Cars.com delivered better-than-anticipated results in the third quarter due to increased penetration of its digital solutions amid the pandemic and a 10% increase in site traffic. However, shares fell 5% on Monday following the earnings release as a favorable update related to Pfizer-BioNTech’s vaccine dragged down stocks benefiting from corona-induced demand.
The online marketplace, which connects potential car buyers with sellers, reported 3Q revenue of $144.4 million, which declined 5% Y/Y but exceeded analysts’ estimate of $142.3 million. Cars.com’s (CARS) top-line was impacted by lower National Advertising revenue and a lower dealer count due to COVID-19. However, the company experienced continued growth in digital solutions revenue.
Also, monthly average revenue per dealer (or ARPD) came in at $2,183, rebounding to pre-pandemic levels and up slightly Y/Y. The company’s adjusted EPS increased 56.3% Y/Y to $0.50 driven by lower expenses, mainly marketing expenditure. Cars.com beat analysts’ EPS expectation of $0.39.
CEO Alex Vetter commented “Revenue rebounded sequentially with meaningful growth in ARPD and increased dealer customers as dealers are more rapidly adopting digital solutions in response to accelerated consumer demand because of the COVID pandemic. The launch of new dealer websites, and further growth and penetration of our FUEL, Online Shopper, and Conversations solutions, are driving growth in both ARPD and dealer count which will allow us to start 2021 with strong momentum.”
Barrington analyst Gary Prestopino reiterated a Buy rating for Cars.com with a price target of $16 following the earnings release. In a research note to investors, the analyst stated “Cars.com’s outlook is improving, yet in our opinion, the stock is not reflecting this improvement and remains undervalued. Our 2020 and 2021 adjusted EBITDA estimates are $151 million and $170 million, respectively.”
Based on 3 recent Buys and 1 Hold, the Street has a Strong Buy analyst consensus for Cars.com. With shares down 27.6% year-to-date, the average analyst price target of $12.63 reflects an upside potential of 42.7% in the months ahead.