Online new and used car marketplace Cars.com (NYSE: CARS) fell short of the market’s revenue expectations in Q1 CY2025, with sales flat year on year at $179 million. Its GAAP loss of $0.03 per share was significantly below analysts’ consensus estimates.
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Cars.com (CARS) Q1 CY2025 Highlights:
- Revenue: $179 million vs analyst estimates of $180.2 million (flat year on year, 0.6% miss)
- EPS (GAAP): -$0.03 vs analyst estimates of $0.12 (significant miss)
- Adjusted EBITDA: $50.72 million vs analyst estimates of $47.48 million (28.3% margin, 6.8% beat)
- Operating Margin: 3.6%, down from 7.1% in the same quarter last year
- Free Cash Flow Margin: 13.2%, similar to the previous quarter
- Dealer Customers: 19,250, in line with the same quarter last year
- Market Capitalization: $723.5 million
"We were encouraged to see growing momentum across our core marketplace and solutions portfolio as the first quarter progressed. Dealer count improvement, coupled with record unique visitors to Cars.com, signal that we are winning share in our key end markets at a critical time when the automotive industry is seeking trusted, efficient, and highly effective tools to cut through external noise," said Alex Vetter, Chief Executive Officer of Cars Commerce.
Company Overview
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Cars.com’s sales grew at a sluggish 4.5% compounded annual growth rate over the last three years. This was below our standard for the consumer internet sector and is a tough starting point for our analysis.
This quarter, Cars.com missed Wall Street’s estimates and reported a rather uninspiring 0.6% year-on-year revenue decline, generating $179 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 4.2% over the next 12 months, similar to its three-year rate. This projection doesn't excite us and indicates its newer products and services will not lead to better top-line performance yet.
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Dealer Customers
Buyer Growth
As an online marketplace, Cars.com generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Cars.com struggled with new customer acquisition over the last two years as its dealer customers were flat at 19,250. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Cars.com wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products. 
Unfortunately, Cars.com’s dealer customers were once again flat year on year in Q1. The quarterly print isn’t too different from its two-year result, suggesting its new initiatives aren’t accelerating buyer growth just yet.
Revenue Per Buyer
Average revenue per buyer (ARPB) is a critical metric to track because it measures how much the company earns in transaction fees from each buyer. ARPB also gives us unique insights into a user’s average order size and Cars.com’s take rate, or "cut", on each order.
Cars.com’s ARPB growth has been subpar over the last two years, averaging 2.8%. This raises questions about its platform’s health when paired with its flat dealer customers. If Cars.com wants to grow its buyers, it must either develop new features or lower its monetization of existing ones. 
This quarter, Cars.com’s ARPB clocked in at $2,473. It declined 1.3% year on year, mirroring the performance of its dealer customers.
Key Takeaways from Cars.com’s Q1 Results
We enjoyed seeing Cars.com beat analysts’ EBITDA expectations this quarter. On the other hand, its revenue, EPS, and dealer customers missed. Zooming out, we think this was a mixed quarter. The stock traded up 1.5% to $11.49 immediately following the results.
Is Cars.com an attractive investment opportunity right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
