CarGurus (CARG) is an interesting name that recently went public. Since the IPO, the stock has had interesting performance:

Source: Yahoo Finance

As you can see, the stock has steadily increased since the IPO last fall. We have been bullish on the name since that time, and have closely monitored the performance of the name. In the present column, we check in on the name and assess recent performance. We also offer our projections going forward for 2018.

Revenues remain strong

The top line continues to be strong for CarGurus. Total revenue was $90.6 million, an increase of a whopping 49% compared to $60.8 million in the fourth quarter of 2016. So, what went into these sales? Well, marketplace subscriptions were incredibly strong. Marketplace subscription revenue was $80.8 million, an increase of 52% compared to $53.2 million in the fourth quarter of 2016. This was a huge driver of the top line, and above our expectations for growth of $25 million. Further, advertising revenue was $9.8 million, an increase of 30% compared to $7.6 million in the fourth quarter of 2016, which also surpassed our expectations of $9 million.

For the full year 2017, performance was even stronger on a comparative basis. Total revenue was $316.9 million, an increase of 60% compared to $198.1 million in 2016. What went into these figures? Once again, both subscription and advertising revenue rose. Truly impressive. Marketplace subscription revenue was $282.7 million, an increase of 65% compared to $171.3 million in 2016, while advertising revenue was $34.2 million, an increase of 27% compared to $26.8 million in 2016. The question is whether these growing revenues, which were impressive and we view as bullish, led to growing income, or whether expenses were too high offsetting these gains.

Operating income grows but not as impressive as expected

We were slightly underwhelmed by operating income. As we feared, the cost to generate this impressive revenue shot higher. This less to Q4 GAAP operating income was approximately break-even, or less than 1% of total revenue, compared to $4.6 million or 8% of total revenue in the fourth quarter of 2016. Making adjustments for comparable items, operating income was $4.8 million, or 5% of total revenue, compared to $4.7 million or 8% of total revenue in the fourth quarter of 2016.  This was disappointing, though for the year things were a bit better.