There are two favorable factors, outside its own strong fundamentals and growth, that have helped generate interest: Despite being a relatively small IPO, this is a Goldman Sachs led deal; and, one of its competitors, TrueCar (TRUE) went public back in May of 2014 to great success, soaring by nearly 80% versus its IPO price.
CARG is a global, online automotive marketplace connecting buyers and sellers of new and used cars using proprietary search algorithms and data analytics. As of June 30, 2017, CARG had a dealer network of over 40,000 dealers in the U.S., U.K, Canada, and Germany. Also, its selection of over 5.4 million car listings is the largest number of car listings available on any of the major U.S. online automotive marketplaces.
The company says that its core principle is its unbiased transparency on pricing and dealer reputation. For consumers considering used vehicles, CARG aggregates vehicle inventory from dealers and applies its analysis to generate a Deal Rating as either: Great Deal, Good Deal, Fair Deal, High Priced, or Overpriced. Deal Rating illustrates how competitive a listing is compared to similar cars sold in the same region in recent history.
Further, it determines Deal Rating principally on the basis of both its proprietary Instant Market Value (IMV) algorithm and Dealer Rating, a measure of a dealer's reputation determined by reviews of that dealer. CARG also provides data like price history, time on site, and vehicle history, that is not widely available.
CARG generates subscription revenue from dealers through listing and display advertising subscriptions, and advertising revenue from auto manufacturers and other auto-related brand advertisers. Dealers can opt for a free listing service too, in which they receive anonymized email connections and access to a subset of the tools on its Dealer Dashboard.
Taking a closer look at its results for the six months ended June 30, 2017, revenue spiked by 70% year/year to $143.3 million. Breaking it down by revenue segment, marketplace subscription revenue grew by 79%, while advertising and other revenue grew by 22%.
The increase in marketplace subscription revenue was driven by a 45% jump in the number of paying dealers from 17,250 to 25,041. CARG says that this increase in paying dealers was driven by the overall growth in the number of unique users to its website and mobile application and from converting Basic Listing dealers to Enhanced and Featured Listing paying dealers.
Gross margin slipped a bit to 95% from 96% in the year ago period as cost of revenue increased 100% to $7.6 million. Key drivers of the increase included employee-related costs of its customer support team to support the growth in customers and an increase in fees related to servicing its growing advertising revenue.
The strong topline growth and very healthy gross margin led operating margin launching to $12.4 million from $708K in the year ago period.