CarGurus just reported their Q1 2024 earnings, and the initial reaction from Wall Street seems...underwhelmed. Revenue is down, wholesale is struggling, and everyone is fixated on the short-term performance of CarOffer. But beneath the surface, a powerful story is unfolding, one that most analysts haven't yet grasped. CarGurus isn't just weathering a storm; it's strategically positioning itself to dominate the future of car buying and selling.

The key lies in a seemingly innocuous metric buried in the transcript: **dealer enrollment in Next Best Deal Rating**. This AI-powered tool provides dealers with data-driven insights, helping them optimize pricing to sell cars faster and at higher margins. CarGurus revealed that in under two quarters, "several thousand dealers" have enrolled, with 30% receiving daily reports and 70% receiving weekly reports. Even more astounding, these insights led to over **300,000 price changes** in Q1 alone.

Here's why this is a game-changer: it signals a fundamental shift in CarGurus' relationship with dealers. For years, CarGurus was primarily seen as a lead generation platform. Dealers paid for access to consumer connections, but CarGurus wasn't deeply integrated into their daily operations. Next Best Deal Rating changes all that. By providing tangible, actionable insights that directly impact dealer profitability, CarGurus is becoming an indispensable partner, entrenched in their daily workflow.

This shift has profound implications for CarGurus' long-term growth and profitability. It increases customer stickiness, making churn less likely. It enhances pricing power, as dealers recognize the value of CarGurus' data-driven insights. And it paves the way for future monetization opportunities, as CarGurus develops new tools and services that leverage its end-to-end data ecosystem.

But here's the kicker: Wall Street hasn't caught on yet. They're focused on the short-term challenges in the wholesale market, missing the broader transformation taking place. This creates a unique opportunity for savvy investors.

Let's look at the numbers. Assuming a conservative estimate of 5,000 dealers enrolled in Next Best Deal Rating, and extrapolating the 300,000 price changes across the entire dealer base, we arrive at a staggering 1.8 million potential price adjustments per quarter. Each adjustment represents a car sold faster and potentially at a higher margin, translating into increased revenue and profit for both CarGurus and its dealer partners.

Furthermore, the rapid adoption of Next Best Deal Rating indicates a strong appetite for data-driven insights. This suggests CarGurus' pipeline of new tools, such as the inventory acquisition recommendations tool, is poised for similar success.

CarGurus International Revenue Growth

The company is also strategically leveraging its international presence. CarGurus proudly announced profitability in every market, with international revenue growing a robust 24% year-over-year in Q1. This not only adds to overall profitability but also provides a testing ground for new products and services before launching them in the larger US market.

Remember, CarGurus was founded by Langley Steinert, a serial entrepreneur who also co-founded TripAdvisor. He built TripAdvisor into a global travel giant by understanding the power of user-generated content and community. Now, with CarGurus, he's applying a similar playbook, leveraging data and technology to empower both consumers and dealers.

Wall Street may be focused on the rearview mirror, but CarGurus is steering towards a future where data and AI drive the car buying experience. The smart money will recognize this transformation and invest accordingly.

CarGurus Q1 2024 Financial Highlights

Consolidated Revenue: $216 million

Marketplace Revenue: $187 million (up 12% year-over-year)

International Revenue Growth: 24% year-over-year

Consolidated Adjusted EBITDA: $50.4 million (up 24% year-over-year)

Consolidated Adjusted EBITDA Margin: 23% (highest Q1 margin in 3 years)

"Fun Fact: CarGurus' algorithm considers over 300 data points, including price, mileage, accident history, and dealer reviews, to determine a car's deal rating. This complex analysis ensures that consumers get the most accurate and transparent assessment of a car's value."