Online new and used car marketplace Cars.com (NYSE: CARS) met Wall Street’s revenue expectations in Q2 CY2025, but sales were flat year on year at $178.7 million. Its non-GAAP profit of $0.41 per share was in line with analysts’ consensus estimates.

Is now the time to buy CARS? Find out in our full research report (it’s free).

StockStory’s Take

Cars.com’s second quarter was met with a negative market reaction, as management acknowledged softness in dealer revenue despite stable year-over-year performance. CEO Alex Vetter attributed the flat sales to temporary dealer revenue declines, offset by growth in OEM and national revenue. He noted, “We grew dealer count both year-over-year and quarter-over-quarter, signaling a strong recovery and that our new go-to-market changes are working.” Management highlighted cost discipline and improved adjusted EBITDA margins, but also cited persistent caution among dealers and variability in advertising spend as factors limiting top-line momentum.

Looking ahead, Cars.com’s forward guidance reflects optimism in recovering dealer momentum and product innovation, particularly with AI-powered features and marketplace repackaging. CFO Sonia Jain outlined expectations for low single-digit revenue growth in the second half, emphasizing that repackaging efforts and rising dealer count should result in sequential acceleration. Vetter said, “Our platform is poised for a reacceleration in revenue growth and incremental profitability in the second half of the year,” underlining the company’s reliance on enhanced product adoption and ongoing cost discipline.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to new go-to-market strategies, improved product offerings, and accelerating AI-driven innovation, while noting dealer and OEM revenue dynamics shaped overall performance.

• Dealer growth momentum: Cars.com achieved its best sequential organic dealer count growth in over three years, adding more than 160 new dealers. Management credited changes in commercial leadership and faster sales velocity for this improvement, which they believe will continue to drive volume growth in coming quarters.

• AI-powered marketplace enhancements: The company launched new AI-powered search capabilities that allow users to submit conversational queries, resulting in lead submission rates that are double those of traditional searches. Management sees this as a key differentiator, already accounting for nearly 20% of internet leads and enhancing the consumer experience.

• OEM and national revenue resilience: OEM and national revenue grew 5% year over year, despite ongoing uncertainty around tariffs and fluctuations in automaker advertising investments. Nearly half of OEM partners increased spending on the platform, and management expects OEM growth to remain a tailwind.

• DealerClub and AccuTrade traction: The AccuTrade appraisal tool expanded to 1,070 dealers, and DealerClub—Cars.com’s dealer-to-dealer trading platform—achieved a 50% sequential rise in transaction volume. These solutions are seen as important for helping dealers source used vehicle inventory more efficiently and for reducing reliance on traditional auctions.

• Cost control and operational efficiency: Operating expenses fell 3% year over year, driven by lower marketing and headcount costs. Adjusted EBITDA margin reached 28.5%, reflecting the company’s focus on disciplined spending and efforts to offset investments in new products like DealerClub.

Drivers of Future Performance

Management expects Cars.com’s growth in the coming quarters to be driven by product innovation, continued dealer expansion, and further integration of AI and analytics across its platform.

• Marketplace repackaging and ARPD expansion: The rollout of new Premium and Premium Plus packages is expected to increase average revenue per dealer (ARPD) beginning in the third quarter. Management anticipates that these bundled features will improve customer retention and generate incremental revenue from the growing dealer base.

• OEM growth and advertising trends: While management expects OEM and national revenue to remain a positive driver, they acknowledged continued variability in automaker advertising spend due to macroeconomic and tariff-related factors. The team is staying close to OEM partners to capture “scattered dollars” and capitalize on any stabilization in the trade environment.

• AI and data-driven differentiation: Cars.com is focused on integrating AI features not only to enhance the consumer search experience but also to provide dealers with better lead intelligence and inventory management. Management believes these innovations will increase conversion rates and help the company maintain a leadership position in the online automotive marketplace.

Catalysts in Upcoming Quarters

In the coming quarters, our team will pay close attention to (1) the adoption and pricing impact of Premium and Premium Plus marketplace packages, (2) sustained growth in dealer count and ARPD as repackaging and cross-selling efforts mature, and (3) continued momentum in OEM and national revenue as industry advertising trends stabilize. The pace of AI feature adoption and its effect on lead quality will also serve as an important signpost for Cars.com’s competitive positioning.

Cars.com currently trades at $12.65, down from $13.14 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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