CARG — Q2 2026 Financial Report Analysis

Overview

CarGurus runs car-shopping websites (CarGurus in the U.S., Canada and the U.K., plus Autolist and PistonHeads) and makes most of its money from subscriptions that car dealers pay to list their inventory and get shopper leads. In the second quarter of 2026 (April–June), revenue rose 13% to $251.0 million, but net income from continuing operations was essentially flat at $49.2 million (+0.4%), because spending on advertising and marketing grew faster than sales. Diluted earnings per share still rose 10% to $0.54 — almost entirely because the company bought back so many of its own shares that there are 9% fewer of them to divide profit across.

All comparisons below are for continuing operations. CarGurus wound down its CarOffer wholesale business in 2025, so last year's results have been restated to exclude it. On a consolidated basis (including CarOffer's $26.6 million loss a year ago), net income more than doubled from $22.3 million — a comparison that flatters the quarter and says nothing about how the remaining business performed.

At a glance

• Revenue +13% to $251.0 million, driven by dealers paying more (average quarterly revenue per subscribing dealer +7% to $6,771) and more paying dealers (+5% to 34,629).
• Operating margin fell to 25.1% from 27.3% — of every $100 of sales, about $25 was left after running the business, down from about $27, mainly because marketing spend jumped $10.2 million.
• EPS +10% while net income +0.4% — the per-share gain came from buybacks, not from higher profit.

Results table

Where the growth came from

The 10-Q attributes the $29.0 million revenue increase "primarily" to higher dealer subscription revenue, which came from "signing on new dealers at market rates" and "broader adoption of add-on products, subscription tier upgrades, and like-for-like price increases for existing dealers." In plain terms: the existing dealer base is paying more, and new dealers are coming in at today's prices rather than older discounted ones.

The U.S. is still 90% of revenue, and there growth is mostly about price and product mix: dealer count rose only 3%, while revenue per dealer rose 8%. International is faster-growing on both dealer count and pricing, but small — its $5.4 million of added revenue is less than a fifth of the quarter's total increase.

U.S. shopper traffic rose: average monthly unique users were 37.8 million, up from 34.1 million (+11%). The international figure fell to 8.9 million from 10.2 million, but it is not comparable — since January 1, 2026, the U.K. sites only count visitors who consent to tracking cookies, which mechanically lowers the count.

Revenue growth has eased a little: Q1 2026 grew 15% year over year, Q2 grew 13%.

Why profit didn't keep up

Total operating expenses rose 15%, faster than revenue's 13%:

• Sales and marketing: +$15.0 million (+18%) to $97.6 million, now 38.9% of revenue versus 37.2% a year ago. The filing breaks this down as a $10.2 million increase in "marketing and advertising expense for our performance marketing vendors and brand awareness campaigns" plus $4.0 million more in staff costs from hiring and pay rises. This is a deliberate choice to buy more traffic and brand awareness, and it is the single biggest reason the operating margin fell.
• Product and technology: +$4.4 million (+13%), from headcount ($2.1 million), contractors and consultants ($1.2 million) and software ($1.2 million). This is where the AI products management highlighted — including "Guru," a consumer-facing AI shopping assistant introduced in the quarter — are being built.
• Cost of revenue: +27% to $19.9 million, mostly $2.2 million more amortization of capitalized website development (platform spending recorded as an asset and now being expensed over time) and $1.2 million more in data-center and hosting costs. Gross margin is still above 92%, so this nibbles at the edges rather than changing the economics.

Below operating income, interest income fell to $1.0 million from $2.1 million "due primarily to lower average cash balances" — the cash went into buybacks. The tax rate was steady (22.5% vs 22.4%), so pre-tax income rose just 0.6% and net income 0.4%.

What the headline numbers hide

• EPS growth is a buyback story. Diluted shares fell 9.1%, from 100.2 million to 91.1 million. With net income flat, that share-count reduction accounts for essentially all of the 10% EPS gain; the tax rate and operations contributed close to nothing, and lower interest income was a small drag.
• The buyback used up much of the cash pile. In the first half CarGurus repurchased 6.29 million shares for $204.2 million (average $32.48), including $29.2 million in Q2 at $30.88. Cash fell to $122.1 million from $190.5 million at year-end, and only $45.8 million of the $250 million 2026 authorization remains. In the same week as results (per an August 6 8-K) it also halved its undrawn bank credit line from $400 million to $200 million and extended it to 2031. The company has no borrowings, but buybacks now have to run closer to the pace of free cash flow — Q2's $29.2 million already reflects that slowdown.
• Cash conversion is strong, partly helped by timing. Operating cash flow was $94.6 million, nearly twice net income, and free cash flow (operating cash flow minus capital spending) was $87.7 million, up 34%. Large non-cash costs explain much of the gap — stock-based pay ($13.4 million) and depreciation and amortization ($7.9 million) — but about $14 million came from working-capital timing (lower prepaid income taxes, higher payables and accruals), which won't repeat every quarter.
• GAAP vs adjusted. Adjusted ("non-GAAP") net income was $60.4 million and adjusted EPS $0.66, versus GAAP $49.2 million and $0.54. The gap is mostly stock-based compensation ($13.4 million, about 5% of revenue) — a real cost to shareholders that the adjusted figures leave out — plus intangible amortization ($0.2 million) and a small impairment ($0.5 million), less $2.8 million of tax effects.
• A one-off in the half-year numbers. First-half GAAP net income fell 11% to $81.4 million, but that includes a $19.2 million non-cash write-down in Q1 on an office lease (121 First Street) that CarGurus intends to sublease, after lowering the rent it expects to recover. Q2 itself had no charge for that lease.
• Receivables are in line. Accounts receivable rose 4% since year-end to $43.7 million, slower than revenue — no sign of sales being pulled forward on credit.

Guidance and outlook

Against its own targets from the May Q1 release, Q2 beat its own guidance on profit: revenue $251.0 million vs a $247.0–252.0 million range, adjusted EBITDA $84.7 million vs $77.5–85.5 million, and adjusted EPS $0.66 vs $0.57–0.64 — revenue above the midpoint, adjusted EBITDA near the top, adjusted EPS above the range. (This is our first report on CarGurus, so there is no earlier analysis of ours to check against.)

For Q3 2026, management guides to revenue of $253.5–258.5 million, adjusted EBITDA of $82.0–90.0 million and adjusted EPS of $0.63–0.69, assuming 90.0 million diluted shares. Full-year revenue growth guidance is unchanged at 10–13%, but the expected decline in adjusted EBITDA margin was narrowed to 0.5–1.5 points, from 1.5–2.5 points in May — management now expects to give up less margin to its investment push than it did three months ago.

On September 3 the company named Matthew Mandel (previously CFO and COO of fleet-software company Fleetio) as Chief Financial Officer from October 19, 2026; CEO Jason Trevisan had been covering the finance role on an interim basis since March 2025.

Our read: the core business — a subscription marketplace with 92% gross margins, raising prices on a slowly growing dealer base — is healthy, and the margin squeeze is a spending choice rather than a sign of weakening demand. But with the share count already down sharply and the buyback authorization nearly used, per-share growth from here depends more on profit itself growing. In Q3, watch whether the extra marketing spend shows up as faster U.S. dealer growth (only +3% now), whether revenue growth holds within the guided range rather than sliding further from Q1's 15%, and the size of any new buyback authorization relative to the $122 million cash balance.

Takeaway: CarGurus grew sales 13%, but heavier marketing spend left operating profit up only 4% and net income flat; the 10% EPS gain came from shrinking the share count by 9% — a lever that is running low after $204 million of buybacks in six months cut cash to $122 million.

Sources: CarGurus Form 10-Q for the quarter ended June 30, 2026 (filed August 6, 2026); Q2 2026 earnings release (8-K Exhibit 99.1, August 6, 2026); Q1 2026 earnings release (May 7, 2026) for prior guidance.