TrueCar, the online car buying platform, is navigating a fascinating and perhaps perilous duality. While outwardly projecting a confident stride towards revenue recovery and profitability, its internal dynamics suggest a company grappling with a split personality. On one hand, it's a publicly traded entity (TRUE) with established revenue streams and a clear three-year plan to reach $300 million in revenue and a 10% free cash flow margin. On the other, it's harboring an ambitious, experimental project, TrueCar+, that evokes the audacious spirit of a nascent startup, pushing the boundaries of automotive retail with an entirely digital car buying experience.

This "schizophrenia," as TrueCar's CEO Jantoon Reigersman aptly describes it, raises intriguing questions about the company's future. Is this a savvy strategy to hedge bets in a rapidly evolving industry, or a dangerous distraction that could derail its core business recovery?

The recent Q1 2024 earnings call transcript offers a glimpse into this fascinating dynamic. While the company boasts double-digit revenue growth and a return to positive adjusted EBITDA, a closer examination of the language reveals a nuanced story. Reigersman's repeated emphasis on the four building blocks for near-term growth - activating new dealers, limiting churn, increasing revenue per dealer, and growing OEM partnerships - underscores the criticality of strengthening the core business. This focus on foundational elements suggests an urgency to solidify existing revenue streams, a stark contrast to the freewheeling experimentation surrounding TrueCar+.

The pilot launch of TrueCar+, slated for later this quarter, is a testament to the company's bold vision. Aiming to facilitate fully digital transactions for both used and new cars, albeit with a limited geographical scope for the latter, TrueCar+ could revolutionize the way consumers buy cars. However, Reigersman's own words betray a sense of detachment from the core business reality. Describing himself as a "Series B venture product CEO" when discussing TrueCar+, he highlights the disconnect between the pilot's experimental nature and the demands of running a publicly traded company.

TrueCar's Revenue Breakdown (Q1 2024)

Reference: TrueCar Q1 2024 Earnings Call Transcript

Projected Revenue Growth and Marketing Spend

TrueCar aims to achieve an ambitious 24% compound annual growth rate to reach its 2026 revenue target. The company plans to increase marketing spend in Q2 2024, impacting EBITDA flow-through, to capitalize on favorable inventory conditions.

Here's where the data becomes particularly insightful. While TrueCar+ is undoubtedly an innovative endeavor, its success hinges on overcoming significant technical and logistical complexities. This ambitious undertaking requires close collaboration with various external stakeholders, including dealer groups, OEMs, DMS providers, and logistical companies, introducing a level of dependency and uncertainty that stands in stark contrast to the predictable rhythms of TrueCar's core business.

This contrast is further emphasized by the financial projections. TrueCar anticipates no significant revenue contribution from TrueCar+ in 2024, instead relying on the strengthening of its existing revenue streams to achieve its ambitious growth targets. This raises a crucial question: can TrueCar afford to pour resources into a long-term, experimental project while simultaneously battling to regain lost market share and rebuild its dealer network?

The data suggests a potential for conflict. TrueCar's decision to increase marketing spend in Q2 to capitalize on favorable inventory conditions signals an aggressive push to grow its core business. However, this increased spending comes at the cost of lower EBITDA flow-through, highlighting the delicate balancing act between fueling near-term growth and maintaining profitability.

Adding to this complexity is the uncertainty surrounding OEM partnerships. While TrueCar expresses optimism about long-term growth in OEM revenue, it acknowledges the inherent volatility of this revenue stream. OEM incentive programs tend to be "bulky" and finite, making it difficult to predict their timing and impact on quarterly revenue. This unpredictability further complicates TrueCar's financial planning and adds another layer of risk to its already ambitious growth strategy.

The hypothesis emerges: TrueCar's schizophrenic strategy might be more about necessity than choice.

Let's examine the numbers. Despite a return to profitability in Q4 2023 and Q1 2024, TrueCar still faces a challenging path to its 2026 targets. To achieve a 24% compound annual growth rate, the company needs to accelerate its revenue growth significantly. However, its core business, while showing signs of recovery, is still vulnerable to dealer churn and the volatile dynamics of the used car market.

This dependence on a recovering core business while simultaneously investing in a nascent, unproven platform creates a high-risk scenario. If TrueCar+ fails to gain traction or experiences delays in its rollout, the company could find itself squeezed between a struggling core business and an expensive, non-revenue-generating experiment.

TrueCar's ambition is admirable. However, its dual focus on rebuilding its core business and launching a revolutionary digital platform is a high-stakes gamble. The success of this strategy hinges on TrueCar's ability to navigate a complex and evolving industry landscape, effectively manage its financial resources, and secure buy-in from crucial external stakeholders. The upcoming months will be critical for TrueCar, revealing whether its schizophrenic strategy leads to a groundbreaking transformation or a costly distraction.

"Fun Fact: In his Q1 2024 earnings call, Jantoon Reigersman mentions that over 350 dealers have already adopted one or more products from the newly launched TrueCar Market Solutions (TCMS) suite. This early adoption rate indicates a strong potential for TCMS to contribute to TrueCar's revenue growth in the near term."

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