Bail From TrueCar Before This Lemon Gets Totaled

Mar. 03, 2015 5:00 AM ETTrueCar, Inc. (TRUE)60 Comments
The Friendly Bear profile picture
The Friendly Bear
2.31K Followers

Summary

  • TrueCar is a low quality lead gen business that is poised to plummet – we see 85% downside.
  • Business momentum has meaningfully decelerated since the company went public.
  • Mounting competitive forces will hinder TRUE’s ability to maintain pricing and expand into new verticals.
  • The CEO was recently at a conference and provided investment/expense guidance that potentially contradicts guidance from the earnings call and which suggests a guide down may occur in 2015.
  • In our view, TrueCar management appears to be hyper-focused on supporting TRUE’s stock price and their tone on the 4Q call was troubling.

Whenever we analyze and research companies, we always think it is important to give credit where credit is due. That's why we'd like to start off this note by congratulating TrueCar (NASDAQ:TRUE) for publishing 22 press releases since the beginning of 2015 (as of 3/1/15). This is no easy feat - there have been fewer than 40 trading days so far this year, meaning that TrueCar has managed to provide investors with a press release every 2 trading days… what an incredible accomplishment!

Without these press releases, how else would investors know that "Owen Wilson's voice [is] to be featured in TrueCar commercials," and that "TrueCar TV ads featuring Owen Wilson as the 'voice' of the brand [are] now live." It must have been a slow news month over at TrueCar if they had to press release on Owen Wilson's voice twice. Perhaps soon the company will provide us with timely updates on what CEO Scott Painter ate for lunch (we hope Chipotle, Yum!).

Sometimes we can't help but wonder if TRUE management thinks that TRUE's stock value is based on a multiple of "press releases" rather than on a multiple of earnings. With the stock sporting a $1.4B valuation despite generating $48M of GAAP net losses in 2014, it certainly seems as if TRUE's valuation is grounded in nothing but hot air! Famed short seller Jim Chanos was once quoted as saying "the biggest mistake people make is being co-opted by management." So while we mention these press releases in jest, we are always wary of companies that bombard investors with irrelevant information.

With almost a year of public company results under its belt, we thought it was a good time to dissect, and analyze TrueCar's business model, financial results, and current business momentum in detail.

Egregious valuation and

This article was written by

The Friendly Bear profile picture
2.31K Followers
Short only research

Disclosure: The author is short TRUE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author of this article is a private fund manager. At the time of publication, funds and accounts managed by the author were short TrueCar (TRUE). Such funds and accounts may buy and sell securities of TRUE (and other companies mentioned in this article), including by covering short positions in TRUE and/or changing to long positions in TRUE, both before and after the publication of this article and without giving further notice to any party. The information set forth in this article does not constitute a recommendation to buy or sell any security. This article represents the opinion of the author as of the date of this article. This article contains certain "forward-looking statements," which may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "potential," "outlook," "forecast," "plan" and other similar terms. All are subject to various factors, any or all of which could cause actual events to differ materially from projected events. This article is based upon information reasonably available to the author and obtained from sources the author believes to be reliable; however, such information and sources cannot be guaranteed as to their accuracy or completeness. The author makes no representation as to the accuracy or completeness of the information set forth in this article and undertakes no duty to update its contents.

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