TrueCar (TRUE 1.35%) prides itself on providing a superior car-buying experience. The company's online tools allow consumers to shop around car dealerships for the lowest price. However, TrueCar has seen its revenue growth rate steadily decline, disappointing investors and causing the stock price to dive lower.
Unfortunately, there will likely be more pain ahead. A parade of departing executives has cast a shadow over the company's future prospects. Most notably, the company's venerable CEO Chip Perry resigned in June 2019.
Image source: Getty Images.
An algorithm problem
Trouble started to brew in mid-2018 after changes to Google's search algorithm caused a steep decline in TrueCar's website traffic. Search engine traffic has historically been a major source of new customers, who would find the company's car listings near the top of a search when researching which car to buy.
TrueCar saw its revenue growth rate flatten out quickly after the Google algorithm change. After promising revenue growth as high as 20% for 2018, the company fell far short, delivering growth of 9%. TrueCar then slashed forward guidance for 2019 to imply mid-single-digit growth. This was a big reset from the 20% growth rate forecast just six months prior.
The company pledged to fix the issues by modifying its car listing pages to better suit the new search engine algorithm. Quick fixes to the company's platform are now possible due to a recent rebuild of its technology systems. After a steep decline in the company's stock price resulting from the growth headwinds, it appeared as if things couldn't get much worse.
TrueCar's fundamentals continue to slide
Several quarters after the Google algorithm issues were first brought to light, the situation at TrueCar has continued to deteriorate. TrueCar's most recent earnings report, for Q1 2019, shows that the revenue growth rate has fallen further and net losses have increased as the company has spent more on platform changes to fix its issues.
With weaker web traffic, brand advertisers have pulled back on spending. What started as a decline in customer transactions due to fewer website visitors has led to a decrease in advertiser confidence in the platform. In light of the additional headwind, TrueCar cut its forward revenue guidance to a low-single-digit rate -- down from the mid-single-digit rate projected just three months earlier.
TrueCar's problems have compounded, spawning doubts over its ability to address headwinds and reinvigorate revenue growth.
Executive departures stack up
It looks like TrueCar's executives have also started to throw in the towel. In the recent past, several high-ranking executives, including the CEO, CFO, and CTO, have all left the company. Given the company's financial underperformance, it's unclear how much of a choice the decision to leave was for some. The table below lists recent executive departures at TrueCar.
| Announced Departure Date | Executive | Title |
|---|---|---|
| June 2019 | Robert McClung | Chief technology officer |
| June 2019 | Chip Perry | Chief executive officer |
| June 2019 | Brian Skutta | EVP of dealer sales and service |
| March 2019 | John Pierantoni | Interim chief financial officer |
| January 2018 | Michael Guthrie | Chief financial officer |
Data source: TrueCar financial reports.
The most notable departure was that of CEO Chip Perry. When Mr. Perry was brought in to run the company, investors had high hopes. He has had an impressive career that has included building the car-buying website AutoTrader into a $1 billion business. Perry had some initial success turning around TrueCar but hasn't been able to stabilize the business in the face of the headwinds experienced over the past year.
Watching what insiders do is a good way to assess a company's future prospects because executives have the most complete picture of what is going on behind the scenes at a company. This is why insider buying of a company's stock can be a bullish indicator but is also why a flood of executive departures can be a troubling sign. If TrueCar has a bright future, executives should be reluctant to leave.
An uncertain future
TrueCar's investors have suffered quite a bit over the past two years. Unfortunately, signs point to more pain ahead. The company has been unable to stem the decline in web traffic nearly a year after its search engine challenges began, and now the company is facing additional headwinds from its brand advertisers.
Investors should hope to see strong leadership when a business is facing operational pressures. Instead, several key TrueCar executives have left the company, leading some to wonder who will be left to right the ship. It's certainly possible that the company will recruit top talent to fill the void, but there is no guarantee that even a top leader would be able to quickly turn things around. While a turnaround is possible, TrueCar's ongoing struggles paint an uncertain picture for the future of the company.
