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Why TrueCar Stock Is Soaring Over 30% on Friday

By Daniel Miller - Aug 7, 2020 at 12:32PM

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Second-quarter results for the digital automotive marketplace are driving shares higher, but are there speed bumps ahead?

What happened

Shares of TrueCar (TRUE -2.01%), a digital automotive marketplace connecting consumers and its network of certified dealers, were soaring over 31% Friday morning after the company topped earnings estimates and announced two key developments.

So what

TrueCar beat expectations on the top and bottom lines. Revenue declined a significant 28.8% versus the prior year, to $62.7 million, which was still ahead of analysts' estimates of $55.2 million. On the bottom line, $0.04 in adjusted earnings per share was far ahead of analysts' estimates of a $0.07 loss per share.

Other metrics showed mixed results. Average monthly unique users increased 14.5% to 8.3 million, while units sold declined 24.3%, and monetization, or average transaction revenue per unit, declined from the prior year's $333 to $290. "We've just turned the corner on what was truly an unprecedented second quarter," CEO Mike Darrow said in a press release. "In light of the situation around us, we are pleased by our results, highlighted by revenue and Adjusted EBITDA well above expectations."

Vehicle image above tablet device

Image source: Getty Images.

Now what

Beyond its quarterly data, TrueCar also announced it would sell its ALG subsidiary to J.D. Power for $135 million. The deal calls for an up-front cash payment of $112.5 million at closing, which will help fund the board's other announcement: a $75 million share repurchase program.

TRUE Chart

TRUE data by YCharts.

It's been a brutal few years for TrueCar, but management has given investors hope over the past couple of quarters with a shrinking net loss compared with the prior year. However, despite the progress from cutting costs, investors have to realize the near term will be challenging because USAA Federal Savings Bank, one of TrueCar's historically important partners that accounts for almost 30% of its business, will be axing the 13-year partnership in September.

TrueCar's new share-repurchase program could signal confidence in the company's ability to turn things around, especially with its stock down roughly 70% over the past three years. But investors would be wise to expect a bumpy near term, especially as automotive stocks deal with a slowing new-vehicle sales market amid the coronavirus.

Daniel Miller 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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