CarGurus, Inc. Q3 FY2025 earnings call

• Launched PriceVantage, a machine learning-based pricing tool, showing early beta results of improved turn times and VDP views. • Expanded CG Discover, a Gen AI-powered shopping assistant, with strong engagement and increased traffic and lead growth. • Advanced Digital Deal and Sell My Car, with Digital Deal adoption surpassing 12,500 dealers and Sell My Car live in 115 markets. • Integrated agentic AI across products, with 91% of employees using AI weekly, reducing reliance on outsourced teams. • Saw trends in CarSID growth with customers increasing spend over time, new customers joining at higher average order sizes, and newer customers ramping spend faster.

In the third quarter, Marketplace revenue was $232 million, up 14% year-over-year. Marketplace adjusted EBITDA was up 18% year-over-year. International revenue was up 27% year-over-year, with international CarSID up 15% year-over-year. Wholesale revenue was approximately $2 million, and product revenue was roughly $5 million. Marketplace revenue contributed the majority, with international contributing meaningfully to the overall growth.

• Fourth quarter Marketplace revenue expected to be in the range of $236 million to $241 million, up 12% to 15% year-over-year. • Full year Marketplace revenue expected to be in the range of $902 million to $907 million, up 13% to 14% year-over-year. • Fourth quarter Marketplace adjusted EBITDA expected to be in the range of $83 million to $91 million, up 5% to 15% year-over-year. • Full year Marketplace adjusted EBITDA expected to be in the range of $313 million to $321 million, up 18% to 21% year-over-year.

• Cookie consent regulations may cause reported uniques and sessions to decline, but this is a change in measurement, not an indication of underlying traffic or lead changes.

Q: If I'm looking at the deck on Slide 5, I think you have a stat that you shared for the first time that may or may not be right, but it says 25% of CarGurus dealers only pay for CarGurus. Is there a way to think about where that stat was a year ago, 2 years ago and some sort of upper bound as maybe you guys drive separation versus peers?

A: Jason Trevisan said he doesn't think they've given a trend on that stat but noted dealers use fewer and fewer marketplace partners, going from an average of using 3 to under 2.

Q: On the ROI that you were talking about, specifically on digital deals, are you seeing dealers more willing to engage here given there seems to be an acceptance that fully digital transactions are growing within the industry? And like I guess what will be the right time to flex pricing power here given the conversion metrics you cited and sort of -- the dealers need to do something specifically on their end to accept these leads? Or is it sort of just kind of easy housekeeping on their end and a customer can walk in, have their loan in place, take their test drive and leave the dealership within, call it, an hour, something like that?

A: Sam Zales said they've done research showing 80% of consumers want to do more online but still want to touch and feel the car. Digital Deal is packaged into a premium tier, and they're seeing higher quality leads with high-value actions driving ROI for dealers.

Q: I had a question just on the international CarSID and international in general is doing so well, very good growth there across the board. I just wanted your thoughts on how much faster and higher you think CarSID can grow?

A: Sam Zales said they're in a market zone of adoption, keeping prices lower to win more customers, and Jason Trevisan added international CarSID is about 1/3 of the U.S. with levers like upsell, cross-sell, etc., having more runway in international.

Q: This is Vincent on for John. Just one with a few parts for me. So it looks like some of the investments you've talked about in recent quarters is really paying off, given both U.S. and international dealer rooftops saw accelerated growth during the quarter. At the same time, CarSID growth slowed a little bit across both geographic segments despite the traction you called out for the product suite. Maybe talk a bit about what the growth algorithm between rooftops and CarSID ought to look like going forward, touching a bit on the drivers of slightly slowed CarSID growth as well as the relative contributions of improved dealer retention versus net new adds to rooftop growth?

A: Jason Trevisan said the relationship between rooftops and CarSID is math-based, with CarSID being revenue divided by average active rooftops. Retention is improving due to investment in product and account management.

Q: First here, on CG Discover, now more deeply embedded, can you help us understand how this new car buying journey and purchase funnel differs from traditional car buying? Clearly, we're seeing traffic and conversion ramp, but curious how you see user engagement in this channel's contribution evolve longer term?

A: Jason Trevisan said Discover is a conversation-based experience unlike traditional filter-driven queries, offering contextual intelligence and side-by-side comparisons, with strong growth and potential for scaling.

Q: I wanted to ask a little bit zooming out on the industry backdrop. Clearly, there have been some signs of stress on profitability at some large used car dealers, some stress at like smaller independents as well. And we're also seeing some of the -- at least the publicly listed franchise dealers seeing some profit pressure in the near term. But cyclically, it looks like inventory is going up, which should be supportive for your business. I'm just curious what are you hearing from customers in terms of budgets?

A: Jason Trevisan said their business is resilient to cyclical trends, dealers are consolidating spend, and they're gaining share despite dealer margin pressures. Samuel Zales added to the breadth of their dealer base.

Q: You mentioned that 80% of managed leads in October chat and text were handled by AI and that 91% of employees are using AI internally, which has reduced reliance on outsourced teams. Where do you see still the biggest friction points either internally or across dealer workflows where AI can further improve efficiency within the business? And how should we see that coming through on the margin?

A: Jason Trevisan said in dealer businesses, the biggest opportunities are how workflow steps tie together and predictability, with AI helping in sourcing, pricing, and conversion. Internally, it's about speed of development and execution.