TrueCar shares plunge after news of missed targets
The Santa Monica car-buying portal says both sales and online traffic were slower than anticipated.
Shares of TrueCar Inc. plunged 36% on Friday after the company said it would miss its financial targets for the second quarter.
The Santa Monica company, which serves as a gobetween for its dealers and car shoppers, said revenue would be about $65 million, compared with the $67 million to $69 million it had projected, and that sales for the rest of the year would be lower than expected.
The online car-buying portal said that both sales and online traffic were slower than anticipated. This was compounded by greater spending on marketing and recruiting than initially planned.
“This is an important wake-up call to us,” said TrueCar Chief Executive Scott Painter. “We clearly need to focus, prioritize better and show a bit more discipline on the cost side of the business.”
TrueCar expects to post a second-quarter loss of $15 million to $15.5 million. It said one closely watched measure of financial performance, which tracks earnings before removing interest expenses, taxes and other items, will fall to $200,000 to $300,000, compared with the approximately $5.5 million that was expected.
It was a turnaround from the positive projections Painter had presented. Earlier this month he told The Times that TrueCar was headed for rapid growth and eventually would be involved in 40% of new-car sales transactions, excluding sales to fleet operators and commercial customers. TrueCar is at about 4% now.
The company now says its revenue for the full year will come in at $252 million to $258 million, a 10% to 11% decrease from the previously announced range of $280 million to $290 million.
TrueCar will report its full financial results Aug. 6.
TrueCar operates a digital platform that helps consumers shop and price cars. Buyers can enter a vehicle’s make and model to generate three no-haggle offers from participating dealers. TrueCar takes a $299 cut from each new-car transaction and $399 for used vehicles. It has about 10,000 car franchises in its network.
Wall Street’s reaction was severe, but investors don’t like surprises, said John Blackledge, an analyst for Cowen & Co. He said TrueCar executives became too optimistic with their projections.
“You see this with a lot of these recently minted public Internet companies. The momentum moderates,” Blackledge said. “But they are now making an effort to provide guidance they can hit and beat going forward.”
He expects the company to continue to invest in initiatives that will grow the business, including in digital tools that help auto manufacturers more finely match spending on incentives and discounts to specific buyers. TrueCar is also developing TrueTrade, a digital system to manage trade-ins for car buyers.
“If they get TrueTrade going, that could be a big driver of business,” Blackledge said. “The trade-in process now is a huge hassle for consumers.”
Morgan Stanley Research analyst Dean Prissman said he believes that “the TrueCar value proposition for consumers and dealers remains strong” but is now projecting “a far more conservative growth trajectory.”
The revenue disclosure was the latest in a series of recent challenges for TrueCar.
Earlier this month, AutoNation, the nation’s largest dealer group, said it would no longer use TrueCar to route clients to its stores, a move expected to cost it about $7 million in annual revenue.
The company also faces a Los Angeles County Superior Court lawsuit filed by the California New Car Dealers Assn. in May. It claims that TrueCar violates state car sales regulations by acting as a dealer and broker in car sales transactions but doesn’t have the proper licensing for the business.
That triggered a shareholder lawsuit filed in federal court in Los Angeles claiming that investors have lost money because TrueCar’s business practices don’t comply with sales laws in some states. TrueCar says it is in compliance.
TrueCar has become a controversial sales tool in the auto industry. New-car dealers have complained that its pricing system drives down profits. They also have objected to Painter’s criticism of auto dealer sales tactics.
But Painter said the dealer conflicts and AutoNation’s move did not contribute to its missed revenue estimates.
“AutoNation stores came off the program in the third quarter and thus did not contribute to the shortfall in the second quarter,” he said. “Despite the legal challenges on the dealer front, we do not have a dealer problem as we’re at all-time highs in terms of dealer count and in terms of revenue per dealer.”
Investors didn’t like TrueCar’s sudden announcement that it would miss financial targets.
TrueCar shares closed at $6.87 on Friday, down $3.81. The stock has fallen 70% from its close of $22.90 on Dec. 31.
Goldman Sachs downgraded TrueCar to “neutral” and lowered its price target for the shares to $8 from $17. Cowen & Co. slashed its price target to $8 from $14.