look like a bad quarter at all. A speed bump -- at least investors hope it's only a speed bump -- with one critical partner has some investors panicking.
By the numbers
Third-quarter revenue moved 10% higher, compared to the prior year, to $82.4 million accompanied by an all-time high dealer count of 15,224, a 15% gain over the prior year. TrueCar users purchased 253,527 units from certified dealers, a healthy 15% increase year over year. On the bottom line, however, TrueCar's net income loss widened from last year's loss of $7.4 million to a loss of $9.5 million. But when adjusted for items, TrueCar's adjusted EBITDA moved 38% higher to $8 million.
Image source: Getty Images.
Key graphics and metrics
During the first half of 2016, one of the biggest concerns investors had was TrueCar's slowing units sold growth, which had slowed to a crawl. While explosive growth is impossible to sustain indefinitely, TrueCar should still have been growing its unit sales faster back in late 2015 and early 2016, and when the company's pledge to dealers gained traction, it reignited growth. Unfortunately, that reignited growth slowed a bit during the third quarter, as you can see below.
Data source: TrueCar SEC filings. Graphic source: Author.
TrueCar's unique visits are also an important metric to track. The company's business is about pouring as many consumers into its funnel and converting them into sales by presenting valuable information and easy-to-follow leads at dealerships. For that reason, investors obviously want to see unique visits climb at a healthy clip year over year. Similar to its slowing unit growth trend, its unique visits also posted a healthy number but not at the pace investors are accustomed to.
Data source: TrueCar SEC filings. Graphic source: Author.
But the graphic that really shows you how far TrueCar has come from the dark days in 2015, before refreshing much of its management team, in adjusted EBITDA.
Data source: TrueCar SEC filings. Graphic source: Author.
Why the sell-off?
While TrueCar faced challenges with slowing growth, the above graphs show the third quarter wasn't a complete disaster by any means. One factor that had investors pressing the panic button, though, was news that USAA -- TrueCar's most significant affinity partner, which generated roughly 25% of its units sold during the third quarter -- had launched a significant website redesign. Because the car-buying process is a large financial commitment, USAA wants its members to have plenty of accurate and insightful information and that has added more steps in the buying process before those consumers are handed off to the buying service powered by TrueCar. Those extra steps have negatively impacted the traffic and prospects TrueCar received from USAA.
Management is confident that its business with USAA will improve from third-quarter levels but admits it may not fully recover. That caused management to lower its full-year guidance around sales and revenue, which are still expected to improve from last year's levels but gave investors reason to believe growth would be more difficult going forward. TrueCar's third quarter wasn't as bad as investors would think considering the stock shed roughly 30% of its value after the third-quarter conference call, but the company needs to strengthen its USAA business, improve the monetization of each unit sold, and drive more traffic to its website to convince investors the growth story is still intact.
