CarGurus (CARG) Q3 2025: Marketplace Revenue Climbs 14% as AI-Driven Solutions Deepen Dealer Engagement
CarGurus delivered robust double-digit marketplace revenue growth and margin expansion, underpinned by accelerating adoption of its AI-powered dealer and consumer products. The quarter marked a strategic pivot from transactional businesses to a pure-play marketplace and software model, with international momentum and new product launches extending CarGurus’ addressable market. Management’s guidance signals ongoing investment in AI-centric innovation and a disciplined approach to scaling across dealer and consumer workflows.
Summary
- AI Integration Accelerates Dealer Adoption: New intelligence-driven tools like PriceVantage and CG Discover are driving higher dealer spend and engagement.
- International Expansion Outpaces U.S.: Rapid dealer adds and revenue growth in Canada and the UK highlight early-stage upside abroad.
- Marketplace-Only Focus Sharpens Margin Profile: Exit from digital wholesale sets the stage for sustained profitability and recurring revenue growth.
Performance Analysis
Marketplace revenue grew 14% year-over-year, reaching toward the high end of guidance, driven by increased dealer upgrades, broader adoption of add-on products, and higher lead quantity and quality. U.S. car SID (subscription revenue per dealer) rose 8%, while net new U.S. dealer rooftops increased for the seventh consecutive quarter, reflecting both improved retention and new customer acquisition. International operations were a standout, with revenue up 27% and car SID up 15%, supported by aggressive market share gains and competitive pricing strategies.
Profitability saw marked improvement, as non-GAAP gross margin expanded by 650 basis points to 90%, and adjusted EBITDA margin rose by 490 basis points to 33%. Marketplace adjusted EBITDA grew 18%, outpacing revenue on disciplined cost management and operating leverage. The wind-down of the car offer transactions business—now accounted for as a discontinued operation—eliminated a drag on consolidated results, allowing for a sharper focus on high-margin, recurring marketplace and software revenue. Share repurchases reduced cash balances but underscored management’s confidence in the business model.
- Dealer Wallet Share Expansion: Dealers are upgrading to higher tiers and adopting new products at increasing rates, supporting both revenue and margin growth.
- AI-Driven Product Adoption: Tools like PriceVantage and Next Best Deal Rating are delivering measurable improvements in dealer performance and engagement.
- International Leverage: Early-stage international markets offer runway for pricing power and wallet share as adoption matures.
The shift to a pure marketplace and software focus, coupled with accelerating AI adoption, positions CarGurus to capture more dealer spend and deepen consumer engagement, supporting a durable growth algorithm into 2026.
Executive Commentary
"Marketplace revenue grew approximately 14% year-over-year, or $28 million, and Marketplace adjusted EBITDA was up 18% during the same period. Growth was driven by continued expansion in CARSID, led by dealer upgrades to higher tiers, broader adoption of our add-on products, like-for-like price increases, and higher lead quantity and quality."
Jason Trevisan, Chief Executive Officer
"The midpoint of our Q4 guidance implies a full-year marketplace EBITDA margin of approximately 35%. We're pleased with the strength and growth of our marketplace and excited by the early results of our various new product investments. That innovation has delivered growing adoption across more dealer pillars and deeper consumer engagement across their shopping journey."
Jason Trevisan, Chief Executive Officer
Strategic Positioning
1. AI-Driven Dealer Solutions
CarGurus is rapidly expanding its suite of AI-powered tools, including PriceVantage, a machine learning-based pricing solution, and Next Best Deal Rating, which now reaches nearly 20,000 dealers. These products deliver predictive insights on inventory, pricing, and market demand, enabling dealers to optimize turn times and margins. Early data shows PriceVantage users achieving a fivefold improvement in inventory turn versus competitors, highlighting the ROI of CarGurus’ intelligence platform.
2. International Growth and Market Share
International markets are emerging as a key growth lever, with revenue and dealer count up sharply in Canada and the UK. CarGurus is leveraging a value-driven pricing strategy to win share from entrenched incumbents, while maintaining pricing discipline to maximize long-term wallet share. Management is intentionally deferring aggressive price increases in favor of rapid adoption, mirroring the successful U.S. playbook.
3. Consumer Engagement and Seamless Journey
New consumer-facing tools, such as CG Discover (a generative AI shopping assistant) and Dealership Mode (a geofenced in-dealership app experience), are deepening engagement and producing richer demand signals. Discover is driving a 3.3x increase in leads and significantly higher conversion rates, while Dealership Mode provides real-time pricing and financing support at the point of purchase, closing the loop between online and offline experiences.
4. Transition to Recurring Marketplace Model
The wind-down of the digital wholesale business removes a loss-making, transactional segment and clarifies CarGurus’ focus on high-margin, subscription-based marketplace and software revenue. This transition improves the quality of earnings and supports scalable, predictable growth.
5. Operational Efficiency Through AI
AI is also transforming internal operations, with 80% of managed leads handled by AI and 91% of employees reporting weekly AI usage. This has enabled a 40% reduction in outsourced teams, a 25% increase in engineering productivity, and enhanced fraud detection, all contributing to improved margin structure and execution speed.
Key Considerations
This quarter marks a pivotal transition for CarGurus, as the company doubles down on its intelligence-driven marketplace and software model, leveraging data and AI to drive both dealer and consumer value. The strategic exit from transactional businesses and the focus on recurring revenue streams are reshaping the company’s risk and growth profile.
Key Considerations:
- Dealer Consolidation Trend: 25% of CarGurus dealers now pay exclusively for the platform, reflecting industry-wide vendor consolidation and reinforcing CarGurus’ competitive moat.
- AI as a Differentiator: Proprietary data and agentic AI are enabling CarGurus to deliver actionable insights that directly impact dealer profitability, deepening platform stickiness.
- International Upside: Early-stage adoption in international markets provides significant long-term pricing and share gain potential as product maturity increases.
- Recurring Revenue Focus: The exit from digital wholesale further aligns the business with high-margin, predictable revenue streams, reducing volatility and execution risk.
Risks
Dealer budget pressure and macroeconomic headwinds—including elevated interest rates and softening consumer sentiment—could impact advertising and software spend, though CarGurus’ subscription model and breadth of dealer relationships provide some insulation. The company’s ability to monetize new product adoption and sustain pricing power, especially internationally, remains a key watchpoint. Regulatory changes (e.g., cookie consent) may affect traffic measurement, but not underlying engagement.
Forward Outlook
For Q4 2025, CarGurus guided to:
- Marketplace revenue of $236 to $241 million, up 12% to 15% year-over-year
- Marketplace adjusted EBITDA of $83 to $91 million, up 5% to 15% year-over-year
For full-year 2025, management maintained guidance:
- Marketplace revenue of $902 to $907 million, up 13% to 14% year-over-year
- Marketplace adjusted EBITDA of $313 to $321 million, up 18% to 21% year-over-year
Management emphasized ongoing investment in AI-centric innovation, disciplined cost control, and a focus on scaling adoption across dealer and consumer products to drive long-term growth and margin expansion.
- Continued product rollouts across inventory, marketing, conversion, and data pillars
- Ongoing international market penetration and pricing discipline
Takeaways
CarGurus is executing a high-velocity pivot to an AI-powered, recurring-revenue marketplace and software model, with expanding dealer wallet share and international upside underpinning durable growth.
- AI-Driven Product Suite Is Driving Measurable Dealer ROI: Adoption of intelligence tools is fueling higher spend and engagement, with clear evidence in improved turn times and lead quality.
- International Markets Provide a Long Runway: Early-stage adoption and competitive pricing position CarGurus to replicate its U.S. success abroad as these markets mature.
- Marketplace-Only Focus Sharpens Execution and Margins: The exit from transactional businesses streamlines the model and supports a more predictable, scalable earnings profile.
Conclusion
CarGurus’ Q3 performance validates its strategy of leveraging AI and proprietary data to deepen dealer and consumer engagement, expand internationally, and transition to a high-margin, recurring revenue model. The company’s disciplined execution and accelerating product adoption position it well for sustained top-line growth and margin expansion into 2026.
Industry Read-Through
CarGurus’ results underscore a broader shift in automotive marketplaces toward AI-driven, software-centric business models, with data intelligence and workflow integration emerging as key differentiators. The company’s traction in international markets signals rising global appetite for performance-based digital solutions, while the exit from transactional businesses reflects a wider industry move toward recurring, high-margin revenue streams. Competitors and adjacent verticals should closely watch the increasing consolidation of dealer spend and the role of AI in driving measurable ROI, as these dynamics are likely to shape the competitive landscape across automotive, real estate, and other marketplace sectors.