TrueCar Inc., an online car buying and selling marketplace, has hit a bump in the road.
Amid tensions with dealers and a slew of lawsuits, the Santa Monica company last week predicted that it would incur a second-quarter loss, driving its share price down close to 40 percent to close the week ended July 29 at $6.69, making it the biggest loser on the LABJ Index. (See page 34.)
TrueCar said July 23 that second-quarter revenue was expected to be lower than the $68.5 million analysts had predicted. The company revised its revenue estimate to about $65 million, with an expected net loss of between $15 million and $15.5 million.
“While we set new records for units, revenue and dealer count within the quarter, we experienced execution challenges in meeting our growth expectations,” Scott Painter, TrueCar’s founder and chief executive, said in a conference call with analysts.
TrueCar will announce second-quarter earnings Aug. 6, and has declined requests to comment until those numbers become public.
Sameet Sinha, a senior analyst at B. Riley & Co. in San Francisco, said TrueCar’s investment in advertising and future products might have impacted its revenue.
“The company has weakened materially from a stock market perspective,” he said, adding that “revenue growth is declining while they continue to invest in future products.”
Sinha also noted the company’s need to solidify relationships with its dealers. AutoNation, one of the largest car retailers in the United States, recently pulled many of its franchise dealers’ listings from TrueCar’s website, choosing not to comply with its marketplace rules that include requiring full transparency and access to data. By the end of this month, the retailer will remove 279 dealers from the site.
AutoNation dealers represented just 3 percent of TrueCar’s vendors and contributed 3 percent of its sales in the first quarter, and Sinha said the move would not have a significant impact on overall revenue. Still, the pullback pointed to lingering troubles between the online marketplace and traditional auto dealers.
“Other dealerships might look into this and say, ‘What is the problem AutoNation brought out and are we doing the same things?’” Sinha said.
Last week, TrueCar settled a trademark infringement lawsuit it filed against Sonic Automotive last year, but litigation with other dealer groups has persisted.
Sinha said these legal troubles also impacted the company’s share price.
“From a shareholder perspective, these don’t look good,” he said.
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