What happened
Shares of online automotive marketplace CarGurus (CARG 2.64%) are jumping today, up 11.5% as of 11:30 a.m. ET, after the company crushed analysts' earnings estimates in its Q4 report last night.
Heading into the quarter, Wall Street had forecast that CarGurus would earn $0.10 per share on sales of $281.4 million. In fact, sales were $286.7 million, and CarGuru earned more than twice what it was supposed to: $0.22 per share.
But not all the news was good.
NASDAQ: CARG
Key Data Points
So what
Although CarGurus beat sales estimates, revenue still fell 16% year over year in Q4. And while earnings were pretty terrific at $0.22 per share, that was a non-GAAP (adjusted) number. When calculated according to generally accepted accounting principles (GAAP), earnings were actually only $0.20 per share -- still a beat to be sure, but a smaller one.
That being said, when you pull back the lens and examine CarGurus' performance for the year as a whole, it's obvious that 2022 was pretty great for this business. For all of 2022, sales climbed 74% to more than $1.6 billion. And earnings for the full year -- GAAP earnings, no less -- were a strong $0.62 per share. Compared to 2021, in which the company merely broke even, that was impressive.
Best of all, CarGurus generated more than $238 million in free cash flow for the year, an increase of over 95%.
Now what
All of which is to say that, when CEO Jason Trevisan called 2022 a "transformative" year for the company and a "year of activation," he wasn't overstating the case. The question is whether the company can keep up the good work in 2023.
In that regard, citing "operational difficulties" that emerged in the back half of 2022, management forecast Q1 2023 sales in the neighborhood of $205 million, with non-GAAP earnings of about $0.18 per share -- which is both bad news and good news. On the one hand, analysts expect to see $285 million in sales this quarter, suggesting CarGurus could fall well short of that mark. On the other hand, analysts' forecast for CarGurus' profits is only $0.12 per share -- a level management thinks it can beat.
Long story short, management seems to be calling for mixed results in Q1, as well as a significantly weaker quarter than the one that just ended. Investors who benefited from today's run-up in share price might want to take a step back at this point, pocket some profits, and reconsider whether they want to own CarGurus stock now that sales and earnings may be moving in the wrong direction.
