TrueCar's Analyst Highlights New Vehicle Sales, Migration To Subscription Model As Growth Catalysts, Upgrades Stock

Needham analyst Chris Pierce upgrades TrueCar Inc TRUE from Hold to Buy and a $3.5 price target.
Historically, TrueCar was ~2/3rds levered to new vehicle transactions.
The stock fell out of favor, given anemic new car production and sales volume due to OEM supply chain issues that caused dealers to churn off TrueCar.
With new vehicle supply limited, dealers had little reason to pay for sales leads.
Now that the analyst sees early signs of new vehicle sales and inventories improving, he anticipates a pick-up in the TrueCar franchise (new) dealer count.
During the 4Q earnings call, TrueCar shared plans to launch three new subscription packages and move away from their legacy pay-per-sale arrangement with dealers. Pierce views this positively, as his dealer checks frequently found dealers who were dissatisfied with the pay-per-sale model, and it shaped their overall perception of TrueCar.
Under the legacy model, dealers would send their monthly sales data to TrueCar, who would match vehicle buyers with customers researching those vehicles on TrueCar's platform and bill the dealer for those transactions. Rightly or wrongly, dealers viewed this arrangement as TrueCar debiting dealer profits after the fact.
The analyst thinks the move to a subscription model will help TRUE re-engage with new dealers and dealers that churned.
Investors have been slow to give TrueCar credit for the strategic moves they are making with TrueCar+ and for their cash balance, but industry participants have taken notice.
AutoNation, Inc AN acquired a 6.1% stake in TrueCar in the fall of FY22, reflecting the potential strategic interest and validating TrueCar's current lead gen capabilities while showing faith in the launch of TrueCar's digital retailing product.
Price Action: TRUE shares traded higher by 5.25% at $2.11 on the last check Tuesday.

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