Please ensure Javascript is enabled for purposes of website accessibility

Shares of TrueCar, Inc. Plunge 18% After a Sobering Year

By Daniel Miller - Feb 19, 2016 at 9:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

TrueCar's spiral downward started after an abysmal second quarter. Then the company rebounded during the third quarter, before again struggling to post growth in the fourth.

What: Shares of TrueCar (TRUE 1.16%) crashed and burned after hours on Thursday when the automotive website announced weak fourth-quarter results, which put the finishing touches on a sobering year.

So what: While the fourth quarter is typically a slow season for the company, it's clear growth has stalled even further than anticipated. TrueCar's average monthly unique users moved 33% higher compared to the prior year's fourth quarter, to 5.9 million, but that growth was much slower than the previous three quarter's of year-over-year gains of 43%, 42%, and 40%. 

The weak user growth was reflected in its units sold, which grew 12% year over year, which was much weaker than the three previous year-over-year gains of 21%, 27%, and 34%. Total revenue during the fourth quarter checked in at $63.6 million, which was below analyst estimates of $65 million, and its year-over-year growth was only 15% -- that growth slowed considerably from the three previous year-over-year gains of 28%, 29%, and 33%.

The worst result, hands down, was found in TrueCar's adjusted EBITDA.


Data source: TrueCar's fourth-quarter presentation.

Now what: With today's sell-off, it appears many investors aren't willing to give newly appointed CEO Chip Perry time to turn the company around. Sadly, with TrueCar projecting 2016 full-year revenue between $270 million to $275 million and $0 million adjusted EBITDA, it's understandable that investors are losing faith. For the record, Wall Street was projecting full-year 2016 revenue between $309 million and adjusted EBITDA of $19.5 million. 

TrueCar, at least to me, was a more than 10-year investment, but the slowing growth, plummeting adjusted EBITDA, and weak guidance this early into the game is concerning. The problem could be that TrueCar is having difficulty getting paid for the sales leads it provides. Investors should look for more color from TrueCar going forward about how the company is improving its website to better lock the consumer into the purchase and how it connects the dots with dealerships to get paid properly. There might be a disconnect in TrueCar's sales funnel, which is then causing the drop in adjusted EBITDA.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

TrueCar, Inc. Stock Quote
TrueCar, Inc.
TRUE
$2.62 (1.16%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.