Cars Commerce Q3 net income, revenue up; Canadian dealership tech company acquired

Cars.com, now doing business as Cars Commerce, snatched up Canadian dealership technology and services company D2C Media Inc. in a deal worth at least $76 million, the company disclosed Thursday.

The acquisition announcement came alongside Cars Commerce's report of higher third-quarter net income and revenue helped by price increases and new products. Web traffic grew again, but dealership churn continued — though at a lower rate.

Cars Commerce, a retail media technology company and network for the automotive industry, said D2C Media will give it an expanded presence in Canada, where D2C serves more than 1,000 dealership customers. The company paid for the acquisition with cash on hand and debt under its existing revolving credit facility. Cars Commerce could pay up to $25 million more in performance-based consideration if D2C meets certain financial thresholds, the company said.

BTIG analyst Marvin Fong was positive about both Cars Commerce’s results and new acquisition.

“Overall, the resilience of the CARS model shined and the better-than-expected performance in high-margin advertising was a pleasant surprise,” Fong said in a Nov. 2 analyst note.

He added that “the D2C acquisition looks well-conceived and investors will likely be pleased that it increases” Cars Commerce’s access to new markets for its products.

Shares in Cars.com were up $11.7 percent to $16.81 when the market closed Thursday.

Cars Commerce's net income reached $4.5 million in the quarter ending Sept. 30, a reversal from the $2.9 million loss in the year-earlier period. The company attributed the gains, in part, to higher revenue per dealership, more product revenue and an increase in marketing.

Third-quarter revenue grew 6 percent to $174.3 million, while monthly average revenue per dealership jumped 9 percent to $2,548.

"During the quarter, we made strong strategic moves that advanced our platform strategy and unlocked future growth," Cars Commerce CEO Alex Vetter said in a statement.

The company reported 18,715 dealership marketplace customers as of Sept. 30, down from 19,585 a year earlier. It also reported 18,785 customers as of the second quarter and 19,186 as of the first.

Dealer revenue grew 8 percent during the third quarter because of new products and higher pricing. Automaker and national revenue dipped 2 percent year over year but grew 17 percent from the second quarter.

Average monthly unique visitors reached 26 million, down from 27.3 million a year earlier. Total traffic increased to 151.4 million from 150.4 the previous year, the company said.

Accu-Trade also saw solid user gains during the quarter. Cars.com acquired Accu-Trade, a provider of vehicle appraisal and valuation data and logistics technology, in 2022.

Cars.com acquired financial technology company CreditIQ in 2021. CreditIQ and Accu-Trade were integrated into operations last year.

Cars Commerce launched in mid-October. It is a new brand and connected technology platform designed to link Cars.com and its various brands under one platform.

Investors liked the third-quarter results. Cars.com stock ticked 2.3 percent higher to $15.40 in premarket trading Thursday.

Earnings highlights:

Q3 revenue: $174.3 million, up 6 percent from a year earlier

Q3 net income: $4.5 million vs. a $2.9 million net loss a year earlier

Q3 adjusted EBITDA: $49.5 million, down 0.8 percent from a year earlier

2023 guidance: Full-year revenue growth of 5.2 to 6.4 percent, based on anticipation of dealer revenue growth and price increases through "marketplace repackaging." Revised guidance is based on revenue associated with the acquisition of D2C Media.