Online Auto Sales: BTIG Bullish On TrueCar, CarGurus

BTIG initiated coverage Tuesday of digital automotive marketplace companies TrueCar, Inc. TRUE and CarGurus Inc CARG with bullish stances. 

The Analyst

BTIG's Margin Fong initiated coverage of TrueCar with a Buy rating and $13 price target.

The analyst also initiated coverage of CarGurus with a Buy rating and $48 price target.

TrueCar

At a time when investors are "skittish toward all things auto-related," TrueCar stands out as a growth story, Fong said in the initiation note.

The company holds a 2.6-percent market share of the new and used car market, the analyst said. TrueCar should be able to grow its share despite the overall market performance, as 57 percent of all new car shoppers visit TrueCar during the buying process, but only 9 percent of visitors enter a transaction, he said. 

Each 100-basis point increase in conversation will translate to 7-percent revenue growth, which implies the company merely needs to execute better to grow, the analyst said. 

The company's growth outlook remains strong despite the stock's 12-percent decline in reaction to the third-quarter earnings report after TrueCar indicated it's no longer targeting a 20-percent growth rate next year, Fong said.

Investors may be overlooking encouraging trends in the quarter, including key performance indicators like new cars sold per franchise dealer that performed better than the overall industry, according to BTIG. 

CarGurus

CarGurus is the leading car marketplace site based on traffic and engagement, but ranks third by revenue, Fong said in a separate initiation note.

This should be seen as an "anomaly" that will be fixed over time given CarGurus' multiple growth catalysts ahead, the analyst said — including the fact that the company reaches less than half of all car buying site visitors, with 37 million monthly unique visitors.

The company's 15-percent compounded annual revenue growth rate pales in comparison to the 50-percent-plus rate among the two market leaders, which implies the potential for "significant gains at others' expense."

CarGurus is targeting five international markets, with more regions likely to be added over time, Fong said.

The U.K., Germany and Canada markets alone represent a $1-billion aggregate opportunity, he said. 

An international focus should help the company achieve "blue sky" revenue of $1.2 billion in 2023, with a $163-million international contribution, and EBITDA move above 30 percent, according to BTIG. 

Price Action

TrueCar shares were trading higher by 1.17 percent at the time of publication Wednesday, while CarGurus shares were down 7.24 percent. 
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