Item 1. Business
Item 1. Business. Cars.com Inc., d/b/a Cars Commerce Inc., ("we" or "Cars Commerce") is an audience-driven technology company empowering the automotive industry. We simplify everything about car buying and selling with powerful products, solutions and AI-driven technologies that span pretail, retail and post-sale activities – enabling more efficient and profitable retail operations. The Cars Commerce platform is organized around four industry-leading brands: the flagship automotive marketplace and dealer reputation site Cars.com, award-winning digital retail technology and marketing services from Dealer Inspire, essential trade-in and appraisal technology from AccuTrade, and exclusive in-market media solutions from the Cars Commerce Media Network.
Established in 1998, we have a history of empowering shoppers with the data, resources and digital tools needed to make informed buying decisions and seamlessly connect with automotive retailers. Our premier automotive marketplace, Cars.com enables dealerships and OEMs with innovative solutions and data-driven intelligence to better reach and influence our 26 million average monthly ready-to-buy shoppers, ultimately increasing inventory turn. We have further invested in building innovative products and solutions that we believe help future-proof dealerships with more efficient operations, a faster and easier car buying process, and connected digital experiences that sell and service more vehicles. Today, we provide a full suite of integrated platform capabilities that drive ready-to-buy car shoppers to the dealership.
The strength of our products and solutions has attracted over 19,500 franchise and independent dealer customers across the U.S. and Canada to our platform. The majority of our dealer customers subscribe to the Cars.com marketplace and increasingly, they are
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leveraging more of our platform to power their local retail operations. In addition, substantially all OEMs selling vehicles in the U.S. and Canada do business with us today.
For Consumers. Buying a car is one of life’s most significant and researched decisions. Consumers are challenged with makes, models and trim-levels and opaque, yet negotiable prices, and gaps in the online-to-offline shopping experience, adding complexity to an often overwhelming decision-making process. Shoppers are seeking a more streamlined, simplified automotive retail experience. Cars Commerce helps car shoppers cut through the clutter with products designed to reduce friction from search to signature.
We believe our marketplace functions as a definitive resource for car shoppers. We are known for the depth and scale of our listings and reviews, with over 2.5 million vehicle listings and over 13 million consumer reviews as of December 31, 2023. In addition, our expert editorial reviews and news and research publications aid shoppers in their purchase journey. Recently, we also added features like Instant Finance to help consumers better understand their total cost of ownership, including financing fees. With over 35% of car shoppers also seeking to trade-in their vehicle, Instant Offer, allows them to understand the value of their vehicle before leaving the comfort of their home. Overall, our consumer experience is focused on reducing friction, improving speed and delivering powerful results through pricing, financing, comparison shopping, research and communication tools that empower shoppers.
For Customers. Our platform offers local dealers, OEMs, dealer groups and auto-adjacent companies a variety of products and solutions. Dealers and OEMs value our marketplace for the opportunity to connect with our in-market audience of 26 million average monthly users in 2023, and to improve their marketing and operational efficiency with our suite of solutions. We complement our marketplace products with digital solutions, including websites and trade-in and appraisal technology, and media offerings powered by our exclusive in-market media network. Internal analysis from 2023 has shown that increasing adoption of the Cars Commerce platform has allowed dealers to improve their vehicle turn time by up to 20%. Importantly, we believe that many of the tools we have built for consumers, particularly those that support financing and trade-in valuation, help our dealer customers and OEMs by providing them with more qualified, ready-to-transact leads and reduce points of friction that can often arise in the purchase journey.
Industry Dynamics. As an audience-driven technology company, Cars Commerce is focused on helping our customers, primarily dealers, drive profitable vehicle sales. After several years of margin compression, more recently dealers have experienced an increase in margins driven by limited new vehicle inventory coupled with strong consumer demand. Additionally, during this time, consumer expectations on their digital purchase journey have only increased. As a result, dealers seeking to build a sustainable advantage are investing more in their websites and technology solutions to drive operational efficiency while supporting shoppers in their preferred
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purchase channels (i.e., online, offline or both). We believe we are the first truly integrated platform, providing a comprehensive suite of sales-oriented products and solutions that support dealers' local retail operations.
Products. Our interconnected platform is organized around four core capabilities: Marketplace, Digital Experience, Trade & Appraisal and Media.
• Marketplace. Central to our platform is Cars.com, the most recognized marketplace brand. We believe the marketplace is critical to the pretail experience, allowing OEMs and dealers to merchandise their inventory to our 26 million average shoppers each month in 2023. Importantly, over 60% of our traffic comes to us organically, allowing us to provide our customers with a truly complementary and unduplicated audience. Our marketplace packages include reputation management technology and digital financing tools, such as Instant Finance. Customers using our upper-tier packages experienced a double-digit improvement in inventory turn time. For subscribing dealers, AccuTrade’s Instant Offer is directly integrated into the marketplace experience, giving them access to in-market consumers who are ready to trade-in their vehicle for a new one. More recently, we have added the Your Garage feature to Cars.com, allowing consumers to add and save vehicles to their virtual Garage and track the Cars.com Market Value of their current vehicle. Cars.com Market Value leverages our Marketplace retail demand data to help consumers identify the best time to sell or trade-in their vehicle.
• Digital Experience. The Cars.com marketplace audience is often driven directly into the retail experience through our platform's websites and solutions. Our industry-leading brand Dealer Inspire is a preferred provider with nearly every OEM in the United States. Dealer Inspire websites and technology include integrated reviews, AI-powered chat tools, instant financing and vehicle acquisition technology. Key products include:
o Website creation and platform hosting. Our Dealer Inspire website hosting and related solutions make automotive retail faster, easier and smarter from search to signature. Built on a customizable platform and designed with user behavior data, we believe our websites are set apart by the advanced technologies that drive modern consumers toward purchase decisions. Today, we host the digital storefronts for approximately 7,300 dealers in the U.S. and Canada.
o Digital retailing solutions. Our digital retailing product suite is focused on bringing omnichannel commerce to the automotive industry at scale by simplifying the online to in-store process for dealers and buyers. Our Conversations product is built to connect in-market car buyers with sellers — wherever, whenever and however they want to shop. Conversations turns chats into customers by leveraging AI technology, live video chat capabilities and 24/7 managed chat support to instantly respond to all incoming messages. Our Online Shopper solution enables e-commerce transactions for dealers. This feature also allows shoppers to add finance and insurance products and aftermarket accessories, and to checkout, for delivery or pick-up in just three easy steps. Instant Finance enables shoppers to digitally secure instant vehicle financing, while our dealer customers are empowered with the ability to utilize the lenders of their choice at no cost to the dealer.
• Trade & Appraisal. AccuTrade is a powerful data and technology solution that is integrated into both the Cars.com marketplace and Dealer Inspire websites. Leveraging wholesale and retail data sources, AccuTrade provides dealers with vehicle valuation and appraisal technology to efficiently identify and source the exact vehicles they require. AccuTrade leverages onboard diagnostic (OBD) data to automatically adjust vehicle value based on the specific vehicle being analyzed and quickly delivers a tailored, consumer-facing condition report. It provides transparency to consumers while saving dealers an average of over $600 per vehicle on internal vehicle repairs. Additionally, through AccuTrade Instant Offer, consumers can obtain instant and transparent cash offers for their specific VINs via our dealer websites, as well as Cars.com. And if ready to sell or trade-in, consumers can find the best buyer for their vehicle.
• Cars Commerce Media Network. A commerce media network created exclusively for automotive, Cars Commerce Media Network allows local and national customers alike to reach proven in-market and in-context consumers to accelerate the path to purchase. Our newest media product, VIN Performance Media, resulted in approximately 80% more users to a dealer site from Cars.com and over a 60% increase in dealer site conversions. In addition, when OEMs advertise with Cars Commerce Media Network, we see impact throughout the consumer digital shopping experience. When one of our OEM partners purchased a prominent advertising sponsorship, we observed increased consumer engagement on Cars.com (searches and vehicle page views), traffic to their dealers' websites, and a double digit lift in conversions on those dealer websites during the sponsorship period.
o Display advertising. Our display advertising products enable dealers and OEMs to extend their reach and efficiently access our large audience of in-market car shoppers. The geographically targeted advertising served on our Cars.com website and mobile app enables our customers to increase brand awareness and promote inventory.
o In-Market Video. In-Market Video provides OEMs and dealers with the opportunity to pinpoint serious, ready-to-buy shoppers geographically across Cars.com’s in-market car shopping audience of over 26 million average monthly shoppers on their screen of choice via social media platforms, streaming apps and connected TV. This targeted
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approach drives high advertising efficiency for customers and compares favorably to the high-cost broadcast television solutions that dealers and OEMs have historically relied on.
o Social selling. We are pioneers in the use of social media platforms to sell cars by launching multiple solutions to target and connect with in-market car shoppers on social media platforms, expanding their opportunity to sell more cars. Cars Social allows dealers and OEMs to target and serve native advertisements displaying real-time inventory to in-market car shoppers on Facebook and Instagram by leveraging our valuable audience data.
o Digital advertising services. We offer programs that manage dealer search engine optimization, as well as paid media spend beyond the Cars.com platform. These products are seamlessly connected to our website experience allowing dealers to convert traffic to paying customers. Our data analytics and insights ensure dealers’ investments are deployed in the most efficient manner possible.
Our Strengths and Competitive Advantages. Cars Commerce is focused on simplifying car buying and selling by eliminating complexity and increasing transparency throughout the local retail experience, where sales and service are best facilitated. The Cars Commerce platform brings our industry leading marketplace together with innovative digital and media solutions to create frictionless shopping experiences for consumers and our customers. Led by our product first innovation strategy, industry leading brand, high-quality audience and differentiated technology solutions, we are executing on our vision to be essential to the success of the automotive industry which we believe will drive accelerated growth in our subscription based revenue and cash flow.
A powerful suite of brands delivering integrated digital and media solutions that enable our platform strategy. Our Cars Commerce suite of brands includes integrated marketplace, retailing and media solutions that define our platform strategy and make us essential to the automotive industry. We believe our solutions seamlessly connect buyers and sellers wherever they are in their vehicle shopping journey. Our integrated platform helps sellers expand their consumer influence and engagement across the entire purchasing journey, ultimately increasing sales, creating operational efficiencies and improving profitability. Customers who subscribe to our Cars.com marketplace and Dealer Inspire website experience are providing consumers with a more integrated experience across pretail and retail, leading to more than a higher lead close rate, reflecting the interoperability and benefits of our platform.
A high-quality audience, at scale, enables our industry-leading platform. We have made strategic technology and marketing investments to deliver what we believe is the industry’s most qualified car shopping audience. Our audience powers our integrated platform strategy. Not only does our audience power our marketplace packages, they are also key to our ability to efficiently grow and scale our media solutions that allow customers to target in-market shoppers and strengthens our digital solutions.
In 2023, we had 26 million average monthly unique visitors that visited our marketplace a total of over 600 million times. We generate the majority of our traffic organically as a trusted resource for customers through our high-quality content, including editorial and consumer reviews and suite of easy-to-use consumer facing tools such as Best Match. Over the past 25 years, we have made more than half a billion connections between car shoppers and sellers.
According to a recent Cars.com survey, approximately 83% of our audience is in-market to buy a car, compared to a fraction of the general population. The average time for a shopper to purchase a car is approximately two months; however, approximately 50% of the Cars.com audience plans to buy within 30 days.
Asset light business model with a diversified revenue base, attractive cash flow and strong balance sheet. We generate over 80% of our revenue via subscription, creating a dependable recurring revenue stream across our diversified mix of marketplace subscription advertising packages, digital solutions, and media. Customer concentration is also limited and each month, we generate an average monthly revenue per dealer of over $2,500 during the fourth quarter from each of our over 19,500 dealers.
Our asset light business model drives significant net operating cash flow, in excess of $125.0 million in each of the last three years, resulting in substantial liquidity and financial flexibility, which enables us to invest in innovation, pursue strategic growth opportunities and maintain a healthy balance sheet with modest leverage.
Strong, experienced management team. We have an experienced management team that has a demonstrated track record of delivering results. The team also brings unique experience driving innovation and digital transformation and unlocking value for customers while modernizing established industries.
Our Long-Term Growth Strategy. We have five primary drivers to grow our business: continue to create the most engaged in-market audience, grow our dealer customers, unlock the cross-sell, transform our OEM relationships and create platform advantages.
• Grow the industry's most engaged shopping audience. With over 26 million average monthly unique visitors and over 600 million visits per year, we have one of the industry’s largest and most engaged in-market audience. Our industry-leading
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brand and high quality content allow us to generate over 60% of our audience organically. This reduces our reliance on search engine marketing and provides our dealers with access to an audience that cannot be easily duplicated. Shoppers interact with our platform in many ways, including researching vehicles, writing dealer reviews, securing qualified financing and obtaining instant offers for their trade-in vehicles. We believe continued investments in consumer engagement will create more qualified leads for our customers, thereby increasing our attribution and ultimately resulting in growth in customers and increased product adoption and retention.
• Grow our network of dealer customers. We have a significant opportunity to grow our base of dealer customers. While we have a substantial dealer customer base of over 19,500, there are approximately 40,000 dealerships nationwide, providing us with ample room for growth domestically and geographically by expanding our presence in Canada through the D2C Media Inc. ("D2C Media") acquisition.
• Expand our relationship with dealers through greater adoption of our platform. We operate in the large and growing automotive advertising and technology market. Dealers are investing more in media and digital solutions, particularly those that allow them to turn inventory faster and more efficiently. Our integrated platform helps sellers expand their consumer influence and engagement across the entire purchasing journey, ultimately increasing sales, creating operational efficiencies and improving profitability. Customers who increase their adoption of our platform products provide consumers with a more integrated experience across pretail and retail, leading to more than a higher lead close rate. We believe there is a sizable opportunity to cross-sell our existing suite of solutions and continue to grow our monthly average revenue per dealer.
• Transform our OEM relationships. We play a critical role in helping OEMs drive awareness of new model launches, particularly with the transition to electric vehicles. However, we have an equally large opportunity to leverage our industry-leading technology solutions to better connect the OEM and dealer experience, creating a seamless shopping experience for consumers.
• Create platform advantages. By continuously increasing the interoperability of our products, and developing new products and solutions including leveraging the use of artificial intelligence tools, such as ChatGPT, we can help dealers unlock greater insights and increased efficiency; thus deepening our relationship with our customers and increasing the stickiness of our products. Additionally, as we focus on platform sales, we continue to simplify and streamline our internal and go-to-market processes. These actions will ultimately translate into improved financial performance.
Competition. We compete with other companies to attract consumers and customers to our marketplace, digital experience, trade and appraisal, and media solutions. Our direct competitors are online automotive marketplaces, such as CarGurus, AutoTrader and TrueCar. We also compete with other automotive websites, such as CARFAX, Edmunds and Kelley Blue Book. Additionally, we compete with platforms, such as internet search engines, online dealerships, social media marketplaces and online consumer marketplaces.
Competition for Consumers. We compete for consumer visits with other online automotive marketplaces, OEM websites, free listing services, general search engines, social media and dealer websites. We compete for shopper traffic primarily on the basis of the quality of our consumer experience. We believe our consumer experience compares favorably due to the scale of our vehicle listings, the content and unbiased transparency of the information we provide on vehicles, pricing and dealers, as well as the intuitive nature of our user interface, sophisticated search tools and algorithms and our mobile user experience, among other factors.
Competition for Dealers. We compete for various areas of dealers’ budget including with offline customer acquisition channels, software and solutions spend, other online automotive marketplaces, dealers’ own customer acquisition efforts on search engines and other internet sites that attract consumers searching for vehicles. We compete primarily on the basis of the return on investment ("ROI") to the customer that our marketplace and our other solutions provide. We believe we are in a favorable market position due to our platform advantage utilizing our highly engaged, large, in-market consumer audience, resulting in high quality connections we provide to dealers, resulting in an attractive ROI.
Competition for OEMs. We compete for a share of OEMs' total marketing budgets which include traditional media, such as television, radio, print media, and billboards, as well as digital media, such as media sites, other marketplaces, search engines and social media sites, among others. We compete for advertising spend based on the marketing ROI that our products provide. We believe we are in a favorable market position due to our large, in-market consumer audience, high consumer engagement and the effectiveness and relevance of our advertising products.
Intellectual Property . We take a strategic approach to intellectual property management by protecting our intellectual property and brands through a combination of trademarks, trade dress, domain names, copyrights, trade secrets and patents as appropriate. We have registered and unregistered U.S. and international trademarks, service marks, domain names and copyrights. In addition, we enter into confidentiality agreements with our employees, consultants, contractors and business partners. Our employees and contractors are also subject to invention assignment provisions. In addition, we control the use of our proprietary technology and intellectual property through provisions in both our general and product-specific terms of use on our mobile applications and websites.
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Regulatory Matters. Various aspects of our business and the solutions we offer are or may be subject to an expanding and evolving range of local, state, federal and international regulations. The advertising and sale of new or used vehicles is highly regulated by the states in which we do business. Although we do not sell automobiles, the dealers from which we derive a significant portion of our revenue do and are subject to significant regulation. Moreover, state regulatory authorities or other third parties could take and, on some occasions, have taken the position that some of the regulations applicable to dealers or to the manner in which automobiles are advertised and sold generally are directly applicable to our business model. Additionally, our business is directly subject to laws, regulations and standards regarding marketing and advertising activities conducted by telephone, email, mobile devices and the internet, such as the Telephone Consumer Protection Act, the CAN-SPAM Act and similar state consumer protection laws. Our digital solutions products may also be subject to laws and regulations governing accessibility, intellectual property ownership, obscenity, libel and privacy among other issues.
In addition, we are subject to numerous federal, national, state and local laws and regulations in the United States and internationally regarding privacy and the collection, processing, storage, sharing, disclosure, use and protection of personal information and other data, such as the Gramm-Leach-Bliley Act or the California Consumer Privacy Act or the California Privacy Rights Act. We strive to comply with industry standards and all applicable laws, policies, legal obligations relating to privacy and data protection. We are also subject to our privacy policies and privacy-related obligations to third parties.
To operate in this highly regulated environment, we have developed our products and services with a view toward appropriately managing the risk of our regulatory compliance. If, and to the extent that, our products and services fail to satisfy relevant regulatory requirements, we could be subject to significant civil and criminal penalties, including fines, the award of significant damages in class action or other civil litigation, as well as orders that may interfere with our ability to provide our products and services in certain states.
Human Capital. The foundation of Cars Commerce’s business is our employees. As of December 31, 2023, Cars Commerce had approximately 1,700 full-time, part-time, seasonal and temporary employees. Cars Commerce is committed to the highest standards of integrity, inclusion and responsible business practices. Our commitment to build a culture and business that cares about our employees, customers, industry and communities is a part of who we are. Fundamental to these commitments are our company values:
• Rise Together - We put people at the center of what we do, from consumer to customer to community. We prioritize collaboration. When we work together, we win together.
• Care to Challenge - We innovate, we challenge convention and we get results because we care. It is what fuels our competitive spirit. We embrace creativity, buck tradition and grow beyond.
• Take Ownership - When there is an opportunity to make a positive impact, we go for it. We lean in and take risks. We think about tomorrow and act today.
• Do the Right Thing - Integrity is our foundation. We uphold our commitments; we lead by example. We do the right thing, every time. Especially when it is hard.
• Be Open to All - We encourage open-minded communication because we know diverse thinking yields better outcomes. We welcome new ideas, respect differences and open the floor to all voices.
We believe our highly innovative and collaborative teams are one of our biggest differentiators and the most important investment we can make at Cars Commerce. To attract and retain talented employees to achieve our mission to simplify everything about buying and selling cars, we offer competitive benefits, including market-competitive compensation, an Employee Stock Purchase Plan, a virtual first work environment, healthcare, paid time off, parental leave, adoption assistance, retirement benefits, tuition assistance, employee skills development and leadership development.
At Cars Commerce, we are committed to a workforce that is representative of our customers and car shoppers. We accomplish this goal by fostering a culture of diversity, equity and inclusion to ensure a workplace that appreciates the views and ideas of all. Cars Commerce also monitors employee satisfaction and engagement, by conducting periodic surveys that are reviewed and, when appropriate, acted upon by our executive management team and shared with our Board of Directors. These surveys are an important way for us to identify areas where we can improve.
None of our employees are represented by a labor union or are subject to a collective bargaining agreement.
Available Information. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at https://investor.cars.com as soon as reasonably practicable after we file such material with, or furnish it to, the U.S. Securities and Exchange Commission (SEC). In addition, the SEC maintains a website (http://www.sec.gov) that contains information we
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electronically file with, or furnish to, the SEC. Information on our website is not part of this or any other report we file with, or furnish to, the SEC.
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