Online car-buying platform CarGurus Inc. reported first-quarter results and a second-quarter forecast that surpassed Wall Street’s expectations, leading to a 10.9% increase in shares in after-hours trade. The company anticipates Q2 sales of $220 million to $240 million, higher than the FactSet estimates of $222.2 million, and adjusted earnings per share of 22 cents to 25 cents, which is above the projected 18 cents. CEO Jason Trevisan stated that the platform’s listings business “continues to exhibit resiliency and strong profitability.” These projections follow a slowdown in the auto market last year due to increased demand for used cars and higher costs for new vehicles, resulting from ongoing supply chain issues, including the global semiconductor chip shortage.
Founded in 2006, CarGurus is a US-based online automotive marketplace that connects prospective car buyers with local car dealerships. The platform offers users the ability to search for new and used vehicles and receive personalized price estimates based on their user preferences and historical price trends. By providing transparent pricing information, CarGurus aims to help consumers make informed purchasing decisions when buying a vehicle.
The strong performance of CarGurus highlights the increasing popularity of online platforms in the auto retail sector as consumers increasingly turn to digital channels to purchase vehicles. This trend has been accelerated by the COVID-19 pandemic, which has prompted a shift towards digitalization across various industries, including the automotive sector.
The growth in the online car-buying space is not only beneficial for platforms like CarGurus, but also for traditional car dealerships that have integrated digital channels into their sales process. Many dealerships have adopted digital-first strategies to cater to customers’ evolving preferences and the challenging market conditions that emerged during the pandemic. This has resulted in a more seamless buying experience for consumers, leading to a more robust auto retail market and increased demand for platforms like CarGurus.
The strong performance of the online auto retail industry can also be seen in the success of players such as Vroom and Carvana. Vroom, an online platform for buying and selling used cars, has grown exponentially, with the company reporting a 158% increase in vehicle sales during Q1 2021. Carvana, another online car retailer that has experienced rapid growth in recent years, recently announced the opening of its 32nd used vehicle inspection and reconditioning center in the US, further cementing its expansion plans.
These positive market trends reflect the growing importance of digital channels in the auto industry, with consumers becoming more comfortable with virtual car buying options. The rise of electric vehicles (EVs) is another significant factor contributing to this shift. As many consumers are new to the world of EVs, the online shopping experience provides them with the ability to research and compare different models and electric powertrains before making a purchase.
Additionally, the ongoing supply chain challenges affecting the auto market, particularly the global semiconductor chip shortage, have placed increased importance on the ability to source and purchase vehicles through online channels. As consumers face difficulty in finding the exact vehicle they want due to these shortages, they may turn to platforms like CarGurus, Vroom, and Carvana as an alternative means of securing the desired car.
The global supply chain issues are expected to persist for some time, with many automakers such as Ford, General Motors, and Nissan announcing factory shutdowns, reduced outputs, or production delays due to the chip shortage. This could continue to benefit online car retailers in the long term, as they offer an efficient and convenient way for customers to navigate the market during these challenging times.
As more consumers gain familiarity with the online car-buying process, it is also likely that they will become more inclined to engage with digital sales channels, even once the pandemic-related restrictions are fully lifted. This could further fuel the growth of online automotive marketplaces like CarGurus and continue to pressure traditional dealerships to adapt and innovate their sales strategies to keep pace with the changing consumer landscape.
In summary, CarGurus’ positive Q1 results and Q2 forecast, along with the increasing success of other online car retailers, demonstrate the growing prominence of digital channels in the auto industry. The ongoing supply chain issues, coupled with the accelerated shift towards digitalization due to the pandemic, have created favorable market conditions for platforms like CarGurus, which are poised for continued growth in the years to come.
