Online new and used car marketplace Cars.com (NYSE:CARS) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 7.8% year on year to $180.2 million. The company expects next quarter's revenue to be around $182 million, in line with analysts' estimates. It made a GAAP profit of $0.01 per share, down from its profit of $0.17 per share in the same quarter last year.

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"We delivered another strong quarter driven by our progress against the growth drivers underpinning our platform strategy. We believe Dealers and OEMs will increasingly need our industry-leading solutions to connect with in-market shoppers and drive greater efficiency while managing rising inventory levels. As our product adoption continues to grow, we are well-positioned to deliver our full-year guidance," said Alex Vetter, Chief Executive Officer of Cars Commerce.

Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE:CARS) is a digital marketplace that connects new and used car buyers and sellers.

Online Marketplace

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Sales Growth

Cars.com's revenue growth over the last three years has been unremarkable, averaging 9.4% annually. This quarter, Cars.com reported mediocre 7.8% year-on-year revenue growth, in line with analysts' expectations.

Guidance for the next quarter indicates Cars.com is expecting revenue to grow 8.2% year on year to $182 million, improving from the 3.3% year-on-year increase it recorded in the comparable quarter last year. Ahead of the earnings results, analysts were projecting sales to grow 6.2% over the next 12 months.

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Usage Growth

As an online marketplace, Cars.com generates revenue growth by increasing both the number of buyers on its platform and the average order size in dollars.

Cars.com has been struggling to grow its active buyers, a key performance metric for the company. Over the last two years, its buyers have declined 0.1% annually to 19,381. This is one of the lowest rates of growth in the consumer internet sector.

Luckily, Cars.com added 195 active buyers in Q1, leading to 1% year-on-year growth.

Revenue Per Buyer

Average revenue per buyer (ARPB) is a critical metric to track for consumer internet businesses like Cars.com because it measures how much the company earns in transaction fees from each buyer. Furthermore, ARPB gives us unique insights as it's a function of a user's average order size and Cars.com's take rate, or "cut", on each order.

Cars.com's ARPB growth has been decent over the last two years, averaging 5.8%. Although its active buyers have shrunk during this time, the company's ability to increase prices demonstrates its platform's value for existing buyers. This quarter, ARPB grew 6.8% year on year to $9,297 per buyer.

Key Takeaways from Cars.com's Q1 Results

We struggled to find many strong positives in these results. Its revenue growth regrettably slowed and its EPS missed analysts' estimates. On the bright side, its full-year revenue guidance beat Wall Street's expectations, sending the stock higher. Cars.com is up 4% after reporting and currently trades at $17.75 per share.

So should you invest in Cars.com right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.