What happened

Shares of online auto-sales marketplace CarGurus (NASDAQ:CARG) were trading lower on Friday, after the company's fourth-quarter earnings and first-quarter guidance fell short of Wall Street's expectations.

As of 1 p.m. EST, CarGurus' shares were down about 9% from Thursday's closing price.

So what

CarGurus reported its fourth-quarter 2020 earnings after the market closed on Thursday, and while they weren't bad, they weren't great. Revenue of $151.55 million beat Wall Street's consensus expectation number ($148.93 million), but its earnings of $0.22 per share fell short of analysts' $0.27 average forecast.

More telling, the total number of dealers paying to list vehicles via CarGuru's service as of Dec. 31, 2020 fell by 9% from the year-earlier total, to 30,631. While the company pitched that as a win -- it could certainly have been worse amid the COVID-19 pandemic -- investors weren't excited.

A row of cars for sale at an auto dealership.

Image source: Getty Images.

CarGurus' guidance wasn't quite what Wall Street expected, either. While the revenue range the company provided ($156 million to $160 million) was above analysts' consensus forecast, CarGurus said that auto investors should expect a first-quarter profit between $0.21 per share and $0.23 per share. Wall Street was expecting $0.27 per share, on average. 

That's why the stock was trading lower on Friday.

Now what

Wall Street's reactions to the report were mixed:

  • D.A. Davidson analyst Tom White cut his rating on CarGurus to neutral from buy.
  • Benchmark's Daniel Kumos maintained his previous buy rating and raised his price target to $40, from $35.
  • Needham's Chris Pierce maintained his firm's hold rating. 

Long story short? CarGurus remains in a strong position relative to its major competitors. But 2020 was a challenging year for the entire industry, and the challenges could linger for a while longer. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.