We're rapidly approaching the one-year anniversary of TrueCar's (TRUE 5.50%) initial public offering. The auto-pricing site's shares rose by 12% the day they hit the market last May. Although the stock is now a fair distance below its peak, it's still nearly double its issue price. Here are a few likely reasons it's managed to defy gravity so far.
Selling truth
TrueCar benefits from a rather straightforward business profile. The company compiles car prices, delivering a set of offers from local dealerships to an inquiring user. Those prices are guaranteed, and when the user effects the sale, the dealership pays TrueCar a fee.
TrueCar isn't yet profitable, but its top line increases have been substantial lately. The company's fiscal 2014 saw it bring in revenue of almost $207 million, a 54% improvement over 2013. That was due to a boost in cars purchased through its service, which saw a similar (53%) rise to a total of 610,620. In an encouraging development for the company's financial health, for both Q4 and the full year TrueCar was cash-flow positive for the first time in its history.
Broader economic factors are working in TrueCar's favor. New car sales have been robust, thanks to an improving economy, and are still up on a year-over-year basis despite some cooling in recent months -- year-to-date sales of light vehicles, for example, are 9% higher than the same period of 2014.
John Murphy, the lead U.S. auto analyst in Bank of America Merrill Lynch's equity research unit, projects that vehicle sales will top 17 million units for 2015 -- an improvement over 2014's 16.5 million -- rising over subsequent years to reach a peak of around 20 million in 2018.
Driving onto the lot
TrueCar's take from this projected increase will largely depend on the size of its network of affiliate, or "franchise," dealerships.
At the end of Q4, this tally stood at just over 8,500, representing an increase of 60% over the end of 2012. There are potentially many more to sign up -- across the country, there were nearly 17.7 new-car dealerships, according to figures compiled last year by the National Automobile Dealers Association.
The company is developing self-explanatory branded services such as TrueLoan, TrueLease, and TrueTrade. There is plenty of competition in the market for car financing, but TrueCar has a good chance of carving out some share if these services are effectively tacked on to its current offerings. Once launched and humming along nicely, they could help significantly with revenue and profitability.
At this early stage, we can consider the company to be an IPO success thus far. Moving forward, the road ahead could lead to a lucrative place; we'll see how well the company navigates the route.
