CARS (CARS) Q2 2024: OEM Revenue Jumps 28% as Platform Strategy Offsets AccuTrade Slowdown
OEM and national revenue acceleration powered CARS to record first-half revenue, even as AccuTrade adoption lagged and dealer disruptions weighed on growth momentum. The company’s platform strategy and new OEM endorsements are creating a foundation for future cross-sell and upsell, but near-term dealer product launches remain constrained by external headwinds and operational friction. Management is prioritizing capital returns and platform leverage while recalibrating expectations for AccuTrade’s ramp into 2025.
Summary
- OEM Demand Drives Outperformance: New and existing OEM partners sharply increased spend, validating CARS’ evolving B2B positioning.
- Dealer Execution Faces Friction: CDK disruption and slower AccuTrade adoption muted near-term dealer revenue and ARPD expansion.
- Capital Allocation Shifts to Buybacks: Management commits ~50% of second-half free cash flow to repurchases, signaling confidence despite softer ramp.
Business Overview
CARS operates a digital automotive marketplace and technology platform, monetizing through advertising, SaaS tools, and data solutions for auto dealers, OEMs (original equipment manufacturers), and national advertisers. The company’s core segments are dealer solutions (including digital retail, websites, and appraisal tools like AccuTrade), OEM and national advertising, and its consumer marketplace. Revenue is generated via subscription and usage-based fees from dealers and OEMs, as well as advertising spend from national brands.
Performance Analysis
CARS delivered its 15th consecutive quarter of year-over-year revenue growth, with total revenue up 6% and record first-half free cash flow. OEM and national revenue was the standout, up 28% year-over-year, driven by both legacy and new EV entrants increasing spend on CARS’ media and marketplace solutions. Dealer revenue also grew, supported by customer count expansion and stable ARPD (average revenue per dealer), though growth was muted by the CDK system outage and slower AccuTrade ramp.
Operating leverage improved, with adjusted EBITDA margin expanding over 100 basis points year-over-year. Disciplined cost control and mix shift toward higher-margin OEM and digital products supported profitability, while higher product and technology investment reflected ongoing platform development. Free cash flow hit a three-year high for the first half, enabling both debt reduction and share buybacks.
- OEM Revenue Surges: Two-thirds of OEM clients increased spend, and new partnerships with EV brands like Rivian and EOS signaled growing B2B traction.
- Dealer Growth Resilient but Soft: Dealer count rose sequentially, but AccuTrade subscriber growth stalled, and ARPD gains were modest due to product mix and D2C acquisition effects.
- Marketplace Engagement Up: Organic traffic held around 60% of mix, and repeat shopper visitation rose 7% year-over-year, supporting value delivery to advertisers.
Legacy contract headwinds and the CDK outage impacted both revenue and ARPD, with management emphasizing these are largely one-time or temporary in nature. Still, the cumulative effect of delayed dealer sales and slower AccuTrade adoption is embedded in the revised full-year outlook.
Executive Commentary
"We extended our track record of delivering both revenue growth and strong profitability with our second quarter performance. Q2 was our 15th straight quarter of delivering year-over-year revenue growth, showcasing our ability to execute through challenging external conditions like the industry-wide CDK disruption."
Alex Sutter, CEO
"With $105 million remaining on our current share repurchase authorization and conviction around our growth strategy, we now intend to return approximately 50% of second-half free cash flow to shareholders via share repurchases."
Sonia Jane, CFO
Strategic Positioning
1. OEM Channel Acceleration
OEM and national revenue is emerging as the key growth lever, with spend up 28% year-over-year and new wins from both established and disruptive EV brands. Multi-week sellouts of homepage takeover products and tripling of sponsorship revenue reflect rising OEM urgency to reach in-market shoppers as inventory normalizes. CARS is positioning itself as a premium B2B media and technology partner, increasingly relied upon for high-intent consumer access.
2. Platform Cross-Sell and Dealer Penetration
The company’s platform strategy is focused on deepening dealer relationships through integrated product adoption, especially leveraging AccuTrade, digital retail, and website solutions. AccuTrade users are more likely to subscribe to multiple CARS products, with ARPD for these dealers more than double non-AccuTrade users. However, dealer operational friction and turnover are slowing broader rollout, prompting a pivot to OEM-endorsed web solutions as a lower-friction entry point.
3. Product Innovation and Digital Experience
Continuous product upgrades, such as the DI website redesign and AccuTrade enhancements, are driving double-digit gains in traffic and engagement for pilot sites. Strategic OEM endorsements, including Stellantis and Jaguar Land Rover, are expected to catalyze further dealer adoption and cross-sell opportunities, especially as these solutions become embedded in OEM digital retail programs.
4. Resilient Marketplace and Consumer Engagement
Organic traffic dominance and content innovation (e.g., American-Made Index) sustain consumer engagement, supporting the value proposition for both dealers and OEMs. Marketplace customer count and engagement metrics improved, reinforcing CARS’ brand strength and competitive moat against search arbitrage-driven rivals.
5. Capital Allocation and Balance Sheet Discipline
With net leverage at 2.1 times and $304 million in liquidity, management is deploying capital toward repurchases and maintaining flexibility for debt paydown and M&A. The decision to return half of second-half free cash flow to shareholders marks a notable shift in capital return philosophy, reflecting confidence in the underlying cash generation and platform durability.
Key Considerations
This quarter underscores both the resilience and complexity of CARS’ multi-pronged growth strategy, as external shocks and slower product adoption temper the pace of dealer monetization. Investors should weigh the durability of OEM momentum against the lag in AccuTrade and the operational dependencies in dealer sales cycles.
Key Considerations:
- OEM Channel as Growth Engine: The pivot toward OEM and national advertisers is yielding outsized growth and margin leverage, but large legacy OEMs remain on the sidelines, leaving upside optionality for future quarters.
- Dealer Adoption Friction: AccuTrade’s slower ramp and sales cycle dependency highlight the need for lower-friction entry points, with OEM-backed web solutions now the lead wedge for dealer expansion.
- Marketplace Brand Strength: High organic traffic and repeat visitation reinforce CARS’ differentiated value versus SEM-reliant competitors, supporting long-term pricing power.
- Capital Returns Signal Confidence: The commitment to deploy ~50% of H2 free cash flow to buybacks reflects management’s conviction and balance sheet strength, even as growth moderates.
Risks
Execution risk remains elevated around the pace of AccuTrade adoption, dealer operational inertia, and the impact of external disruptions like the CDK outage. OEM revenue concentration is increasing, and sustained growth will require continued success in landing and expanding major partnerships. Competitive threats from alternative digital retail and appraisal tools, as well as macro-driven dealer headwinds, could pressure both top-line and ARPD growth if not managed proactively.
Forward Outlook
For Q3 2024, CARS guided to:
- Revenue of $178 to $181 million (2% to 4% YoY growth)
- Adjusted EBITDA margin of 26.5% to 28.5%
For full-year 2024, management lowered revenue growth expectations to 4.5% to 5.5%, incorporating a slower AccuTrade ramp and lingering CDK-related sales delays. Full-year adjusted EBITDA margin is reaffirmed at 28% to 30%.
Management highlighted:
- CDK incident will impact Q3 revenue by 1% to 2%, with compounding effect on subscription revenue.
- OEM and digital solutions will drive sequential growth, but dealer product launches will remain pressured near-term.
Takeaways
CARS’ platform strategy is proving resilient, with OEM momentum and marketplace strength offsetting near-term dealer friction. The company’s pivot to OEM-endorsed digital solutions and capital return discipline position it for steady, if slower, growth through operational headwinds.
- OEM Traction Offsets Dealer Drag: B2B revenue streams are scaling faster than legacy dealer solutions, providing margin leverage and new cross-sell vectors.
- AccuTrade Ramp Delayed, Not Derailed: Friction in dealer adoption is prompting a strategic pivot, but product efficacy and OEM endorsements support a longer-term growth path.
- Capital Return as Confidence Signal: Aggressive buyback plans and balance sheet strength reinforce management’s conviction in platform durability.
Conclusion
CARS’ Q2 results reflect a business in transition, leveraging OEM and digital channel strength to navigate external shocks and operational friction. While AccuTrade’s ramp is slower than hoped, the company’s platform and capital allocation discipline provide a clear foundation for future growth and margin expansion.
Industry Read-Through
CARS’ experience this quarter highlights the growing importance of OEM digital marketing and integrated retail tools across the auto ecosystem. The acceleration in OEM spend, especially from EV entrants, signals that automakers are shifting budgets toward digital channels and away from legacy media. The CDK outage underscores the operational fragility and vendor risk embedded in dealership tech stacks, creating openings for cloud-native, platform-based providers. For digital marketplaces and SaaS automotive vendors, the ability to cross-sell, secure OEM endorsements, and deliver measurable consumer engagement is increasingly the strategic differentiator. Dealers’ slow adoption of new tools remains a sector-wide friction point, but OEM-backed integration may become the key unlock for digital retail penetration in the coming years.