AI Personalization And Data Solutions Will Redefine Auto Commerce

Key Takeaways

• AI-driven personalization and expanded data solutions are boosting dealer efficiency, user engagement, and monetization, driving strong revenue growth and margin improvement.
  
• Platform enhancements and industry shifts toward digital are increasing dealer reliance, expanding transaction-based revenues, and strengthening recurring, resilient revenue streams.
  
• Escalating competition, digital disruption, regulatory risks, and challenges within core business segments threaten CarGurus’ growth prospects, market position, and long-term profitability.

Catalysts

Operates an online automotive platform for buying and selling vehicles in the United States and internationally.

• CarGurus’ accelerated investment in AI-driven personalization and predictive analytics—such as conversational research/search, VIN-level inventory targeting, and Next Best Deal ratings—is significantly improving dealer efficiency and consumer engagement. These innovations are fueling higher user traffic, increased lead quality, and new monetization streams, positioning the company for outsized revenue growth and long-term margin improvement as digital transformation of auto commerce continues.
  
• Expanding the suite of data-driven solutions across dealer workflows (including actionable inventory control, margin-optimization tools, and stronger data-driven best practices) is deepening dealer reliance, supporting subscription tier upgrades, contract lengthening, and higher average revenue per dealer (QARSD), making future revenue and EBITDA growth more resilient.
  
• Strong double-digit international revenue growth (up 20% YoY), driven by steady lead growth, enhanced consumer engagement, and dealer-reported superior ROI, reflects early-stage penetration in underpenetrated markets, indicating a large addressable runway for both top-line and scale-driven margin expansion.
  
• CarGurus’ ongoing platform investments to support more end-to-end digital transactions—including embedding finance, trade-in options, and appointment scheduling—are expected to increase transaction-based revenues, lift ARPU, and expand gross margins by capturing a larger share of the used car sales value chain.
  
• Structural industry shifts of increasing dealer digital ad spend and used vehicle market growth are fueling robust Marketplace revenue growth (13% YoY), underpinned by strong net new dealer additions and higher adoption of value-added products, supporting sustained double-digit YoY revenue momentum and increased operating leverage.

CarGurus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CarGurus's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 25.0% in 3 years time.
• Analysts expect earnings to reach $275.0 million (and earnings per share of $2.96) by about July 2028, up from $38.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $456.2 million in earnings, and the most bearish expecting $139.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, down from 85.0x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 4.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.7%, as per the Simply Wall St company report.

CarGurus Future Earnings Per Share Growth

Risks

• Intensifying competition from both legacy automotive listing platforms and new digital entrants, including Amazon's entry into used vehicle listings and OEMs moving toward direct-to-consumer platforms, could threaten CarGurus’ market share, compress margins, and impact long-term revenue and earnings growth.
  
• Ongoing underperformance and structural challenges within CarGurus’ Digital Wholesale segment (CarOffer) — including declining transaction volumes, inflexible technology, and operational inefficiencies — highlight risks to successfully scaling this business, which may drag on earnings and constrain overall margin expansion.
  
• Heightened sensitivity to OEM advertising budgets, which historically are the first to be cut during economic uncertainty or industry upheavals (e.g., tariff impacts), introduces volatility and risk to a key high-margin revenue stream, potentially leading to lower overall revenue and profitability.
  
• Increased industry adoption of direct-to-consumer and AI-driven vehicle transaction platforms, as well as further consolidation among dealerships, could lead to greater disintermediation of third-party marketplaces like CarGurus, eroding its pricing power, user engagement, and revenue per dealer.
  
• Rising regulatory uncertainty (such as changing data privacy laws) and long-term shifts toward electric vehicles and mobility-as-a-service may ultimately reduce consumer car ownership and limit CarGurus’ addressable market, exerting long-term downward pressure on revenue growth and earnings potential.

Valuation

• The analysts have a consensus price target of $38.538 for CarGurus based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $42.0, and the most bearish reporting a price target of just $33.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $275.0 million, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 7.7%.
• Given the current share price of $33.3, the analyst price target of $38.54 is 13.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.