CARG

Will the company provide revised guidance for FY2025, and how should that be incorporated into valuation models?

Created August 07, 2025 at 08:06 PM

Short answer:

- No revised FY 2025 guidance was disclosed in the Q2‑2025 release. The press‑release only highlighted the current quarter’s performance (14 % YoY revenue growth in the Marketplace segment) and announced the wind‑down of the CarOffer Transactions business. It did not contain any new or updated guidance for the fiscal year‑2025 outlook.

What to do now: Treat the existing FY 2025 guidance (if any) as “the last guidance” until the company explicitly updates it, but adjust your valuation models to reflect the new operational realities (stronger Marketplace momentum, loss of CarOffer revenue, one‑time wind‑down costs, and any emerging trends in the marketplace business). Below is a step‑by‑step framework for integrating these new facts into the most common valuation approaches (DCF, multiples, and scenario‑based models).

1. What the news tells us about the business

Item	Detail from the release	Implication for valuation
Marketplace revenue	+14 % YoY (Q2‑2025)	Indicates a higher growth trajectory than previously assumed (most recent guidance likely assumed lower single‑digit growth).
CarOffer Transactions	Planned wind‑down; no further transactions.	Eliminates a revenue stream (likely modest) but also removes associated operating costs and potentially improves operating margins after the wind‑down period.
Profitability	Not disclosed directly, but “sustained strong momentum” hints at improving EBITDA margins.	Allows us to raise margin assumptions, especially after the low‑margin CarOffer business is removed.
Cash‑flow impact	Wind‑down will incur one‑off costs (e.g., severance, lease terminations, IT system de‑commissioning).	Adjust cash‑flow forecasts for a one‑time cash outlay in FY 2025 and lower ongoing cash‑outflows after the wind‑down completes.
Guidance	No new FY 2025 guidance, no indication of an upcoming update.	Treat the previous FY 2025 guidance as “current” but consider a “re‑forecast” based on the data points above.

2. Should we expect an official FY 2025 guidance update?

Based on the information in the press release, the answer is “no” – the company did not announce new FY 2025 guidance, nor did it say that updated guidance would be provided later in the quarter or in the next earnings call.

However, it is common practice that after a significant operational change (e.g., a business shutdown) management will revisit the FY 2025 outlook in the subsequent earnings call or in a supplemental press‑release. Therefore:

Monitor: the next earnings call (likely Q3 2025) and any follow‑up press releases for revised guidance.
Set a watch: an analyst’s “event trigger” for any management commentary on FY 2025 outlook.

3. How to incorporate the new information into valuation models

A. Discounted Cash‑Flow (DCF) Model

Step	What to adjust	Why
Revenue growth assumption	Raise the mid‑term revenue growth rate for the Marketplace segment to reflect the 14 % YoY increase (e.g., from 8 % to ~12 % for FY 2025‑2027).	The Q2 result signals a higher base‑line growth trajectory.
Revenue loss from CarOffer	Subtract the expected CarOffer revenue for FY 2025 (and future years) from total revenue. Use historical CarOffer contribution (if disclosed in prior filings) or estimate from the 10‑K.	The business is being discontinued; its revenue will cease.
Cost of goods sold / Cost of services	Reduce COGS (or operating expenses) by the proportion of CarOffer’s cost structure once the business is shut down. If CarOffer had low margins, the net effect may be modest.	Removing a low‑margin segment can improve overall gross margin.
One‑time wind‑down expenses	Add a one‑time cash outflow in FY 2025 for severance, lease exit fees, IT de‑commission, and any litigation or write‑off costs. Typically modeled as a negative line item in “Cash Flow from Operations” or “Capex”.	The wind‑down is a non‑recurring expense that reduces FY 2025 cash flow but improves later periods.
Operating margin	Adjust operating margin upward after FY 2025 to reflect the removal of the low‑margin CarOffer line‑item. If CarOffer’s contribution to operating loss was negative, the overall margin could improve by 1‑2 pp.	A cleaner cost base should lift EBIT/EBITDA margins.
Capital expenditures (Capex)	Remove any capex tied to CarOffer (e.g., platform maintenance). However, keep any capex for the Marketplace platform that may be needed to sustain growth.
Working capital	Reduce working‑capital requirements proportionally with the loss of CarOffer inventory and receivables.
Tax rate	Adjust if the net profit margin changes substantially, as the effective tax rate could shift (e.g., due to different mix of taxable income).
Terminal value	If the overall growth outlook is now higher, adjust the terminal growth rate slightly (e.g., from 2 % to 2.5‑3 %). The removal of a low‑margin unit may justify a modestly higher terminal growth.

Resulting DCF changes:

- Higher forecasted free cash flow (FCF) in FY 2025‑2027, even after the one‑time wind‑down costs.

- Higher terminal value due to a more profitable, higher‑growth base.

- Sensitivity analysis: run a base case (no guidance change), a “high‑growth” case (re‑forecast with 12 % revenue growth and 2‑pp higher margins) and a “low‑growth” case (conservative growth at 8 % and no margin improvement) to bound valuation.

B. Comparable‑Company Multiples

Component	Impact	How to apply
Revenue multiple (EV/Rev)	The marketplace segment’s revenue has grown faster. Use a higher multiple (e.g., 3‑4 x) for the “pure‑play” marketplace comparables; discount the CarOffer portion to a lower multiple (or zero).	Compute a weighted‑average EV/Revenue based on segment revenues.
EBITDA multiple	If margin improves, the EBITDA multiple should be higher (e.g., 12‑14x vs. 10‑11x).	Re‑calculate implied enterprise value using revised EBITDA.
Adjust for one‑time costs	Strip out the wind‑down expenses from EBITDA to get a normalized EBITDA.	Use normalized EBITDA for the multiple.

C. Scenario‑Based Valuation (Monte‑Carlo / Sensitivity)

Define variables:
- Marketplace growth rate (7‑13 % range).
- CarOffer revenue contribution (0‑5 % of total revenue).
- Wind‑down cost (USD 10‑30 M, depending on size).
- Margin improvement (0‑2 pp).
Run simulation: generate 1,000‑2,000 scenarios to produce a distribution of enterprise values. This quantifies the valuation range stemming from uncertainty around the wind‑down costs and the future growth trajectory.

D. Incorporating Management’s Future Guidance (when/if it arrives)

If CarGurus later releases revised FY 2025 guidance, update the model by:

Replace the internal revenue growth and margin assumptions with the guidance numbers.
Re‑calculate the FY‑2025 and FY‑2026 forecasts (adjust the 2025‑2026 forecast to reflect the new guidance, then re‑project 2027‑2029 using the same growth assumptions as before or adjust if guidance indicates a shift).
Re‑run the DCF and multiple valuations.
Re‑assess the price target and the probability of hitting the new guidance.

4. Practical “Next‑Step” Checklist for the Analyst

Action	Rationale
1. Retrieve prior FY 2025 guidance (from 10‑K/10‑Q)	To know the baseline numbers you will be adjusting.
2. Quantify CarOffer’s contribution (revenue, expense, cash‑flow) using the latest annual report.	Needed to subtract/adjust for the wind‑down.
3. Estimate one‑off wind‑down cost (look for any mention in the filing or press release).	Gives a concrete negative cash‑flow for FY 2025.
4. Adjust the growth‑rate assumption to 12 % (or a range) based on 14 % YoY in Q2.	Reflects the “sustained strong momentum”.
5. Re‑run DCF with new revenue, expense, and cash‑flow figures, then produce a valuation range.	Provides updated intrinsic value.
6. Document the assumption changes (e.g., “Revenue growth raised from 8 % to 12 % for FY 2025‑2027 due to Q2 performance”).	Transparency for investors.
7. Monitor upcoming earnings call (likely Q3‑2025) for any official FY 2025‑FY‑2026 guidance.	Update the model as soon as guidance is released.
8. Prepare a “what‑if” sheet that toggles the CarOffer wind‑down cost and the growth rate.	Quick sensitivity for analysts & investors.

5. Bottom‑Line Takeaways

No revised FY 2025 guidance was disclosed in this earnings release; the current guidance remains the last guidance issued (likely from the FY‑2024 or FY‑2025 guidance set in the most recent 10‑K).
Update your models now to reflect:
- Higher revenue growth (≈12 % YoY for the marketplace),
- Removal of CarOffer revenue and associated costs,
- One‑time wind‑down expense in FY 2025, and
- Improved operating margins post‑wind‑down.
Use a range (base‑case, high‑growth, low‑growth) to capture uncertainty until formal guidance arrives.
Monitor upcoming earnings calls for any official FY 2025 guidance update and re‑run the valuation at that point.

By applying these adjustments, analysts will have a more realistic picture of CarGurus’s future cash‑flow generation and can derive a more accurate intrinsic valuation, while keeping the model flexible enough to incorporate any official guidance once it is announced.