I've been researching TrueCar (TRUE) over the past few weeks, and I like the service.
It's obviously been a successful IPO. It came out in May, at the bottom of the spring momentum meltdown. Because of that, it had to lower its offer price to $9 per share from $11-to-12 per share. The company has nailed it, and the stock has more than doubled from its offer price.
The service is a website and app that promises consumers a fair price for a car, usually several thousand dollars below the manufacturer's suggested retail price. The service will then refer you to an auto dealer to get that price.
At the moment, the company says that it is responsible for getting leads for 3.4% of the new cars sold in the U.S. That gives the company a lot of runway in front, if it can continue to grow its market share rapidly.
TrueCar's business model is that it signs up car dealer for both new and used cars, refer leads to them, and get paid only when those leads buy cars. For each new car, a dealer pays TrueCar $299. For each used car, a dealer pays $399.
The company has been around in some form since 2005, but the IPO is really helping to ramp up the sign-ups of dealers to the TrueCar platform. The company has recently announced that over 9,000 dealer had signed up, out of 33,000 in the U.S. That's up sharply from 3,000 a couple of years ago, after TrueCar faced a dealer revolt arguing that the company was providing too much price transparency and guiding customers to seek the lowest cost per car. TrueCar changed its approach to only guiding customers towards "fair" prices, and suddenly everyone was happy again.
Since the IPO, dealers have been clamoring to get on the platform, and TrueCar has been spending more money on TV and radio ads. You might have seen them during NFL games.
It will be interesting to see whether the new media exposure and dealers will translate into strong third quarter and fourth quarter. The summer months are usually the big ones for driving traffic into the dealerships.
What's interesting in looking at TrueCar is that there's a big gulf between its price-to-sales ratio (9x) and that of Zillow (Z) (17x) and Yelp (YELP) (16x).
Maybe one should go up, one should go down, or they should just meet in the middle. It's not a perfect comparison, but there are a lot of similarities in terms of automating real estate and automating the front end of the car buying process.
What gets me most excited about TrueCar is its potential for growing its share in the market just by driving more leads into the dealership.
TrueCar is working on potential new revenue streams for the future. These include lead/loan referrals, trade-ins, deals with original equipment manufacturers who want to promote their cars, and possible international expansion. But as long as TrueCar grow its share, there should be good upside to the stock over the next couple of years.