It's fairly evident that Wall Street wasn't thoroughly impressed with TrueCar's (NASDAQ:TRUE) first-quarter earnings, as the stock is roughly 5% lower today after earnings were released Thursday. Of course, as much as we'd like to give Wall Street the benefit of the doubt, there just isn't reason to believe it will take a long-term view on the young tech company -- even though that's what needs to happen.
Let's take a look at some highlights from the first quarter -- because there were plenty of positives -- and why the company still has a potentially lucrative long-term business down the road.
By the numbers
TrueCar reported first-quarter record revenue and adjusted EBITDA of $58.6 million and $4.3 million, respectively. The company also posted first-quarter non-GAAP net income of $0.1 million, or $0.00 per share, which was in-line with breakeven estimates from analysts. "We had a strong start to 2015 and are encouraged by the momentum we are carrying into the seasonally strongest part of our fiscal year," said Scott Painter, founder and Chief Executive Officer of TrueCar, in a press release.
One of the metrics I was most interested in after a slower fourth quarter was TrueCar's unique visitors and units sold. Both rebounded nicely. The number of average monthly unique visitors increased 40% to a record 5.5 million, compared to the first quarter of 2014. Meanwhile, TrueCar users purchased 168,559 units from TrueCar Certified Dealers, up 34% year-over-year.
Another key metric for TrueCar investors to keep track of is monetization, which is the average transaction revenue per unit, calculated by dividing all transaction revenue in a given period by the number of units in that same time frame.
In the first quarter, monetization checked in at $322, which was an all-time record. Investors should keep in mind that the second quarter typically brings in a seasonally weaker monetization number. However, if some of TrueCar's new services, such as TrueCash -- which I'll talk about shortly -- begin to generate revenue faster than anticipated, it's possible the monetization figure could remain flat sequentially in the second quarter, which would be a very positive development for TrueCar investors.
Quarterly net dealer additions checked in at an impressive 607 in the first quarter, another record. That increased TrueCar's total franchise dealer count to a record 9,108 as of March 31, 2015. While it was a large addition of dealers, investors should temper growth expectations and look for that figure to drop to between 150 and 300 per quarter for the foreseeable future.
Despite all of those record-setting metrics and figures, Wall Street remained unimpressed. That's unfortunate, in my opinion, because TrueCar keeps launching services that should enable the company to have a surging business in the years ahead.
Optimism just down the road
In fact, just this week, TrueCar launched a service called TrueCash. It's a product that basically consolidates the targeted incentives business. Automakers will be able to use TrueCash to offer consumers targeted incentives based on demographic, geographic, psychographic, or other behavioral data.
While I'm curious to see how this service develops in the near future, it's reasonable to think that if TrueCar dealers can identify visitors on its website that remain on the fence about a purchase and target them with effective incentives to complete a deal that would otherwise be left on the table, it could prove extremely valuable for dealerships -- and for TrueCar, which gets paid only when a transaction takes place.
Another product TrueCar recently launched is called the Model Showcase. Investors shouldn't expect this to generate revenue directly, but rather it's a product that adds value from the dealers to TrueCar's website visitors. The Model Showcase will use high-resolution photography, embedded video, and other high-quality content provided by the OEMs themselves. The initial launch involves OEMs BMW, Hyundai, and Fiat Chrysler Automobiles -- the latter offers brands Jeep, Ram, Chrysler, Dodge, and Fiat.
Further down the road, investors are anticipating TrueTrade to be a big boost to the company. The service is being developed to provide users with an estimated market value for their existing cars and a guaranteed trade-in price from TrueCar certified dealers. TrueCar also expects to begin providing users with up-front financing and leasing information to provide a more convenient and thorough buying experience with less time at the dealership.
Despite investors selling TrueCar today after its first-quarter earnings, I'm personally very bullish on the company's future on the back of new services being developed. Investors need to understand that TrueCar's stock price is going to be volatile, as the company remains in the very early innings, but if you are OK with the volatility and risk associated with a speculative stock, this could be a big winner down the road.