TrueCar Is Firing On All Cylinders

| About: TrueCar, Inc (TRUE)
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Summary

Full year earnings set for release in Feb 2017.

Dealer Pledge set to bring on board more dealers and affiliates.

Ground already laid for higher revenue growth and expansion into new markets.

Investment Thesis

The California-based car-shopping website is starting to look up after a season of legal turmoil that saw its share price drop and major dealers pull out. As of Q3 2016, TRUE saw an addition of 624 dealers, bringing its total of net dealers to 10,759 nationwide.

Founded in 2005, TrueCar Inc. (NASDAQ: TRUE) was packaged as a more transparent option for buyers and dealers of both new and used cars. Its website offers automotive pricing and information to potential buyers in comparison to what others have paid, in addition to potential lock-in savings in case they make the purchase. It has since grown through venture capital to the largest third-party automotive website with more than 11,000 dealers. It IPO'd in 2014 at a share price of $9.

TRUE is on a course to mend fences especially with its largest dealers after injurious lawsuits alleging that it gave false information about its business model. Filed in 2015, the suit accused TrueCar of "acting like a dealer but operating without a license-leading to deception and unfair competition". This suit prompted shareholders to demand compensation after TrueCar stock took a hit.

Amends and Reparations- What This Means for TrueCar

In the Q3 earnings call, Chip Perry, the CEO, gave a reassuring report to investors about the state of TrueCar. In my view, this call gave a few hallmarks which I believe will go on to return TrueCar to its erstwhile profitable state.

One, the growth of total revenue topped the guidance of $70-72 million to $75.1 million. Adjusted EBITDA was more than twice the previous year, at $5.8 million. The strong EBITDA was brought by a 20% drop in cost per car sale, to just $180. Monthly unique visitors to the site was 7.6 million, a sequential increase of 14% over Q2. As a result of investment into growing the dealer network, the dealer group increased to 227 people, up from 146 in the same quarter in 2015. Unit sales were 220,633, exceeding the guidance by 8%. Improved service, product, technology and research have led TrueCar to exceed guidance on all metrics and launch itself into 2017.

Second, TrueCar moved its used car service to Amazon Web Services to increase flexibility, cost efficiency, and usability. As part of product improvement, it also shifted the used car service to the Capsella technology platform as part of innovating consumer products and building on the analytics side of the business. This was part of the changes to the desktop platform which is geared towards increasing the monthly unique visitors.

Third, the launch of the flagship Dealer Pledge in March was instrumental in boosting TrueCar's credibility among dealers. On this feature, can create their own personal profile on TrueCar's website which can link directly to their own sites. As from 2017, this will include a sales analytics tool and VIN-specific pricing tools. Perhaps the key indicator of the success of Dealer Pledge was the reentry of AutoNation (NYSE: AN) into TrueCar's marketing mix after the fallout of 2015. AutoNation operates more than 370 dealerships nationwide, with annual car sales of more than 300,000.

Conclusion

TrueCar is expected to release its Q4 and Full Year financial results on February 17 th 2017. This announcement is expected to give a verdict on the effect of the far-reaching changes made in the last 2 quarters. Already, automotive sales hit the $37 billion-mark in January. Though I treat future projections with a pinch of salt, I take this is a positive flicker for TrueCar- whose affinity groups include USAA, AARP, American Express (NYSE: AXP), AAA and Sam's Club. Presence in diverse associations as these will give TrueCar a higher presence and grow its foothold in the car sales business. As we all wait for the big announcement, I will want to watch the stock price before and after- it is currently trading at $13.23 with a market cap of $1.13 billion.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.