Digital Upgrades Will Transform Automotive Retail Experience

Key Takeaways

• Investments in digital platform enhancements, machine learning, and transparency tools aim to improve user experience, dealer performance, and drive higher revenue growth.
  
• Strategic partnerships and operational efficiency efforts strengthen recurring revenue streams and support margin expansion and profitability.
  
• Direct-to-consumer sales, dealer attrition, strong competition, and digital innovation are eroding TrueCar's market relevance, pressuring margins, and threatening its marketplace-based revenue model.

Catalysts

Operates as an internet-based information, technology, and communication services company in the United States.

• TrueCar's ongoing enhancements to its end-to-end digital retailing platform (TC+), including deeper integrations with dealer management systems and a revamp of the online checkout flow, position it to capture an increasing share of the car-buying shift to digital channels, which is likely to boost conversion rates, ARPU, and top-line revenue as more buyers complete transactions online.
  
• Product improvements aimed at increased pricing transparency and a more intuitive user experience-including redesigned vehicle detail pages, transparent out-the-door pricing, and curated search/filter tools-are expected to drive higher consumer engagement and improved conversion, supporting higher unit sales and revenue growth.
  
• The deployment of machine learning-based features such as Actionable Insights for dealers and motivated buyer badging leverages proprietary data to match high-intent buyers with the right inventory, improving dealer close rates and monetization, which should drive both increased revenue and better net margins.
  
• Strategic expansion and engagement with affinity partners, OEMs, and larger dealer groups deepen recurring revenue opportunities and help TrueCar capture a larger share of wallet from its most accretive partners, enhancing revenue stability and driving margin expansion.
  
• Operational improvements resulting in more efficient marketing spend-delivering higher sales with lower cost per sale-and a focus on the most valuable dealers position the company to achieve adjusted EBITDA profitability and generate positive free cash flow, directly benefiting earnings and net margins going forward.

TrueCar Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TrueCar's revenue will grow by 10.6% annually over the next 3 years.
• Analysts are not forecasting that TrueCar will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate TrueCar's profit margin will increase from -16.0% to the average US Interactive Media and Services industry of 11.0% in 3 years.
• If TrueCar's profit margin were to converge on the industry average, you could expect earnings to reach $27.5 million (and earnings per share of $0.34) by about August 2028, up from $-29.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2028 earnings, up from -5.6x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 14.1x.
• Analysts expect the number of shares outstanding to decline by 2.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.17%, as per the Simply Wall St company report.

TrueCar Future Earnings Per Share Growth

Risks

• The increasing growth of direct-to-consumer automotive sales and OEM-owned online retail platforms threatens to reduce the relevance and lead volume of third-party marketplaces like TrueCar, likely resulting in long-term revenue headwinds and margin pressure.
  
• Persistent dealer attrition-including the reported 44 franchise dealer turnover in the quarter-and TrueCar's heavy dependence on partner dealerships exposes the company to further inventory reductions and potential declines in user experience, which could negatively impact revenue stability and gross margins.
  
• Intense price competition and lack of pricing power compared to larger, vertically integrated competitors (e.g., CarGurus, CarMax) may continue to compress net margins and limit TrueCar's earnings growth trajectory.
  
• Evolving consumer demand for seamless omni-channel and end-to-end digital experiences may require substantial ongoing investment in technology and user support; as a comparatively smaller player, TrueCar may struggle to meet these rising expectations, impacting growth and operating leverage.
  
• Industry consolidation, the dominance of OEMs' own digital channels, and the rapid evolution of agentic AI tools that may bypass third-party intermediaries create structural risks to TrueCar's core marketplace model, which could erode lead generation volumes and materially constrain long-term revenue and earnings potential.

Valuation

• The analysts have a consensus price target of $2.63 for TrueCar 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 $3.25, and the most bearish reporting a price target of just $2.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $249.9 million, earnings will come to $27.5 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 8.2%.
• Given the current share price of $1.86, the analyst price target of $2.63 is 29.3% 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.