Cars.com Inc. CARS
Starboard, a ~10% holder, warns Cars.com's board that serial guide-downs must end with credible 2019-2021 targets, a third independent director, and — absent improvement — management change or a sale.
Thesis
Starboard Value, owning just under 10% of Cars.com, escalates a year of private dialogue into a public letter arguing that management has presided over an almost two-year pattern of customer losses, organic revenue declines and serially lowered guidance. Under a March 2018 settlement, the Company must publish 2019-2021 revenue and EBITDA margin targets by February 28, 2019, and Starboard uses this letter to demand the targets be ambitious rather than sandbagged, with a credible explanation of how execution will differ. Starboard argues the true earnings power supports roughly $4.00 per share of Adjusted Free Cash Flow by 2020 and reminds the Board that the agreed third independent director still has not been appointed. If progress does not follow, it expects the Board to consider management changes and a sale of the Company to strategic or financial buyers.
SCQA
Cars.com is a 20-year-old, industry-leading automotive digital marketplace that should benefit from sector tailwinds, yet trades at a deep discount to digital-media and listed peers.
Over almost two years management has delivered customer losses, organic revenue declines and repeated guide-downs on revenue growth and EBITDA margins, destroying credibility with shareholders.
Set ambitious 2019-2021 revenue and EBITDA targets by the February 28 deadline, appoint the agreed third independent director, and — absent rapid improvement — change management and explore a sale.
Properly operated, Cars.com can generate roughly $4.00 per share of Adjusted Free Cash Flow by 2020 and close its valuation gap to digital-media peers; strategic and financial buyers would be highly interested.
The three reasons
- 1
Two-year pattern of customer losses, organic revenue declines and repeatedly lowered guidance
- 2
Cars.com trades at a deep discount to digital media peers despite 20+ years of brand investment
- 3
Properly run, the business can deliver ~$4.00/share of Adjusted Free Cash Flow by 2020
Primary demands
- Set ambitious, credible 2019-2021 revenue and EBITDA margin targets by the February 28, 2019 Target Date rather than lowering the bar to mask execution failures
- Demonstrate publicly how and why execution in 2019-2021 will differ from the prior two years of missed guidance
- Honor the March 2018 settlement agreement by appointing a mutually agreeable third independent director to the Board
- Achieve approximately $4.00 per share of Adjusted Free Cash Flow by the end of 2020
- If improvement does not materialize, pursue management changes and explore a sale of the Company to strategic or financial buyers
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Notable slides (2)
Notes
Three-page public letter from Jeffrey C. Smith of Starboard, addressed to Cars.com CEO Alex Vetter and Chairman Scott Forbes with Board cc. Follows a March 2018 settlement (two new independent directors plus an unresolved third). Prose-dominant Word-style format with a single embedded quarterly performance chart on p.1 combining EBITDA YoY bars and dealer-count bars plus guidance-event callouts. Tone is publicly restrained ('constructive dialogue') but escalatory: explicit threat of management change and sale if results don't improve by Q4/2019 target announcement. Stake recorded as 9.9 to approximate 'slightly less than 10.0%'. No formal sum-of-parts, no peer-gap chart, no CEO-quote contradiction — the evidence is the Company's own guide-down history.