CARS (CARS) Q3 2025: Premium Plus Adoption Jumps 50% as Dealer Platform Expansion Accelerates
Marketplace momentum and rapid Premium Plus package adoption drove CARS to record revenue and dealer count highs in Q3, despite OEM ad softness. Dealer platform innovation and AI integration are compounding engagement and ARPD, positioning the company for stronger cross-sell and margin expansion. The reaffirmed margin outlook and accelerating dealer upgrades signal a robust finish to the year and a clear path to new records in 2026.
Summary
- Dealer Platform Expansion: Triple-digit dealer growth and Premium Plus upgrades are driving record engagement.
- AI and Product Innovation: Carson and analytics tools deepen consumer and dealer stickiness, lifting conversion and retention.
- Margin Discipline: Operating leverage and cost control support high cash returns and sustained buyback activity.
Performance Analysis
CARS delivered record revenue and a 30% adjusted EBITDA margin in Q3, fueled by robust dealer platform execution and strong marketplace performance. Dealer revenue, which now accounts for the majority of the business, grew 2% YoY, more than offsetting a temporary 5% decline in OEM and national revenue caused by two large customers pausing spend for internal, non-performance reasons. The company’s phased repackaging and cross-sell strategy showed early results, with ARPD (average revenue per dealer) up sequentially for the first time this year and Premium Plus adoption up 50% from September to October.
Operating expenses declined 2% YoY, with adjusted expenses down 4%, as CARS leveraged headcount and lease savings to fund targeted marketing and tech investments. Free cash flow of $94.5 million year-to-date allowed for $64 million in share repurchases, with net leverage improving to 1.9x, below the company’s target range. Dealer count reached its highest level since 2022, and digital solutions like AccuTrade and Dealer Club posted strong subscriber and usage growth, reinforcing the platform’s stickiness and cross-sell potential.
- Dealer Growth Outpaces OEM Drag: Dealer revenue and account additions offset OEM revenue volatility, underlining the resilience of the core platform.
- ARPD Inflects Upward: Upgrades and cross-sell levers are beginning to compound, with multi-product subscribers generating 3x average ARPD.
- Cost Structure Enables Margin Expansion: Disciplined expense management and product mix shifts are driving margin gains and funding innovation.
Marketplace traffic hit a record 25.4 million average monthly visitors, up 4% YoY, reflecting the flywheel impact of AI-powered features and editorial authority in automotive search. The company is on pace to surpass all-time dealer and ARPD records in 2026, with momentum carrying into Q4.
Executive Commentary
"We were pleased to achieve record revenue and drive strong customer and product momentum in the third quarter on our path to re-accelerating growth... New franchise dealer sign-ups also increased appreciably quarter over quarter in Q3, complementing the share gain amongst independent dealers that we achieved in the first half of the year."
Alex Sutter, Chief Executive Officer
"Third quarter adjusted EBITDA margin of 30.1% demonstrated strong revenue flow-through, benefit from the cost management initiatives described earlier, and timing of certain costs... We have multiple levers to inflect ARPD, driving new customer growth as well as upgrading package tiers and cross-selling against our installed base."
Sonia Jain, Chief Financial Officer
Strategic Positioning
1. Dealer Platform Scale and Mix Shift
CARS’ platform strategy is centered on growing dealer count and deepening product penetration, with marketplace subscriptions, websites, and appraisal tools forming an integrated ecosystem. The company added over 270 dealers YoY, powered by new sales leadership and a focus on high-value franchise sign-ups. Dealer count is at its highest since 2022, with triple-digit growth in core solutions for two straight quarters.
2. Premium Plus and Product Bundling
The phased repackaging of marketplace offerings, bundling media and analytics into Premium and Premium Plus tiers, is driving up-sell and ARPD growth. Premium Plus adoption surged 50% month-over-month, and multi-product dealers now yield ARPD three times the average, confirming the value of the cross-sell strategy. The opt-in migration model has minimized churn and maximized buy-in, with 100% of legacy customers now moved to new packages.
3. AI-Driven Engagement and Differentiation
AI is now embedded across the consumer and dealer journey, with Carson, the natural language search assistant, handling 15% of searches and tripling user engagement metrics. Dealer tools like Shopper Alerts and lead intelligence reports are rapidly adopted, with over half of customers using new features within two months of launch. CARS’ editorial authority is recognized by leading AI search tools, doubling the citations of its closest peer and reinforcing organic traffic growth.
4. Wholesale and Appraisal Expansion
AccuTrade and Dealer Club are scaling rapidly, with AccuTrade surpassing 1,150 subscribers and 1 million quarterly appraisals. Over half the vehicles sourced are late-model, high-demand inventory, and Dealer Club users grew 40% QoQ. These solutions address dealer pain points around inventory sourcing and profitability, further locking in platform loyalty.
5. OEM and National Revenue Volatility
OEM and national revenue softness stemmed from two customers’ internal agency changes, not competitive losses. The pipeline remains strong, with planning for 2026 described as “positive.” The company’s upmarket dealer and consumer demographic insulates it from lower-end market volatility and positions it well for OEM budget recovery.
Key Considerations
CARS’ Q3 demonstrated the compounding impact of product innovation, operational discipline, and platform leverage, though OEM revenue remains a swing factor for near-term results.
Key Considerations:
- Dealer Mix Drives ARPD Upside: Franchise and multi-product dealers are the main source of ARPD expansion and margin leverage.
- AI and Brand Authority as Traffic Moats: CARS’ editorial content and AI integration are compounding organic demand and conversion rates.
- OEM Recovery Remains a Watchpoint: While management expects a rebound, timing and magnitude are tied to macro and industry dynamics.
- Capital Allocation Flexibility: Strong cash flow and sub-2x leverage enable aggressive buybacks and continued tech investment.
Risks
OEM and national ad revenue remains exposed to discretionary budget shifts and macro headwinds, with two large partners pausing spend in Q3. Dealer demand could soften if industry SAR or consumer sentiment declines. There is also execution risk in scaling AI features and cross-sell initiatives, as well as competitive threats from both digital peers and alternative advertising channels.
Forward Outlook
For Q4 2025, CARS guided to:
- Low single-digit revenue growth YoY for H2 2025
- Adjusted EBITDA margin of 29% to 31% for fiscal 2025
For full-year 2025, management reaffirmed guidance:
- Share repurchases at the high end of the $70–90 million target range
Management highlighted several factors that could influence the outlook:
- OEM and national ad spending variability tied to industry incentives and inventory levels
- Continued dealer count and product adoption momentum expected through year-end
Takeaways
CARS’ Q3 results validate its platform-led, AI-first strategy, with dealer expansion and product upgrades outpacing OEM volatility.
- Dealer Platform Momentum: Sustained account growth, premium package adoption, and ARPD inflection reinforce the platform’s compounding potential.
- AI and Product Innovation: Early wins with Carson and analytics tools are driving deeper engagement and conversion, strengthening the company’s competitive moat.
- OEM Recovery and Execution Watch: The pace of OEM ad rebound and continued cross-sell execution will be key to achieving new records in 2026.
Conclusion
CARS delivered on its promise of platform-driven growth, with dealer expansion and AI-powered product innovation fueling record results and margin gains. The company’s positioning with upmarket dealers and consumers, coupled with operational discipline and capital flexibility, sets up a strong exit rate for 2025 and a clear path to platform scale in 2026.
Industry Read-Through
CARS’ Q3 performance signals that automotive marketplace platforms with deep product integration and AI-powered consumer engagement are best positioned to capture dealer spend and margin expansion, even as OEM and national budgets remain volatile. The company’s success in migrating dealers to higher-value tiers and embedding analytics tools offers a roadmap for peers seeking to drive ARPU and retention. The growing importance of editorial authority in AI search further raises the bar for content and brand investment across the sector. As inventory sourcing and digital retailing remain top dealer priorities, platforms able to deliver end-to-end solutions and cross-channel engagement will increasingly outpace legacy and single-point competitors.