So I think we're live. We'll do a good Q&A. Welcome, everybody. We'll get started. So I'm Ron Josey. I cover the internet sector here at Citi, and pleased to have with us today CarGurus. I'll say new CFO, Elisa Palazzo.
Palazzo.
Palazzo?
Yes, Palazzo.
I wanna make sure I pronounce it correctly. I think most people know what CarGurus is and does. If anyone's ever bought a car or sold a car or were interested in a car, you probably ended up on CarGurus. So we'll spare that. But Elisa, you joined about seven or eight months ago.
Seven months.
Welcome to Citi Tech Conference.
Thanks.
Tell us about these last eight months. Enjoying doing the transition from an investor before—
Yeah.
T o now an operator and, you know, eight months gives you notes.
So I was for almost 20 years on the other side. I was on Wall Street, first as a banker and then as an investor, where I covered the internet space.
Yeah.
CarGurus was one of the companies that I used to cover, and in fact, one of my first encounters with the company was currently before switching to the operating side. And then I essentially went on as one of our invested company's finance executive, and I ended up staying and becoming, SVP of Finance and Deputy CFO of my former business, company, and then I transitioned into this role back in December 2023.
Right. And how do you like it so far? How was day one?
Loving every single day a nd every single thing. Really, truly.
Yeah.
It's a phenomenal business. It's a business that has true market and product leadership, where there is a sustained level of investment and continuous innovation. It's truly an organization that is dealer-centric. In fact, one of the key pillars of growth and drivers for us is providing more value to the dealer, and that is what we are doing. And also financially, we've had a very strong performance. In the last, we've had five quarters of consecutive top-line revenue acceleration, three quarters of double-digit growth, and we're also seeing very strong operating leverage flowing through into the margins.
It's a lot to jump off on there. There's certainly a lot improving here. And so one of the key things that we get, but then also everyone's really very much interested in, is where macro is today.
There's a lot of moving pieces from an autos perspective. Autos, there were supply chain massive supply challenges post-COVID. Pricing, affordability was a challenge, but now it seems that supply is improving.
Maybe affordability might be improving more. So tell us more about the macro side. What are you seeing, and how is that change really driving the business? Maybe you're seeing more dealers sign up or things along those lines.
Yeah. So I would actually break up the market in two parts, the used cars and the new car supply. So in terms of used cars supply, we have seen a normalization after COVID and the days on lot to go up, and currently, these levels are stable but remain elevated. The days on lot is one of the main predictors of the appetite for dealers to advertise, and so to the extent that they remain stable yet elevated, that is a positive tailwind for our business because essentially dealers are incentivized to advertise.
On top of that, what you mentioned is affordability. The level of interest rates do remain elevated, and so if demand is a little bit constrained by the level of interest rate, again, that is, even if it's counterintuitive, a positive factor for our business because it tends to limit demand, and so dealers tend to advertise more under these market conditions. On the new inventory side, as you know, our activity is predominantly skewed and focused on the used car, but we do have some exposure to the new cars' inventory, and so we are seeing there, the inventory continuing to come back up and growing over time, and that trend continues today, so we expect the inventory for new cars to continue to come up and being replenished.
We are not directly exposed from an advertising standpoint to that, but OEMs have more elevated levels of supply, and so they are back on our site advertising more, and so that is also being a positive trend for our business.
Just to be sure I heard it, so days unlocked was—
Days on lot.
Yeah, on lot.
It's the number—
Yeah, of course.
O f the days that a car stays on the lot.
Right.
Typically, when a car hits 50 days mark or longer, dealers start advertising.
Working capital is challenging.
M ore aggressively. Working capital is challenging. Also, with elevated interest rates, the floor financing is one of the main costs for the dealers, and so that is also, putting pressure on dealers to advertise more.
Helpful. And sorry, from a macro perspective, while we're still seeing days on lot elevated—
Yes
Are we seeing flow-through a little bit better? Demand? I mean, we continue to hear about the average age of a car is 12.5 , 13 years old.
Yeah. Yes.
There is a cycle maybe—
Yeah.
T hat might be coming. Understood your point of, dealers need to advertise to move metal.
Yeah. So in terms of demand, we are not directly impacted by that, but there is a fair amount of pent-up demand after COVID.
Mm-hmm.
And combined with the fact that the affordability is pretty limited because of the interest rates, we should see at some point the demand becoming stronger. But also another trend we are seeing as a consequence of this is because the affordability is lower, the vehicles that trade the most are the oldest.
Mm-hmm.
Or the lower priced vehicles. Again, this does not impact our activity at all, but that is a phenomenon that we are observing in the marketplace.
That's great. I mean, it's something that we're watching and constantly —
Yep.
Thinking about as, like, top level. But let's talk more about CarGurus specifically. Look, remains the top-visited auto site—
Mm-hmm.
I believe, 30+ million monthly uniques.
Mm-hmm.
Is sort of the number here. The app is now 28% of leads, so—
Mm-hmm.
CarGurus is still the place to go—
Yep
Overall. One thing that I get the question often is, what's driving greater lead quality and volumes?
Mm-hmm.
I get that question because I believe monthly unique users actually declined on a year-over-year basis, i n 2Q maybe.
Mm.
But yet lead quality and volume is still higher.
Yes.
So, talk to us more about that.
Sure. So I will break it up in two. So I will first address the lead quantity. As you know, and you can see this in the financials, we basically achieved a significant improvement in marketing efficiency back in 2023. We are retaining these efficiencies, and so that has allowed us to generate more leads while remaining efficient from a spending standpoint.
Mm.
So that addresses the lead quantity question. From a lead quality standpoint, we constantly monitor the conversion and the close rate of these leads, which is top of mind, because ultimately what dealers care about is not just the lead, but also to the extent that that lead becomes a transaction and a trade for them. And we achieve that by tracking and consulting. Well, we have our own internal tracking tools, but we also partner up with third parties that are independent to make sure that our attribution metrics remain very strong. Another thing we do in order to continue to constantly enhance the deal, the lead quality, is product innovation.
And so we've spoken for the last few quarters about Digital Deal ,w hich is a product that essentially allows the consumer to pre-configure, put down a deposit, and book an appointment for a car, and pre-configure most of the transaction online, and then walk into the dealership essentially with a pre-configured deal.
So a done deal that is very efficient for the dealer, but it's also very efficient for the consumer. Those leads, so the Digital Deal leads, convert approximately three times as high as a traditional lead, and we are seeing increasing adoption of the Digital Deal. So we expect the deal quality and the conversion rate over time to go up, even just by virtue of the fact that the Digital Deal adoption is gonna increase over time, continue to increase over time.
Have we talked about what percentage of the 30 million or so monthlies decide to use Digital Deal?
Yeah.
Is it still a very small percentage, or?
What we've said is almost approximately 30% of our dealer base adopt Digital Deal. So it's a third, it's pretty significant.
Sorry, the dealer base.
Of the dealer base.
Of the dealer base. And the users?
We have not provided a statistic.
Okay.
On the leads. We just mentioned that a 1/3 of the dealers adopt Digital Deal.
Got it. Yep. I can see-
Which is a meaningful portion of our dealer base.
Certainly, especially if it's 3X higher conversion rate—
Yes
Than a traditional. So, speaking of, you know, how do we get greater lead quality, lead volume? You gave great examples of marketing efficiency, digital deals, perfect.
Jason said something really fascinating, yet obvious, on the call. A new search experience went live this last quarter, and I think Jason said, "In many ways, we are a search engine."
Yeah.
Which is 100% correct.
Yeah.
Of course. And so my question to you is, what was it in search that was rebuilt? It was, I think, better sort order, better recommendations, better personalization. How did we What is it in search that improved?
So I will again provide—i t's three key elements of that.
Yeah.
The first one, in terms of search functionalities, we continue to constantly enhance our search functionalities with new algorithm. We are leveraging AI. In fact, we have a leading AI search capability, which has been very strong in terms of enhancing the search results, and this has led to better lead dispersion and lead conversion. On top of that, we are making a very conscious effort to focus on consumer identity.
So that enables our platform to better get to know the consumer needs and provide more relevant search results. So that's one thing. The second thing about consumer identity is you learn what a consumer likes in terms—
Yeah.
Of cars, and so what was his or her last purchase, how long ago, what he's been searching for. And so that allows not only in the search moment, but in the moment of re-engaging that traffic, to provide more relevant results. And the third thing, which is more of an economic benefit, is you don't need to spend money to re-engage that customer. You can go direct, as opposed to buy traffic, hoping to capture—
Right.
Those consumers. And the third, which is probably part of the consumer identity effort, is a push on our app. There is a very high level of self-registration without even asking for it. Approximately 80% of our consumers on the app register themselves, and so they contribute the information to them, to us, and as you've mentioned previously, almost 30% of our leads come from the app, which is a very efficient customer acquisition channel.
Right. I mean, there's a lot of positives from the engagement perspectives, because you can see how that personalization can be a bigger part of the business. So as we sort of go down funnel, if you will, within the business, it all starts and ends on engagement. Let's talk about dealers.
Mm-hmm.
So, you know, U.S. paying dealers are growing. I think, one thing that we hear, and we see the CAGR number as well, but let's talk about dealer adoption growth.
Yes.
What is it that's driving these adoption trends o verall? It's not as if we're in—we're I think the overall TAM, or at least the ideal, is 30,000 dealers maybe in the U.S.?
It's a little bit larger. It's 40,000 dealers. However, a portion of that is fairly small.
Right.
Dealers that don't need or don't consider, at least for the time being, advertising services.
Talk to us just about the dealer adoption today?
Sure
That you're seeing.
So—
From those that need the advertising services.
Absolutely. So in terms of dealers, we are seeing a consolidation trend in the marketplace. Nonetheless, for the last couple of quarters, we have grown our dealer count. So the penetration of the market, in terms of number of dealers, has gone up in the last couple of quarters. That is an important metric, but not the most relevant one, given the consolidation effort. What we look at, for, and most importantly, incentivize our sales force on, is the wallet share.
And so we are seeing an increase in our wallet share in the average size of the dealers, and so we are getting dealers that have larger advertising budgets, are more sophisticated, and so they have the ability and the appetite to better appreciate and adopt value-added products and services, and so migrate towards higher subscription tiers or buying à la carte value-added products and services. And the other trend that is very positive for us is, which fits in the theme of wallet share, is the fact that before COVID, most dealers, when they were on all three marketplace platforms. Now they are consolidating their spends in one or two-
Mm.
And we are beneficiaries of that trend.
That, that's a key point, and we're seeing. Talk to us about the long term.
Mm
Of these contracts. Are you seeing, as you gain wallet share, terms improving?
Yeah. So what we are seeing is because we provide more value in the form of value-added products, services, actionable data insights, there is a higher degree of engagement of dealers on our platform, and so I'll give you an example. Next Best Deal Rating, which is a recommendation that tells the dealer, "Hey, on this particular car or unit, if you lower the price by, let's say, $100, you will achieve a great rating." That is a report that is opened, has a very high engagement, is opened by 50% of our dealer base on a weekly basis. So 50% of our dealers open NBDR, Next Best Deal Rating report weekly.
To better understand pricing drivers across the-
Yes, pricing drivers and pricing information and signal, and essentially saying, "You can drop the price by X amount, and you will jump at the top of the page because you will achieve a great deal rating on our website." Now, of the 50% of the dealers that receive Next Best Deal Rating, 55% take our recommendation and act on our recommendation, and almost 40%, and then that reduces the turn times—
Yes.
On the units by almost 40%.
Mm.
So that is a very compelling tool that helps the dealer optimizing their profit by leveraging our data insights.
And so I wanna get into all these different products that I think CarGurus has really been innovating in Next. We talked about Next Best Deal Rating. We'll get into Sell My Car—
Mm.
Top Dealer Offer, attach rates, but I wanna hear more about the process for dealer negotiations.
Yeah.
Last year, or was it two years ago? Maybe two years ago, we started this ABR idea.
Mm-hmm. Yes.
Not idea.
Sure.
It's always been done, annual business reviews. Sam Zales, the President of Sales, has been doing a great job—
Yeah.
Of going through that. Has the process of dealer negotiations, has that been shortening? Is it a little bit easier now because we're consolidating around one, you know?
So as a result of higher dealer engagement, to your prior point, we are also seeing longer contract duration, which means that our sales force doesn't need to chase and focus on sales, and can focus more on consultative services.
Yeah.
And providing more strategic and competitive intelligence to our dealers, and so we spend less time selling and more time consulting. That is also turning into longer duration contracts, which exhibit higher retention and higher renewal rate.
Sure.
And so that is essentially fueling a flywheel that is becoming a very positive driver at the top line, and also increasing our sales force efficiency, because they can focus on value-added activities as opposed to selling.
Philosophically, why are dealers consolidating down to one, or two, versus three?
Because they're becoming much more ROI-focused, and also the fact that the average size of a dealer is going up makes them much more sophisticated and much more focused on which platform provides—
Mm.
More value-added products and services, as opposed to purely being a lead generation platform.
Right. And so, let's now So that's the dealer side.
Mm.
Let's talk on CarGurus here—
Mm-hmm.
Which is pricing up 14% in the quarter. I think it's been accelerating for five consecutive quarters, which is a big deal, which I think is a direct output of all of your negotiations, and new products, and duration, and everything else, so a lot to unpack. I'd like to better understand all of these new products that are coming out.
Sure.
So we just talked about Next Best Deal Rating.
Yep.
Talk to us about Top Dealer Offer?
Yes.
I wanna hear, if you could tell us more about the product?
Sure.
We get questions all the time about, "Describe the product," but then also the benefits to the dealers—
Sure.
And the benefits to the consumer side.
Absolutely. So there is a supply, so they can source cars, either from another dealer or directly from the consumer. Typically, the consumer supply pool is a very high-quality one.
Mm-hmm.
The vehicles are in better conditions. It's a fresh source of supply, and there is not as much transaction fees involved. And so they tend, and there is an increasing trend to source directly vehicles from the consumers as opposed to another dealer. So Top Dealer Offers does exactly that, connects the consumers who want to sell their cars with the dealers who are looking for sourcing cars directly from the consumers. The beauty of the product is completely asset-light, is a subscription-based product.
Mm.
That is very close to our DNA of lead generation, and importantly, the consumer drives the vehicle into the dealership. So there is no transportation cost, if you will, from a third party associated with this transaction. From a dealer standpoint, there are several benefits to Top Dealer Offers. The first one is they can check and verify the conditions of the vehicle directly on premises. The second one is, again, there is no transportation costs associated with it.
Right.
And there is also no transaction costs associated with it. But third, and more importantly, that is also a trade-in lead that can become potentially an opportunity to sell to the consumer a car that they have online.
Mm-hmm.
So it's a really compelling product from dealers, for dealers, and for consumers, excuse me, as well, and we are seeing very strong market adoption there.
Yet we're in 68 metros. I think we just launched maybe—
Mm.
One, two quarters ago.
A few quarters ago, Yeah.
Sixty-eight metros, 388 larger dealers, last I remember, but 388's a very small amount of that 25 or 30,000, whatever, so what's needed for this to go . Can every— I know it has to be maybe the best dealers—
Mm.
That can afford to do all the work to make sure it's a good car and can do the trade maybe. When we look out the next six, nine, one year, two years, do you think this goes to all metros? Does this go to 25,000 dealers? How do we think about the broader opportunity?
Sure. So the market potential is definitely there. For the time being, the way we are scaling, the product is very, in a very thoughtful way. So we are trying to be cognizant of the consumer experience for a number of reasons. If you are a consumer and you drive the car in, you need to make sure that the dealer honors the price.
Right.
That they have enough liquidity, and a sizable enough inventory to be able to absorb that incremental supply. And so we are focused on achieving and maintaining, as we scale the product, a very high Net Promoter Score, an NPS, both on the consumer side and on the dealer side. New dealers for the time being, so we are being cautious on which dealers we are accepting into the program for the time being. Of course, we can scale much faster, but we are being considerate and thoughtful in this. Can we scale on a much broader scale, going forward? Absolutely, but for the time being, we are being very cautious.
Now that we're in those 68, we're a few quarters in. Talk to us about what you've learned so far. So you talked about how the consumer needs to be certain they get the price.
Yep.
You know, is that something that's changed? Or just, I'm curious how the product might evolve based on the learnings that you've had thus far.
Yeah, so I would say we have an intake tool, for example, which is being very helpful to monitor the consumer experience and to make sure that the dealer as well honors the conditions and the price that they have initially stated. So that is something that we have introduced recently and is further enhancing—
Okay.
The consumer experience and the NPS score, for example. It's a product where we're seeing very strong market adoption and appetite from the dealer side. Because, as I said in the beginning, this is a pool of supply that is very high quality. It's typically very well-priced, and is an alternative channel to buying cars from another dealer, where you may not have a fresh inventory to trade in.
Understood. And how does the pricing work?
It's a subscription-based business, and we sell a block of leads per month.
Subscription block, sorry.
It's a block of leads, so essentially—
Okay.
The dealer buys, for a certain amount, a block of lead. I think it's $2,000 a month. Dealers buy blocks of leads, and we are seeing dealers that they buy multiple blocks of leads per month, so the appetite, definitely the market appetite is there.
Right. That's super helpful. So as we go through this, and I'm always, I'm always impressed with the attach rate.
Mm-hmm.
So the attach rate on product adoption, I think, is over a 1/3, maybe, or it's growing 30% or so.
Mm.
In 2Q. We just talked about Digital Deal, Next Best Dealer Offer, you know, the Sell My Car, Top Dealer Offer, and the list goes on. Help us understand the upsell process.
Okay.
So if you go to the ADRs, and you talk about the consultative approach, we'd love to hear more about attach rates. We'd love to hear about any insights around that.
Sure. So what we disclosed is that the penetration rate of value-added products and services in the second quarter was up 36% year-over-year.
Okay.
And what we also said is that for the dealers that have been with us for more than 12 months, 50% have increased their spend with us, either in the form of a higher migration to higher subscription tiers or buying à la carte value-added products or services. So the adoption of either, you know, higher subscription tiers or value-added products and services is very strong and compelling, and is increasing over time. And the attach rate, not only the adoption, but the attach rate is also going up over time.
Elisa, do you think this, I mean, these growth numbers are great, stellar really. Do you think that this is a direct result of the ABRs that happened and you have newer products to sell? I'm trying to get a sense of how the attach rates, how these new products are doing relative to prior years.
Yeah. So we have seen for the last few years, a gradual and consistent increase in the adoption of these value-added products and services. They are not related with ABR. It's a completely different process, and typically, again, it's either embedded in a migration to higher subscription tiers, or just the dealer buying à la carte, a specific product like TDO or, Digital Deal—
Yeah.
Standalone on top of their subscription, existing subscription package. So it's not a process that is related to the ABR, the annual business review. And it's not, you mentioned earlier, it's not a price increase, it's really just providing more value.
Incremental services.
Incremental services and value to the dealers. It has nothing to do with pricing.
Right. The consultative approach helps.
Yes.
Very true, and so as we think about the sales process, and we think about all these new products coming on board, would love to hear your thoughts on the dealer product roadmap?
Mm-hmm.
going forward.
Yeah. So we have a number of exciting products. The one that you mentioned, the TDO, is Top Dealer Offers, which is a way for dealers of sourcing directly, consumer supply, fresh consumer supply. The second one is Digital Deal. So if you think about the value chain and the life cycle of a dealer transaction, they have to source a car, they price a car, they market the car, and then they sell the car. Traditionally, our legacy business has been into the marketing vertical, and so our marketplace business. However, in the last few years, we have expanded across the value chain, addressing and accessing much more sizable addressable market TAM in the sourcing arena, so that is a $10 billion-15 billion TAM, and also on the digital retail side, which is also a very sizable market.
And so TDO focuses on sourcing. Digital Deal is more on the retail, sits within our digital retail product family, and that is something that we're very strong, and optimistic, and positive about because essentially allows a transaction to be completed almost entirely online.
Right.
And so it's a very powerful tool, both for the consumers, because they, we want to have the convenience of pre-configuring and completely, almost entirely the transaction online, but also for dealers who do not have online presence, and so they leverage our digital retail online capabilities to effectively compete online at a much broader scale than the local, geographic, physical footprint would allow them to.
Right. So, a lot, a lot more to come. Let's switch topics here. About 11 minutes left. We'll get to questions here shortly. Would love to hear your thoughts on digital wholesale.
Sure.
So CarOffer was the big acquisition several years ago, are now finalized. We took a write-down, but, you know, any change in the trajectory but I don't think there. Is there a change in the trajectory of wholesale as the market stabilizes? And our view here is the market is stabilizing here. I know, I know you talked about days on lots, et cetera, but any change in trajectory as the market stabilizes, or how should we think about this business as the market if the market stabilizes? However you wanna say that.
Sure. So I will break up the market trends versus the digital wholesale internal, operations and the business—
Right.
Itself. So in terms of the market, you are seeing still a continued normalization of the digital wholesale market, and in fact, these prices continue to come off after the COVID spike. So the market is stabilizing, but we are not done yet there.
Mm.
I think we are still 40% above the pre-COVID prices.
Okay.
There is still a fair amount to go. You can check the Manheim Index in these regards. In terms of CarOffer, it continues to be a very strong, strict, and compelling, strategic, and a synergistic rationale. In terms of strategy, what I just said is, it's a $10 billion-$15 billion TAM. The digital penetration is low, but is accelerating very rapidly, and so it's very compelling space for us to be a market participant, and definitely we want to have a presence there.
From a synergistic rationale standpoint, we have an enormous, a sizable amount of data that we collect constantly on our retail website, that we can use and leverage to feed into our Matrix, which is our platform that we, technology that we use to price vehicles, to inform at which vehicles dealers should buy, where, and how much they should bid for that unit, for that car, in order to achieve a given profit.
Mm.
So that is very compelling because we have a highly differentiated pool of data that is very hard to replicate. It's live data, it's very accurate because we see at what levels cars are clearing and are being sold, in which geographies, Right? And also, which models are most in demand. If you feed that into our Matrix, you can provide the value proposition for the dealer is very compelling because you can inform when they bid for that vehicle on the wholesale side, how much they should bid vis-à-vis the current marketplace, Right? So that's very compelling. In terms of the business and how it's going, so the business was built for an upmarket, and so the origination motion-
I was gonna say, Yeah.
The origination momentum was very strong and was the main focus of the sales force, and so the sales strategy and the processes were also built for a market that was going up. Now, it's a very different market. As we said, it's normalizing. The wholesale prices are continuing to come down, and so rather than origination, the account management becomes the most important activity, and where we are putting the most focus. And so in reshaping the go-to-market approach and the strategy, we are switching from origination into account management.
Mm.
The incentives are also need to be aligned with this. The way we sell the product, the analytics, the feedback, this is all being adapted to this new market normal, and so it is taking some time in terms of go-to-market. We're also tweaking the product to make sure that customers have a consistent experience, user experience, and that the usability of the Matrix is also enhanced. The third thing we are doing on the CarOffer side, digital wholesale side, is creating a shared services center, so we are leveraging our support functions, so namely finance, HR, and legal, to basically help. And we're merging these functions, and so that, so that CarOffer can also leverage those. The benefit is not only from an efficiency standpoint, but also from an effectiveness standpoint. These are becoming centers of excellence.
The last one is what I just said on the ability to leverage the data and feed that into the Matrix. That is a big project that we're working on at the moment, and so we are making progress.
Yep.
It's just taking some time —
That's very helpful.
To return the business to profitable growth.
Any questions in the audience?
Well, I was wondering what percentage of the customers that purchase a car using, sell their car using CarGurus, will also buy a car from the same dealership?
So the trading rate, have we disclosed that? No. Okay. It's not a statistic that we have disclosed, but it should be a fairly sizable portion of the customers who sell a car, also get a trade-in.
The same?
From the same dealer. Yeah, absolutely.
Yeah.
Thank you.
Great. Good.
Unpack a little bit of the international growth you've seen this year. Obviously, dealer count on your internationals ticked up in the first half. CarGurus growth is about 20%. Yeah.
We are very pleased with our international markets, both the U.K. and Canada. Very different dynamics. In Canada, we are really growing market share very fast. We are growing our traffic, and so we see a very compelling opportunity for growth and expansion there, and we are investing accordingly to make sure that the business continues to grow at a very elevated pace. In the U.K, we have adopted a more profitable growth, efficient, approach, and so we want to make sure that all the investments that we make in the U.K. turn into profitable growth. The playbook overall, from an international standpoint, is to replicate what we have in the U.S. while leveraging the SG&A base that is domestic, without adding too much to the local business, and so it's proving to be very efficient from a profitability standpoint.
Any other questions? If not, I'll keep going, well, if you think of some, let us know. Let's talk about managing growth and profitability, so more on the income statement or what have you. I think OpEx was guided to be flat sequentially. Would love to hear your thoughts on how you manage investments in the business relative to just margin expansion.
Sure.
So the typical growth versus profitability.
The business continues to demonstrate very satisfactory operating leverage, and so we are very pleased with that, and with the flow-through of the top-line growth into the margins. In terms of our philosophy, there is a degree of continuous investment in product innovation, and growth in general in the business that is non-negotiable and is starting to pay off, in the sense that it's not only lead gen, but we have a number of product that we are launching and that we have launched in the last few quarters, that do provide more value to our dealers and are starting to demonstrate into, and showing to our top line, and superior growth, much higher than the industry. We're growing double- digit.
The industry, on average, has been growing in the last ten years between mid- and high-single-digit, and so we are starting to see sustained, superior outperformance of the growth vis-a-vis the industry. That is just a reflection of our product innovation and our relentless pursuit of providing more value to our dealers, not only with lead, but non-lead.
Yeah.
So the value-added product and services. In terms of driving operating leverage, we are seeing good performance across all the cost lines. I said earlier in this discussion, marketing, we have achieved significant efficiency in 2023. We are retaining that efficiency. I've also spoken qualitatively about our sales force and the fact that we spend less time selling and more time consulting, and so that is also driving more value and operating leverage.
Any plans for advertising campaign plans?
So we discussed our branding strategy and timing in, I think, in the first quarter earnings call. And so we said that marketing is gonna be a little bit more upfront this year in Q1. Branding spend is gonna be a bit more weighted towards Q1 and the first half of the year, and less so in the second half of the year. Whereas, our marketing media spend is gonna be lowest, as seasonally always is, in the fourth quarter, and so that is also gonna drive operating leverage.
And I gotta ask, we're almost at time, and we haven't talked about AI.
Mm-hmm.
We talked about AI in terms of a better search product, more personalization—
Sure.
Things along those lines. I wanna ask it from a, improving product development process—
Yeah.
So efficiencies process.
Yes.
Talk to us, all these products, I mean, we went through, I don't know, 10, 15 products that are coming out, and I think that's the beauty of CarGurus, but tell us how AI has improved the product development process.
So we apply AI, and we see the benefit of AI. We have a big internal initiative to drive AI adoption—
Yep.
Across functions, not just in product and tech. We see three areas where we can leverage AI, and we can drive benefit. The first one is platform efficiencies, and this is both on a product and tech productivity, but also automation of all the support functions, which is gonna increase not only efficiency, but also automation.
Support functions meaning what?
Finance, for example.
I understand.
Right?
Okay.
We are really focused on that these days, and across the team and across the finance verticals, for example, we see several applications of AI that is gonna improve the reliability—
Mm.
Of the processes, the accuracy, and also the efficiency. So that's internal platform efficiency. A portion of that, for example, is the app. The app is also leveraging AI and is going to improve the efficiencies or the efficiency of our search tool and capabilities.
Okay.
The second one is the search functionalities, and so the user, and the consumer interface, and the consumer experience, that is also an area where we are leveraging AI. And I spoke about the relevance of the content that we provide, and how we really personalize content for the consumer. And the third one is the ability to extract actionable insights, leveraging our data set. And so extracting, retrieving data, but also transforming that into actionable insight is something where AI can be leveraged significantly.
You're seeing that today?
Yes.
Is that a thing?
Really something that we're working on today.
Developers are becoming more efficient?
Yes.
Potentially impacting hiring plans.
I wouldn't say so.
Not yet.
I think it's more a matter of productivity—
Okay.
Rather than anything else.
Okay.
Right? It's more a matter of time- to- development. It's more a matte r—
Has come down.
Yes, it's come down, and also, like, enabling our engineers and our product team to be much more creative, and to focus on value-added activities-—
Yeah.
As opposed to just coding.
That's wonderful. Elisa, thank you very much.
Thank you.
I think we're at time. Appreciate it today. A lot going on at CarGurus.
Thank you.
Thank you.