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Why Cars.com Stock Was Soaring Today

By Jeremy Bowman – Jul 30, 2020 at 3:57PM

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The digital car marketplace posted better-than-expected results in the second quarter.

What happened

Shares of Cars.com (CARS -0.87%) jumped today after the online vehicle marketplace posted better-than-expected numbers in its second-quarter earnings report.

As a result, the stock finished the session up 20.8%.

Hundreds of cars at a dealership seen from above.

Image source: Getty Images.

So what

Cars.com, which connects car buyers with dealers and OEMs, posted a sharp decline in revenue and a lower profit than a year ago due to the pandemic, but the results still topped the consensus view.

Revenue fell 31% to $102 million due to invoice credits the company gave to dealers in the quarter, but that outpaced estimates at $95.3 million. Still, there were signs that demand is returning to the platform. Average monthly unique visitors was up 6% to 22.8 million, and traffic rose 10% to 144 million visits.

On the bottom line, the company managed to deliver an adjusted profit as it pulled back on marketing spending. It finished the quarter with adjusted earnings per share of $0.12, down from $0.30 a year ago, but much better than expectations of a per-share loss of $0.38.

CEO Alex Vetter said, "We executed extremely well in a difficult period by continuing to deliver efficient vehicle sales, industry-leading digital solutions, high-value organic traffic, and an essential online marketplace as consumers and dealers gravitate online."

Now what

Cars.com withdrew its financial guidance in March and did not offer any new guidance for the third quarter. However, the auto market has bounced back strongly from the lockdown period as car sales were actually up in June, a favorable sign for Cars.com going into the third quarter. Considering that consumers are looking for alternatives to public transportation and ride-sharing, and may be reluctant to visit a dealership during a pandemic, the company could see tailwinds from the crisis and return to growth as soon as the current quarter.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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