While there is a lot of uncertainty in the automobile industry about how tariffs will impact prices and sales, some auto stocks are poised to outperform. One of them is CarGurus (NASDAQ:).
While CarGurus is not an auto manufacturer, it is a platform that facilitates the buying and selling of new and used cars. As such, it won’t feel much impact from tariffs, nor will it be hurt if car sales decline.
Wall Street analysts are particularly bullish on the stock, as it has a consensus buy rating and a median price target of $40 per share, which would suggest a 28% increase over its current $31 per share price.
And it got a couple more price target raises after it posted its first quarter earnings and outlook on Thursday, which sent the share price skyrocketing 11% on Friday. Here’s why investors are rallying around CarGurus stock.
Marketplace Revenue Jumps 13%
CarGurus posted solid first quarter results, with revenue rising 4% year-over-year to $225 million. That was slightly below analysts’ estimates of $226 million.
Net income shot up 83% year over year to $39 million, or 37 cents per share. On an adjusted basis, earnings were 46 cents per share, which was better than estimates of 44 cents per share. The net income profit margin jumped to 17%, up from 10% in Q1 of 2024.
CarGurus makes most of its money on its marketplace, where car dealers pay a subscription fee to list their cars on its site. It also makes money through advertising on the platform. The marketplace accounted for $212 million of the $225 million in total revenue.
Marketplace revenue grew by 13% in the quarter, buoyed by a 4% increase in paying dealers to 32,372 – with 25,153 of them from the U.S. The average number of monthly unique users in the U.S. was 35 million in in the U.S. and 10.6 million internationally. The average numbers of sessions hit 85.7 million in the U.S. and 22.2 million in international markets.
“Across the company, we advanced our 2025 core drivers of value creation: expanding data-driven solutions that help dealers drive more profitable businesses, meeting the evolving needs of car shoppers with a more intelligent and seamless experience, and enabling customers to do more of the transaction online,” Jason Trevisan, CEO at CarGurus, said. “As a result, this focused execution has translated into deeper consumer and dealer engagement and has expanded our market share.”
Robust Growth Outlook
For the second quarter, CarGurus anticipates $222 million to $242 million in revenue, which would be up 3% at the midpoint and 8% at the high end over Q1.
Marketplace revenue is expected to be between $219.5 million and $224.5 million, which is 3.5% to 6% higher than Q1.
Further, adjusted EBITDA is targeted at $71.5 million to $79.5 million, while adjusted earnings are projected to be between 52 cents and 58 cents per share – a 13% to 26% gain over the previous quarter.
As Sam Zales, CarGurus president and CFO stated on the earnings call, the uncertainty in the automobile market tends to cause a flight to quality with listing and advertising dollars.
“When there’s uncertainty in the market, larger sophisticated dealers tend to market more and do tend to organize around the leader in a smaller set of partners,” Zales said. “Smaller dealers are more of a mixed bag in terms of how they react.”
That should certainly benefit CarGurus as the leader in the market. Further, Treveson said the business has not seen a material impact from tariffs.
A couple of Wall Street raised their price targets for CarGurus stock, post-earnings, including B. Riley, which boosted it to $42 per share. Also, UBS raised its target to $39 per share. The analysts cited strong marketplace as well as robust dealer growth.
CarGurus has had spotty earnings over the past year, but it has a of 15 and some solid growth prospects, so its evident why analysts appear bullish.