|Shares Out. (in M):||86||P/E||NM||218x|
|Market Cap (in $M):||1,806||P/FCF||NM||223x|
|Net Debt (in $M):||-112||EBIT||-37||-38|
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|Total units sold||59,455||48,413||54,228||60,587||72,871||96,614||116,503||113,931||125,980||149,527|
|Sales & Marketing expense||$27,205||$16,607||$11,290||$15,225||$13,783||$15,626||$21,878||$23,893||$75,180||$33,292|
|S&M expense / unit sold||$457.57||$343.03||$208.20||$251.29||$189.14||$161.74||$187.79||$209.71||$220.41||$222.65|
Still, only one of the dealers with whom I spoke was using only TrueCar for lead gen purposes, and the general sentiment was TrueCar leads were moderately economic for dealers. Interestingly, probably half of the dealers said there were internal efforts underway to reduce reliance on third-party lead gen sources and bone up their own internet lead gen capabilities. Another common theme was the claim that TrueCar had or was overcharging dealers and/or claiming fees for leads generated by non-referred clients, as apparently TrueCar's billing system matches leads from its database with sales from dealers' DMSs based only on the customer's first and last name, rather than on unique identifying data. One particularly disgruntled former customer told me he "found a 20-30% margin of error on their invoices between customers we already had and other 'computer glitches' on their end."
TrueCar's growth might be its own undoing. As I mentioned, dealers uniformly told me the sales price on a TrueCar-initiated sale was, on average, slightly lower than an off-the-street sale, which suggests the gross profit dollars reaped on a TrueCar sale are at least $300 lower (and probably $500-$700 lower, on average). While this in some way validates the business model from a consumer standpoint, as/if TrueCar grows as a % of a dealer's sales, the dealer will necessarily have to raise his TrueCar pricing to compensate for the lower sales price and $299 fee and depressed, at which point TrueCar ceases to provide particularly good pricing. Given that TrueCar already accounts for ~15% of the transactions occurring at the 7,700 dealers in its network and the company views its optimal coverage as 11,000-12,000 dealers, I suspect we are not far away from the point at which the TrueCar "deal" is not a deal at all -- and the company's reviews would suggest many consumers have already figured it out.
Another angle to this argument is, according to NADA, dealers spend an average of $604 marketing new cars, so TrueCar is only economic to the extent that a TrueCar sale (and its accompanying $299 fee) is not priced dramatically lower than the dealer's average non-TrueCar-iniated sale and/or TrueCar generates significantly greater sales velocity to dealers, the latter of which does not appear to be the case per my conversations with dealers.
The company is also involved in the used car market, and although I've seen sell side estimates suggesting mix of up to 20%, the data suggest it's actually closer to 10%. In general, the model does not seem to lend itself well to used car sales given the additional variables involved in comparing used cars (e.g., mileage, condition, etc.). TrueCar has also talked about adding ancillary services such as financing, but, when asked about it, dealership owners told me in no uncertain terms that the company would face severe backlash if it also attempted to eat into their financing business/profits.
|Annual U.S. vehicle sales ('000s)||16,000|
|TrueCar Share||11%||I'll add another 1% to account for used car mix in TrueCar|
|Annual TrueCar leads||1,600|
|Value per lead||$310||$299 new / $399 used, so around $310 blended at a 10:1 ratio|
|Sales & marketing expense per lead||$175||$223 in 2Q|
|Sales & marketing expense||$308,000|
|Cash opex||$70,000||Currently ~$60M|
|$20.90 stock price / 86.4M diluted shares outstanding / $111.8M net cash|
|EV / EBITDA||14.0x|
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