RBC Downgrades TrueCar On Guidance Decline, Negative Preannouncement

In a report published Friday, RBC Capital analyst Mark S. Mahaney downgraded the rating on

from Outperform to Sector Perform, while lowering the price target from $23 to $9, following the disappointing Q2 preannouncement and the significant reduction to the 2015 guidance. The company preannounced its Q2 results with the revenue below the guidance range and "barely breakeven" EBITDA. According to the RBC Capital report, the company attributed the "miss & lower" performance to three key issues: "1) Traffic was lower than expected in TrueCar-branded channel as the company spent less on user acquisition; 2) Sequential growth in unit growth in non-TrueCar and nonUSAA affinity partners came in below expectations; and 3) Quarterly units came in below expectations largely driven by #1 and #2." TrueCar has lowered its 2015 revenue guidance by 12 percent, while expecting to reach breakeven EBITDA in2H15, significantly below the consensus forecasts. The company has effectively lowered its EBITDA guidance for 2015 by 85 percent. The 2015 revenue and EBITDA estimates have been lowered from $287 million and $29million to $253million and $4million, respectively. "Given the material reduction in guidance, we now lack conviction in the company's growth outlook, the unit economics of its TRUE-branded channel, and its ability to grow non-USAA affinity channels," analyst Mahaney added.