TrueCar calls second quarter a 'wake-up call'; shares plunge

Editor's note: An earlier version of this story misstated the number of dealerships that TrueCar Inc. expects to add by the end of the year to replace AutoNation Inc. stores that have stopped doing business with the car-shopping site. TrueCar will replace 279 franchises; previously, those represented 226 AutoNation rooftops.

TrueCar Inc. CEO Scott Painter told analysts that the online car-shopping company will miss its previous guidance on second-quarter earnings and said the reasons for the shortfall amounted to a “wake-up call to focus on the business.”

The announcement sent TrueCar shares plunging, down 36 percent to $6.87 at 4 p.m. ET in NASDAQ trading.

Revenues and profits will fall short essentially because fewer consumers bought cars through TrueCar in the second quarter. In a hastily called conference call late Thursday, Painter and CFO Michael Guthrie gave several reasons for that:

• “We had a lot of prospects this quarter,” Guthrie said. “We had enough to hit our numbers, we believe; we just didn’t close enough. So we have to invest more in the [TrueCar] experience to turn those prospects into unit sales.”

He added: “It’s both a dealer and an experience issue.”

• Marketing efforts with its USAA affinity partner started the quarter weak, though results came on strong at the end of the quarter and have remained so. “USAA’s ability to activate their members is remarkable,” Guthrie said. But, he added, “When you see any issues of softness, you have to get on that very, very quickly. It’s about account coverage.”

• Results at TrueCar’s Other Affinity Partner channel, Guthrie said, were “disappointing. We simply have to do better. We need to add new partners that can add more unit growth” and get its existing partnerships to send more car shoppers to its sites.

While the company has “hundreds” of affinity partners in that channel, “90 percent” produce only a dozen or fewer car buyers for TrueCar, he said. The question is “How do we work with those partners to activate their membership?”

• In the TrueCar-branded channel, the company didn’t spend enough to produce sales. In part, Guthrie said, that was because the online company couldn’t buy all the radio spots it wanted. It ended up spending $17.7 million on marketing in the quarter, when it had expected to spend closer to $20 million.

“You can always pay a higher price for media somewhere, but we didn’t see the return,” Guthrie said. “So we didn’t do it.”

“If we wanted to be at $200 or $250 cost per sale, we could have,” he said. In recent quarters, he said, TrueCar’s cost per sale has been “sub-$200.”

Not AutoNation, lawsuits

The issues that hurt TrueCar in the quarter, Painter added, did not include a highly public split with AutoNation Inc., the largest new-car retailer in the U.S., or various lawsuits that TrueCar is facing over its business practices.

Painter noted that the early July split with AutoNation came in the third quarter and said that would have only a minor impact on third-quarter revenues. In fact, Guthrie said the company expects by the end of the year to replace with other dealerships all of the 279 franchises, sold at 226 AutoNation stores, that will no longer do business with TrueCar.

“We don’t have a consumer problem. Despite the challenges on the legal front, we don’t have a dealer problem,” Painter said, noting the rising number of TrueCar dealerships.

And, he said, “We’re not seeing a prohibitive cost to acquiring the customer. We don’t have a customer-acquisition problem at all.”

Second quarter

Guthrie noted that second-quarter earnings also were hurt by TrueCar’s spending on developing its mobile platforms.

After revising its forecasts, TrueCar now says its revenues for the full year will be between $252 million and $258 million, down from $280 million and $290 million in a prior forecast. For the second quarter, it now sees revenue in the range of $65 million to $65.3 million, down from $67 million to $69 million.

The company also predicts a second-quarter net loss of $15 million to $15.5 million when results are reported on Aug. 6. 

In the first quarter, TrueCar’s net loss under generally accepted accounting principles widened to $11.6 million, from $9.9 million a year earlier.