After several lackluster initial public offerings, and shortly following some small evaluations and other economic indicators, the direction of growth might be preparing to dip or at least stall.
CarGurus has run into quite a few issues after its IPO; the company is trading at 90 times earning and their rivals like Cars.com or TrueCar are hovering around five to ten times. Despite their stock behaving like many other companies similar to CarGurus, a portal with 40% growth, with only $400 million in revenue, and low trade volume, might not have long to survive.
Currently TrueCar creates $345 million and has a gross margin of 91.2% and CarGurus has a 94% gross margin, nearly matching. Meanwhile Cars.com has $211 million with a 75% gross margin. The difference is in how each company is spending its cash.
Last year, CarGurus seemed less competitive within the market; when the company started up in 2006 they had a clear advantage with their simplistic, but unique, pricing tools that no other company could compete with. Nowadays nearly every competitor has a similar pricing tool of some sort, and CarGurus is left wondering how else they can compete.
CarGurus focuses heavily on SEM campaign and this has resulted in retargeting becoming a weakness for the company. Other companies have been waiting for CarGurus to slip up and as Google and social media costs increase everyone is ready to pounce. CarGuru's net margins have thinned dramatically and unless they diversify their revenue the company may have no place to turn.
While CarGurus has been struggling, other companies within the market have begun to invest in new services. TrueCar teamed up with Galves to provide real time car trade-in valuations on a trade-in marketplace platform. They also established a lead referral program and took the time to team up with over 500 companies to provide price incentives to consumers. These investments are beginning to reap rewards and should be reflected within the marketplace soon. Cars.com also recently purchased Dealer Inspire, a quickly growing online web design, inventory management, CRM, and product suite company to put into their platform.
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