Cars.com (CARS) PT Lowered to $23 at BTIG

BTIG analyst Marvin Fong lowered the price target on Cars.com (NYSE: CARS) to $23.00 (from $25.00) while maintaining a Buy rating.

The analyst comments "2Q24 revenue of $179MM missed guidance for $181-$183MM, but after adjusting for an unexpected ~1% negative impact related to legacy website solutions contracts, revenue would have been roughly at the low end of the guidance range. Dealer count rose by 9 dealers q/q, but would likely would have been higher if not for the CDK (Private) outage. We don't believe CDK caused an elevation in churn, but it did hurt new signings which are typically back-half weighted. More structurally disappointing was subscribing AccuTrade dealerships fell q/q from ~1,000 to ~900. While CDK had an impact here as well, even absent CDK the service is not ramping as fast as CARS had planned. More positively, AccuTrade won new endorsements from Stellantis Digital (STLAM-MIL, Not Rated) and Jaguar Land Rover (500570-BOM, Not Rated). Together, these wins represent an estimated 3K dealers. Another bright spot was advertising revenue, up 28% to $16MM and besting our +24% estimate. In terms of outlook, CARS guided 3Q24 revenue to $178-$181MM, which embeds a 1-2% headwind from CDK. Adjusting for that, 3Q revenue would have been ~$181-$185MM. That still falls below the Street's $186MM (BTIGe $185MM). We'd estimate AccuTrade running below plan is another $1-2MM. Looking at the full-year, revenue guidance was lowered by ~2 points to a range of 4.5-5.5% growth, down from 6-8%. That translates to a new range of $720-727MM vs. $731-$744MM prior (recall the ~$2MM of legacy contract impact). The new guidance implies a 4Q24 revenue range of $183-$187MM, by our math. The Street was looking for $189MM, but we note that a subscription-based model will inherently see a multi-quarter impact from a one-time pause in sales such as with CDK. The 4Q shortfall of $2-$6MM is not quite as severe as the 3Q24 shortfall of $5-$8MM. In terms of profitability, CARS reiterated its 28-30% EBITDA margin target for the year. Overall, we are willing to look through the CDK-related impacts, but the slowdown in AccuTrade is more disappointing. However, CARS is implementing changes and seeing signs of success (see below). We are trimming our PT to $23 on our revised FY25 Adjusted EBITDA estimate of $218MM. Our PT still represents a 9% FCF yield. Furthermore, we believe Dealer Inspire is worth $6-$7/share, implying that investors are only paying 6x FCF for the core business at today's intraday price. We maintain our BUY rating."

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