TrueCar Shares Drop After Warning

TrueCar Inc. shares fell sharply on Friday, erasing more than $300 million of the company's market value, after the car-shopping website on Thursday said its results for the current quarter and year would be worse than thought.

Shares dropped 35% to $6.95 in recent trading. On Thursday before the warnings, TrueCar shares closed at $10.68. Some analysts think the stock could fall even farther.

"With dealer lawsuits, questions about attribution, softening channels and little traction in new products, we believe there is further downside" for TrueCar, Sameet Sinha from B. Riley & Co. said in a note after TrueCar's warnings. The firm reiterated its sell rating on TrueCar and lowered its price target from $9.25 a share to $5.50. Analysts at J.P. Morgan on Friday downgraded TrueCar from overweight to neutral.

"The reaction by analysts is to be expected," said TrueCar Chief Financial Officer Mike Guthrie. "The company didn't perform to both our and Wall Street's expectations. We must do a better job of executing to plan going forward."

TrueCar, which trimmed its yearly revenue guidance and said it expects to post a loss and revenue below analysts' expectations in the second quarter, has faced two lawsuits from dealers this year. In March, more than 100 dealers sued TrueCar in a New York court, alleging the firm was promoting false advertising and unfair competition. In May, a California dealers association brought a class-action suit against TrueCar, alleging it was acting like a dealer but operating without a license.

TrueCar has said in response to the suits that it and its business practices are compliant with laws. The company said the suits didn't have a meaningful impact on its second quarter and likely won't for the longer term, noting that "we are confident in our ability to prevail in those suits."

TrueCar recently had a falling out with car retailer AutoNation Inc., which said earlier this month it would cut its ties with TrueCar following a four-month contract dispute. The company said AutoNation accounted for 3% of TrueCar's revenue in the second-quarter.

"The amount of impact AutoNation has on our guidance is small-- if anything," Mr. Guthrie said in a conference call on Thursday, noting that "AutoNation stores came off the program in the third quarter and thus did not contribute to the shortfall in the second quarter."

TrueCar's Chief Executive Scott Painter said Thursday that TrueCar was facing an "important wake-up call" and that "we clearly need to focus, prioritize better and show a bit more discipline on the cost-side of the business."

Write to Cassandra Jaramillo at [e-mail]

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