Oct 12, 2017

CarGurus CFO on his company's unusual path to IPO

Online auto marketplace CarGurus today raised $150 million in an IPO, and has seen shares pop by more than 70% (bringing its market cap to nearly $3 billion). Axios spoke with chief financial officer Jason Trevisan about the IPO, its unusual funding history and how it's become so big without using traditional advertising until very recently. The quick read:

  • The IPO is to improve public branding, enable acquisitions and to provide liquidity to early employees.
  • The company has relied on "aggressive algorithmic traffic acquisition" to achieve its 23 million monthly unique visitors.
  • Trevisan isn't worried the company left money on the table, saying volatility may be high because CarGurus offered relatively few shares.

AXIOS: Why go public now?

TREVISAN: "We've gone public for three reasons. Number one is as a branding event for both consumers and dealers. We've become the largest online auto marketplace, yet have been under the radar, so this is an opportunity to grow our brand. Second, this gives us currency for acquisitions. We are a platform model, and believe we're well positioned to acquire tech and content businesses. Third is liquidity for early investors and employees, who have worked their butts off for years."

How has an "under the radar" company managed to attract 23 million unique visitors per month?

"Aggressive algorithmic traffic acquisition. We have a team of 10 developers and mathematicians who've built homegrown technology that allows us to acquire consumers when they're at the point of cash search. For example, we bid on about half a billion keywords per day -- and have tested over a billion keywords over the last couple of months. We also have great word of mouth, which is the second-most cited reason for people coming to the site. This year we began investing in television for the first time."

CarGurus raised around $130 million from T. Rowe Price and Fidelity beginning in 2015 but before that was bootstrapped for nearly a decade. Why the change in funding strategy?

"From 2006 to 2010 the company had a different business model, which was more content-oriented. In 2011 we shifted more into actual car shopping, and that model began to scale very quickly. In 2015 we raised capital from T. Rowe to both solidify the balance sheet and provide some liquidity to friends and family who had invested. Then we added Fidelity for more liquidity, and also because we knew at some point we wanted to go public, so it was important to have great partners with us."

The stock is up more than 70% after just a couple hours of trading. Thoughts on leaving so much money on the table?

"We were most focused on getting a great investor base..."

You could have maybe gotten a better one at $2 per share.

"Well, I can't imagine getting a better group of investors. But, overall, share price volatility in the first six months is really more about supply and demand working itself out than about long-term value. Also we did a very low float, which we knew would create more volatility early on, but it was right for the company."

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