AI Search And Dealer Expansion Will Unlock Long-Term Automotive Promise

Key Takeaways

• Accelerating AI adoption and new SaaS offerings are increasing user engagement, dealer retention, and driving higher-margin revenue streams and improved profitability.
  
• Enhanced brand authority and first-party data monetization are supporting growth in user acquisition, advertiser demand, and strategic value to automakers.
  
• Rising OEM-led online sales, shifting dealer mix, market volatility, tech-driven disintermediation, and big-platform competition threaten long-term revenue, margins, and user engagement.

Catalysts

An audience-driven technology company, provides solutions for the automotive industry in the United States.

• Accelerating adoption of AI-powered search and analytics is not only boosting user engagement and lead generation-already driving 2x higher lead submission rates-but is also enabling deeper personalization and better dealer and OEM targeting, directly supporting sustained improvement in top-line revenue and advertising margins.
  
• Rapid dealer network expansion and rising sales velocity-especially among both independent and franchise dealers-combined with rollouts of new Premium and Premium Plus marketplace packages and bundling of solutions, set the stage for ARPD growth and higher recurring revenues in the second half of 2025 and beyond.
  
• Adoption and integration of advanced SaaS offerings such as AccuTrade and DealerClub are increasing switching costs for dealerships, disrupting legacy auction models, and enabling higher-margin, value-added revenue streams that should drive overall net margin expansion as these platforms further scale.
  
• Strong growth in OEM and national advertising spend, with indications of improving stability and upside as macro/tariff uncertainty recedes, provides a revenue tailwind, while Cars.com's ability to validate Tier 1 to Tier 3 sales outcomes via data integration enhances its strategic importance (and monetization potential) with automakers.
  
• The company's recognized brand authority, unique editorial content, and direct traffic channels-coupled with increased monetization of first-party data-position Cars.com to benefit from the ongoing consumer shift to digital automotive research and purchasing, supporting future growth in user acquisition, advertiser demand, and earnings power.

Cars.com Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cars.com's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 10.6% in 3 years time.
• Analysts expect earnings to reach $83.0 million (and earnings per share of $1.24) by about August 2028, up from $41.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $28.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, down from 19.5x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 13.6x.
• Analysts expect the number of shares outstanding to decline by 6.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.62%, as per the Simply Wall St company report.

Cars.com Future Earnings Per Share Growth

Risks

• The increasing threat of direct-to-consumer (DTC) online auto sales by OEMs, particularly for electric vehicles, could weaken Cars.com's traditional dealership-based marketplace model, potentially resulting in reduced traffic, listing volume, and revenue growth over the long term.
  
• Declining ARPD (average revenue per dealer), led by a faster pace of adding lower-value independent dealers and "solutions-first" customers who initially buy fewer products, could dilute realized revenue and net margin if platform adoption and upselling efforts do not sufficiently offset lower initial contributions.
  
• Dealer advertising spending remains volatile and sensitive to macroeconomic conditions, inventory fluctuations, and industry uncertainty (e.g., tariffs and new vehicle production), creating risk of unpredictable advertising and subscription revenue, as well as downward pressure on net earnings in downturns.
  
• Intensifying competition from horizontal platforms such as Amazon and Google, and from OEM-owned marketplaces, raises the risk of market share and pricing pressure on Cars.com, threatening long-term revenue growth and sustainable net margin expansion.
  
• Increasing integration of AI-powered agentic search and transaction tools across the industry may, over the long run, reduce user dependence on Cars.com's interface and content, risking platform disintermediation (especially if consumers or dealers bypass Cars.com entirely), which could erode engagement, advertiser value, and future revenues.

Valuation

• The analysts have a consensus price target of $16.286 for Cars.com 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 $25.0, and the most bearish reporting a price target of just $11.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $779.7 million, earnings will come to $83.0 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of $13.03, the analyst price target of $16.29 is 20.0% 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.