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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on September 29, 2017.

Registration Statement No. 333-220495


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Amendment No. 1 to

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



CARGURUS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  7389
(Primary Standard Industrial
Classification Code Number)
  04-3843478
(IRS Employer
Identification Number)

2 Canal Park
4th Floor
Cambridge, Massachusetts 02141
(617) 354-0068

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)



Langley Steinert
Chief Executive Officer, President, and Chairman
2 Canal Park
4th Floor
Cambridge, Massachusetts 02141
(617) 354-0068

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Michael A. Conza, Esq.
Gitte J. Blanchet, Esq.
Morgan, Lewis & Bockius LLP
One Federal Street
Boston, Massachusetts 02110
(617) 341-7700

 

Jason Trevisan
Chief Financial Officer and Treasurer
2 Canal Park, 4th Floor
Cambridge, Massachusetts 02141
(617) 354-0068

 

Mark G. Borden, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
(617) 526-6000



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.

              If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.    o

              If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

              If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

              If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

              Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(do not check if a
smaller reporting company)
  Smaller reporting company o

Emerging growth company ý

              If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities
to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price Per
Share

  Estimated Maximum
Aggregate Offering
Price(2)

  Amount of
Registration Fee(3)

 

Class A Common Stock, par value $0.001 per share

  10,810,000   $15.00   $162,150,000   $18,794

 

(1)
Includes shares that the underwriters have the option to purchase to cover over-allotments, if any.

(2)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)
The registrant previously paid $11,590 of this registration fee in connection with the original filing of this Registration Statement on September 15, 2017.

              The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated September 29, 2017.

9,400,000 Shares

LOGO

Class A Common Stock

          This is an initial public offering of shares of Class A common stock of CarGurus, Inc.

          We are offering 2,500,000 shares of Class A common stock. The selling stockholders identified in this prospectus are offering an additional 6,900,000 shares of Class A common stock. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

          We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately 78.5% of the voting power of our outstanding capital stock immediately following this offering.

          Following this offering, our founder, Chief Executive Officer, President, and Chairman, Langley Steinert, will hold or have the ability to control approximately 53% of the voting power of our outstanding capital stock. As a result, we will be a "controlled company" within the meaning of the corporate governance rules for the NASDAQ Stock Market. See the section titled "Management — Controlled Company."

          Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price of our Class A common stock will be between $13.00 and $15.00 per share. We have applied to list our Class A common stock on the NASDAQ Global Select Market under the symbol "CARG."

          We are an "emerging growth company" as defined under the federal securities laws, and as such, we may elect to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings. See "Prospectus Summary — Implications of Being an Emerging Growth Company."

          See "Risk Factors" on page 17 to read about factors you should consider before buying shares of our Class A common stock.



          Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.



  Per Share   Total
 

Initial public offering price

  $                       $                      

Underwriting discount(1)

  $                       $                      

Proceeds, before expenses, to CarGurus

  $                       $                      

Proceeds, before expenses, to the selling stockholders

  $                       $                      

(1)
See the section titled "Underwriting (Conflicts of Interest)" for a description of the compensation payable to the underwriters.

          To the extent that the underwriters sell more than 9,400,000 shares of Class A common stock, the underwriters have the option to purchase up to an additional 1,410,000 shares of Class A common stock from us and certain of the selling stockholders at the initial public offering price less the underwriting discount.



          The underwriters expect to deliver the shares against payment in New York, New York on or about                          , 2017.

Goldman Sachs & Co. LLC        
    Allen & Company LLC    
        RBC Capital Markets

JMP Securities   Raymond James   William Blair



   

Prospectus dated                          , 2017


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TABLE OF CONTENTS

    Page
 

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    17  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY AND MARKET DATA

    44  

USE OF PROCEEDS

    46  

DIVIDEND POLICY

    47  

CAPITALIZATION

    48  

DILUTION

    51  

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

    54  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    58  

BUSINESS

    90  

MANAGEMENT

    110  

EXECUTIVE COMPENSATION

    118  

CERTAIN RELATIONSHIPS, RELATED PERSON, AND OTHER TRANSACTIONS

    136  

PRINCIPAL AND SELLING STOCKHOLDERS

    142  

DESCRIPTION OF CAPITAL STOCK

    145  

SHARES ELIGIBLE FOR FUTURE SALE

    152  

MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS

    155  

UNDERWRITING (CONFLICTS OF INTEREST)

    161  

LEGAL MATTERS

    167  

EXPERTS

    167  

WHERE YOU CAN FIND MORE INFORMATION

    167  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

    F-1  



          Through and including                       , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.



          Neither we, the selling stockholders, nor the underwriters have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We, the selling stockholders, and the underwriters take no responsibility for, and provide no assurance about the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Class A common stock. Our business, financial condition, results of operations, and prospects may have changed since such date.

          For investors outside the United States: Neither we, the selling stockholders, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.

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PROSPECTUS SUMMARY

          This summary highlights information appearing elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus, before making any investment decision. Unless the context otherwise requires, we use the terms "CarGurus," the "company," "we," "us," and "our" in this prospectus to refer to CarGurus, Inc. and, where appropriate, our consolidated subsidiaries.

Our Business

          CarGurus is a global, online automotive marketplace connecting buyers and sellers of new and used cars. Using proprietary technology, search algorithms, and innovative data analytics, we believe we are building the world's most trusted and transparent automotive marketplace and creating a differentiated automotive search experience for consumers. Our trusted marketplace empowers users with unbiased third-party validation on pricing and dealer reputation as well as other information that aids them in finding "Great Deals from Great Dealers." As of June 30, 2017, we had an active dealer network of over 40,000 dealers, and our selection of over 5.4 million car listings is the largest number of car listings available on any of the major U.S. online automotive marketplaces. In addition to the United States, we operate online marketplaces in Canada, the United Kingdom, and Germany.

          A core principle of our marketplace is unbiased transparency. For consumers considering used vehicles, we aggregate vehicle inventory from dealers and apply our proprietary analysis to generate a Deal Rating as either: Great Deal, Good Deal, Fair Deal, High Priced, or Overpriced. Deal Rating illustrates how competitive a listing is compared to similar cars sold in the same region in recent history. We determine Deal Rating principally on the basis of both our proprietary Instant Market Value, or IMV, algorithm, which determines the market value of any given vehicle in a local market, and Dealer Rating, a measure of a dealer's reputation as determined by reviews of that dealer from our user community. By sorting organic search results based on a used car's Deal Rating, we enable consumers to find the most relevant car for their needs. We also provide our users information historically not widely available, such as Price History, Time on Site, and Vehicle History. We believe this approach brings greater transparency, trust, and efficiency to a consumer's car research and buying process, leading to higher engagement and a more informed consumer who is better prepared to purchase at the dealership.

          According to Google Analytics, in the second quarter of 2017, we had approximately 61 million average monthly sessions in the United States, up from approximately 45 million during the same period in 2016. According to comScore, we have become the most visited online automotive marketplace in the United States, and we have the largest mobile audience, with over 78% of our second quarter 2017 monthly unique visitors accessing our marketplace from mobile devices. Our focus on providing unbiased transparency for consumers has also created an engaged user community. According to comScore, during the second quarter of 2017, visitors returned to our site 2.4 times as often as any other major U.S. online automotive marketplace, up from 1.8 times as often in the second quarter of 2016.

          Our large, engaged, and predominantly mobile user base presents an attractive audience of in-market consumers for our dealers. By connecting dealers with more informed consumers, we believe we provide dealers with an efficient customer acquisition channel and attractive returns on their marketing spend with us. Dealers can list their inventory in our marketplace for free with our Basic Listing product or with a paid subscription to our Enhanced or Featured Listing products.

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Dealers with free listings receive anonymized email connections and access to a subset of the tools on our Dealer Dashboard at no cost. Dealers with a paid subscription receive connections to consumers that are not anonymous and can be made through a wider variety of methods, including phone calls, email, managed text and chat, links to the dealer's website, and map directions to dealerships. In addition, dealers subscribed to our Enhanced and Featured Listing products gain full access to our Dealer Dashboard and are also able to display their dealership information to gain brand recognition, which promotes walk-in traffic to the dealer. Our success with dealers is evidenced by the 66% growth in the number of paying dealers in our U.S. marketplace from 2015 to 2016.

          Our scaled online marketplace model drives powerful network effects. The industry-leading inventory selection offered by our dealers attracts a large and engaged consumer audience. The value of robust connections to this audience incentivizes dealers to purchase our Enhanced or Featured Listing products. Having more paying dealers provides consumers with more dealer information and methods to contact them. More consumers and connections drives greater value to paying dealers on our platform. Driven by these network effects, we continue to amass more data, which we use to continuously improve our search algorithms, the accuracy of Deal Ratings, our user experience, and, ultimately, the quality of the connections between consumers and dealers.

          We generate marketplace subscription revenue from dealers through listing and display advertising subscriptions and advertising revenue from auto manufacturers and other auto-related brand advertisers. Our rapid revenue growth and financial performance over the last several years exemplifies the strength of our marketplace. In 2016, we generated revenue of $198.1 million, a 101% increase from $98.6 million of revenue in 2015. Our revenue for the six months ended June 30, 2017 was $143.3 million, a 70% increase from $84.2 million of revenue in the six months ended June 30, 2016. In 2016, we generated net income of $6.5 million and our Adjusted EBITDA was $11.0 million, compared to a net loss of $1.6 million and Adjusted EBITDA of $(0.4) million in 2015. For the six months ended June 30, 2017, we generated net income of $8.6 million and Adjusted EBITDA of $14.1 million, compared to net income of $0.5 million and Adjusted EBITDA of $1.7 million for the six months ended June 30, 2016. See "Selected Consolidated Financial and Other Data — Adjusted EBITDA" for more information regarding our use of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our net income (loss).

Industry Dynamics and Market Opportunity

          Significant Purchasing Decision for Consumers.    A car is often the second largest purchase a consumer will make, second only to his or her home. Traditionally, the process of finding the right car to buy, selecting the right dealer or seller to buy it from, and deciding how much to spend, has been complex and intimidating.

          Massive U.S. Automotive Market.    The automotive industry is one of the largest in the United States. Borrell Associates estimates that U.S. retail automotive sales reached $1.3 trillion in 2016, with dealers accounting for over 85% of all cars sold. According to these estimates, there are approximately 43,000 dealers in the United States, including over 16,000 franchise dealers affiliated with an automotive brand that often sell both new and used cars, and over 26,000 independent dealers that sell only used cars. These U.S. dealers sold approximately 17 million new cars and 44 million used cars in 2016, while peer-to-peer transactions by individuals accounted for approximately 11 million used cars sold. The same report estimates that the U.S. automotive industry spent over $37 billion on advertising in 2016, $23 billion of which was spent by dealers.

          Shift from Offline to Online.    Consumers are increasingly using the Internet to search for cars before entering a dealership. According to JD Power & Associates, the average car buyer spends 14 hours researching cars online prior to making a purchase. To respond to this trend, the

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U.S. automotive industry has increasingly allocated more marketing spend to online channels. According to Borrell Associates estimates, 57% of the U.S. automotive marketing spend was on online channels in 2016, up from 32% in 2011, and it is expected to increase to 70% by 2021.

          Increasing Importance of Mobile Devices.    Consumers are increasingly using their mobile devices to search for vehicles. A 2017 Google study estimates that as much as 71% of a consumer's interactions with dealers, brands, and third-party sites during the car buying process occurred on mobile devices.

          Highly Fragmented, Local Market.    The market for new and used car sales is highly fragmented and local, making it competitive for dealers to find local buyers. A dealer's inventory may change daily and the speed at which a dealer turns its inventory is a key driver of its profitability. Additionally, unlike new cars, no two used cars are alike, making it challenging for dealers to find the right buyer for a specific vehicle in a cost-efficient manner.

          Large International Automotive Markets with Similar Dynamics as the United States.    Much like in the United States, dealers represent a critical part of international automotive markets. It is estimated that in 2016, there were approximately 5,800 dealers in Canada and 4.9 million new and used cars sold; 11,700 dealers in the United Kingdom and 10.9 million new and used cars sold; and 21,000 dealers in Germany and 10.8 million new and used cars sold.

Consumer and Dealer Challenges

          Consumer Challenges.    Historically, the lack of unbiased, transparent information has made it difficult for consumers to effectively compare vehicles and find the vehicle that best suits their needs. For consumers searching for used cars, every car is unique, and it is difficult to aggregate the relevant inventory of available used cars across dealers. Generally, dealers also have had more information about car prices than consumers do, as consumers have had limited resources to determine an appropriate price. Selecting the right dealer has also been challenging for consumers as dealer reputations have historically been based primarily on word-of-mouth.

          Dealer Challenges.    The economics of dealerships depend largely on sales volume, gross margin, and customer acquisition efficiency. To achieve a high return on their marketing investments, dealers must find in-market consumers. Traditional marketing channels, including television, radio, and newspaper, can effectively target locally but are inefficient in reaching the small percentage of consumers who are actively in the market to buy a car. In addition, dealers need to find ways to manage constantly changing inventory and adjust pricing strategies to adapt to frequently changing market conditions.

Our Approach

Why Consumers Choose Us

          We believe that our marketplace offers the best online automotive marketplace experience for consumers, distinguished by the following:

    Largest Inventory Selection.  As of June 30, 2017, we had an active dealer network of over 40,000 dealers, and our selection of over 5.4 million car listings is the largest number of car listings available on any of the major U.S. online automotive marketplaces. We define our active dealer network as consisting of all dealers to which we connected a user about a listing during the ninety-day period ending on the applicable measurement date.

    Trust and Unbiased Transparency.  Used cars identified through searches in our marketplace are sorted by, and shown with, a Deal Rating, which is determined principally by our proprietary IMV and Dealer Rating. These features, coupled with information historically not

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      widely available, provide consumers with unbiased, transparent information with which to make their purchasing decision.

    Intuitive Search Results.  For used car shoppers, our organic search function prioritizes results by a car's Deal Rating, which we believe is most relevant to a consumer's decision. In contrast, paid-inclusion automotive marketplaces award dealers preferential listing placement based on how much a dealer pays.

    Robust, Mobile-Focused Experience.  We have designed our marketplace to appeal to mobile users by developing our products with a mobile-first mindset. This approach has resulted in over 78% of our monthly unique visitors accessing our marketplace from mobile devices in the second quarter of 2017, and a 43% growth in our average monthly mobile visits from 2015 to 2016, according to comScore.

Why Dealers Choose Us

          We believe that dealers choose us for the following reasons:

    Attractive Return on Investment.  We believe we offer dealers an efficient customer acquisition channel driven by the volume of connections to our users, the quality of those connections, and the brand exposure to our engaged audience in relation to our subscription cost.

    Large and Engaged Audience.  We are the most visited online automotive marketplace in the United States; according to comScore, in the second quarter of 2017 we had 2.3 times as many visits to our U.S. website as any other major U.S. online automotive marketplace, up from 1.8 times as many during the same period in 2016. In addition, we believe our audience is more engaged than users of other major U.S. online automotive marketplaces; in the second quarter of 2017, our visitors returned to our site more than 2.4 times as often as any other major U.S. online automotive marketplace.

    Volume of Connections.  Our marketplace enables consumers to easily connect with dealers through a variety of channels. In 2016, we provided over 42 million connections to our dealers in the United States.

    Broad Suite of Products and Tools.  We offer products that help dealers acquire customers and build their brands. Additionally, we provide tools to help dealers market and sell their cars more efficiently.

Why Auto Manufacturers Choose Us

          We believe that auto manufacturers choose to advertise in our marketplace for the following reasons:

    Unique Non-Overlapping Audience of In-Market Consumers.  Based on comScore estimates, in the second quarter of 2017, 62% of our monthly unique visitors did not visit any of the other major U.S. online automotive marketplaces during the same period. This creates a compelling value proposition to auto manufacturers, as they would have difficulty reaching these users at scale elsewhere.

    Clean, Uncluttered Pages.  We provide a clean and uncluttered user interface as part of our commitment to creating the best consumer experience. By limiting the number of advertisements on any given page, we help advertisers' messages better resonate when compared to other online automotive marketplaces that display significantly more ads.

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Our Strengths

          We believe that our competitive advantages are based on the following key strengths:

    Trusted Marketplace for Consumers.  We believe that providing an unbiased and transparent consumer experience has instilled greater trust in us among our users, helping us become the most visited major U.S. online automotive marketplace. In the second quarter of 2017, we experienced over 61 million average monthly sessions. We define average monthly sessions as the number of distinct visits to our website that take place each month within a given time frame, as measured and defined by Google Analytics.

    Proprietary Search Algorithms and Data-Driven Approach.  We have built an extensive repository of data that is the result of over seven years of data aggregation and regression modeling. We calculate IMV using complex algorithms and data analytics that apply more than 20 ranking signals and more than 100 normalization rules to millions of data points. Our proprietary search algorithms and data analytics allow us to use this data to bring greater transparency to our platform through Deal Rating, as well as build new products and launch marketplaces in new countries.

    Strong Value Proposition to Dealers.  We believe that our marketplace offers an efficient customer acquisition channel for dealers, helping them achieve attractive returns on their marketing spend with us. Our strong value proposition to the dealer community is evidenced by the 66% growth in the number of our paying U.S. dealers, and 18% growth in average annual revenue per subscribing dealer, or AARSD, in the United States from 2015 to 2016.

    Network Effects Driven by Scale.  Having reached the majority of dealers and built one of the largest consumer audiences in the United States, we believe that our scale creates powerful network effects that reinforce the competitive strength of our business model. Our large consumer audience incentivizes more dealers to convert to paid usage of our listing products, which in turn provides consumers with more dealer information and methods to contact them. More consumers and connections drive greater value to our paying dealers.

    Attractive Financial Model.  We have a strong track record of revenue growth, profitability, and capital efficiency. Our subscription model results in revenue that is recurring among a diversified customer base.

    Founder-Led Management Team with Culture of Innovation.  Building upon our founder's previous experience in using technology to provide transparent information to consumers, we have fostered a culture of data-driven innovation that we expect will drive continued growth.

Our Growth Strategies

          We intend to continue to grow our business by pursuing the following strategies:

    Grow Our Paying U.S. Dealer Base.  We plan to convert more dealers to paying dealers in the United States by demonstrating the value proposition of our marketplace and by introducing new features and services.

    Increase Our Share of Dealer Marketing Spend From Existing Products.  We intend to continue to grow our AARSD by increasing the volume of connections we provide to dealers and demonstrating the value of our large, engaged, and predominantly mobile audience.

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    Offer Additional Dealer Products.  We plan to offer new products to help dealers acquire customers, build relationships with prospects, and better manage their inventories, websites, and dealerships.

    Grow the Size and Engagement of Our Consumer Audience.  We intend to continue investing in, and improving the efficiency of, our algorithmic traffic acquisition. We also intend to add new features to assist consumers with more aspects of the car ownership lifecycle.

    Invest in Our Brand.  We plan to further expand our marketing efforts to drive greater brand recognition, trust, and loyalty from consumers and dealers.

    Expand into International Markets.  We plan to grow our marketplaces in Canada, the United Kingdom, and Germany and launch new marketplaces in other countries which have attractive industry dynamics.


Risks Affecting Our Business

          You should consider carefully the risks described under the "Risk Factors" section beginning on page 17 and elsewhere in this prospectus. These risks, which include the following, could materially and adversely affect our business, financial condition, operating results, cash flow, and prospects, which could cause the trading price of our Class A common stock to decline and could result in a partial or total loss of your investment:

    Our business is substantially dependent on our relationships with dealers, and our subscription agreements with these dealers do not contain long-term contractual commitments. If a significant number of dealers terminate their subscription agreements with us, our business and financial results would be materially and adversely affected.

    If we fail to maintain or increase the number of dealers that pay subscription fees to us, or fail to maintain or increase the fees paid to us for subscriptions, our business and financial results would be harmed.

    If dealers or other advertisers reduce their advertising spend with us and we are unable to attract new advertisers, our business would be harmed.

    If we are unable to provide a compelling vehicle search experience to consumers through both our web and mobile platforms, the number of connections between consumers and dealers using our marketplace may decline and our business and financial results would be materially and adversely affected.

    We rely on Internet search engines to drive traffic to our website, and if we fail to appear prominently in the search results, our traffic would decline and our business would be adversely affected.

    Any inability by us to develop new products, or achieve widespread consumer adoption of those products, could negatively impact our business and financial results.

    We may be unable to maintain or grow relationships with data providers, or may experience interruptions in the data they provide, which may create a less valuable or less transparent shopping experience and negatively affect our business and operating results.

    The failure to build and maintain our brand would harm our ability to grow our audience and to expand the use of our marketplace by consumers and dealers.

    Our recent, rapid growth is not indicative of our future growth, and our revenue growth rate will decline in the future.

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    If we fail to expand effectively into new markets, both domestically and abroad, our revenue, business, and financial results will be harmed.

    We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.

    Following this offering, our founder and Chief Executive Officer will control a majority of the voting power of our outstanding capital stock, and, therefore, will have control over key decision-making and could control our actions in a manner that conflicts with the interests of other stockholders.

Our Status as a Controlled Company

          Mr. Steinert, who after our initial public offering will control approximately 53% of the voting power of our outstanding capital stock, will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors, as well as the overall management and direction of our company. Because Mr. Steinert controls a majority of our outstanding voting power, we will be a "controlled company" under the corporate governance rules for NASDAQ-listed companies. Because we will qualify as a "controlled company," we will not be required to have a majority of our board of directors be independent, nor will we be required to have a compensation committee consisting entirely of independent directors or having an independent nominating function. Following this offering, we intend to initially avail ourselves of certain of these exemptions and, for so long as we qualify as a "controlled company," we will maintain the option to utilize from time to time some or all of these exemptions. For example, upon the closing of this offering, our compensation committee will not consist entirely of independent directors and we will not have a nominating and corporate governance committee.

          In the event of Mr. Steinert's death or voluntary termination of all employment and service on our board of directors, or if the sum of the number of shares of our capital stock held by Langley Steinert, by any Family Member of Langley Steinert, and by any Permitted Entity of Langley Steinert (as such terms are defined in our amended and restated certificate of incorporation), assuming the exercise and settlement in full of all outstanding options and convertible securities and calculated on an as-converted to Class A common stock basis, is less than 9,091,484, then each outstanding share of Class B common stock will convert into one share of Class A common stock. Upon any such conversion, we may no longer be a "controlled company."

Corporate Information

          We were originally organized on November 10, 2005 as a Massachusetts limited liability company under the name "Nimalex LLC." Effective July 15, 2006, we changed our name to "CarGurus LLC." On June 26, 2015, we converted into a Delaware corporation and changed our name to "CarGurus, Inc."

          Our principal executive offices are located at 2 Canal Park, 4th Floor, Cambridge, Massachusetts 02141, and our telephone number is (617) 354-0068. Our website is www.cargurus.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

          CarGurus, the CarGurus logo, and other trademarks or service marks of CarGurus appearing in this prospectus are the property of CarGurus. Trade names, trademarks, and service marks of other companies appearing in this prospectus are the property of their respective holders. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this prospectus.

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Implications of Being an Emerging Growth Company

          We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and are therefore subject to reduced public company reporting requirements. We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; the date we qualify as a "large accelerated filer," with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

          As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

    reduced disclosure about our executive compensation arrangements;

    exemption from the requirements to hold non-binding shareholder advisory votes on executive compensation or golden parachute arrangements;

    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and

    reduced disclosure of financial information in this prospectus, such as being permitted to include only two years of audited financial information and two years of selected financial information in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure.

          We may choose to take advantage of some, or all, of the available exemptions. We have taken advantage of some reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. The JOBS Act also permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to avail ourselves of this extended transition period and, as a result, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies.

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THE OFFERING

Class A common stock offered by us

  2,500,000 shares

Class A common stock offered by the selling stockholders

 

6,900,000 shares

Class A common stock to be outstanding after this offering

 

77,145,294 shares (or 77,850,294 shares if the underwriters option to purchase additional shares is exercised in full)

Class B common stock to be outstanding after this offering

 

28,161,232 shares

Total Class A common stock and Class B common stock to be outstanding after this offering

 

105,306,526 shares

Option to purchase additional shares of Class A common stock from us and certain of the selling stockholders

 

We and the selling stockholders have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to 705,000 additional shares of Class A common stock from us and up to 705,000 shares of Class A common stock from the selling stockholders.

Use of proceeds

 

We estimate that our net proceeds from the sale of our Class A common stock that we are offering will be approximately $28.5 million (or approximately $37.6 million if the underwriters' option to purchase additional shares in this offering is exercised in full), based upon an assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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The principal purposes of this offering are to increase our financial flexibility, improve our visibility in the marketplace, create a public market for our Class A common stock, and facilitate our future access to the public capital markets. We currently intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital, operating expenses, and capital expenditures. We may also use a portion of the net proceeds to acquire or invest in complementary technologies, solutions, products, services, businesses, or other assets, although we have no present commitments or agreements to enter into any acquisitions or investments. We will not receive any of the proceeds from the sale of Class A common stock in this offering by the selling stockholders, including any proceeds from the sale of up to 705,000 shares by the selling stockholders if the underwriters' option to purchase additional shares is exercised in full. See "Use of Proceeds" for additional information.

Voting rights

 

Following this offering, we will have two classes of authorized common stock, Class A common stock and Class B common stock. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one share of Class A common stock.

 

Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by Delaware law or our amended and restated certificate of incorporation that will become effective upon the closing of this offering. Following this offering, our founder, Chief Executive Officer, President, and Chairman, Langley Steinert, will hold or have the ability to control approximately 53% of the voting power of our outstanding capital stock. As a result, we will be a "controlled company" within the meaning of the corporate governance rules for the NASDAQ Stock Market and Mr. Steinert will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction. See the sections titled "Principal and Selling Stockholders" and "Description of Capital Stock" for additional information.

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Concentration of ownership

 

Upon the closing of this offering, the outstanding Class B common stock will represent 26.7% of our outstanding shares and approximately 78.5% of the voting power of our outstanding shares, and our executive officers, directors, and stockholders holding more than 5% of our outstanding shares, together with their affiliates, will beneficially own, in the aggregate, approximately 73.0% of our outstanding shares and 75.3% of the voting power of our outstanding shares. Our founder, Chief Executive Officer, President, and Chairman, Langley Steinert, will hold or have the ability to control approximately 53% of the voting power of our outstanding capital stock following this offering.

Conflicts of Interest

 

Allen & Company LLC, an underwriter in this offering, and its associated persons, including Ian Smith, a member of our board of directors, beneficially own 71,685 shares of our outstanding Series A preferred stock, 1,128,994 shares of our outstanding Series B preferred stock, and 163,331 shares of our outstanding Series C preferred stock, collectively representing 13.5% of our outstanding preferred stock, which shares of preferred stock will automatically convert into 8,184,061 shares of Class A common stock upon the closing of this offering. Because Allen & Company LLC is an underwriter in this offering and because Allen & Company LLC and its associated persons beneficially own more than 10% of our outstanding preferred stock, Allen & Company LLC is deemed to have a "conflict of interest" under Rule 5121, which we refer to herein as Rule 5121, of the Financial Industry Regulatory Authority, Inc., or FINRA. Accordingly, this offering will be conducted in accordance with the applicable provisions of Rule 5121, which requires, among other things, that a "qualified independent underwriter" as defined by Rule 5121 has participated in the preparation of, and has exercised the usual standards of "due diligence" with respect to, the registration statement and this prospectus. Goldman Sachs & Co. LLC has agreed to act as qualified independent underwriter within the meaning of Rule 5121 for this offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act of 1933, as amended, or the Securities Act, specifically including those inherent in Section 11 of the Securities Act. See "Underwriting (Conflicts of Interest)."

Risk factors

 

You should read the "Risk Factors" section beginning on page 17 and the other information included in this prospectus for a discussion of factors to consider before deciding to invest in shares of our Class A common stock.

Proposed NASDAQ Global Select Market trading symbol

 

"CARG"

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          The number of shares of our Class A common stock and Class B common stock that will be outstanding after this offering is based on 74,645,294 shares of our Class A common stock outstanding and 28,161,232 shares of our Class B common stock outstanding, in each case, as of June 30, 2017 (assuming the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 60,564,678 shares of Class A common stock upon the closing of this offering), and excludes:

    1,737,056 shares of Class A common stock issuable upon the exercise of options outstanding as of June 30, 2017 with a weighted-average exercise price of $1.65 per share and 3,474,112 shares of Class B common stock issuable upon the exercise of options outstanding as of June 30, 2017 with a weighted-average exercise price of $1.65 per share;

    789,934 shares of Class A common stock and 1,579,868 shares of Class B common stock issuable upon the vesting and settlement of restricted stock units, or RSUs, outstanding as of June 30, 2017; and

    8,457,912 shares of Class A common stock reserved for future issuance under our equity compensation plans, consisting of (i) 657,912 shares of Class A common stock reserved for future issuance under our Amended and Restated 2015 Equity Incentive Plan, as amended, or the 2015 Plan, as of June 30, 2017, plus (ii) 7,800,000 additional shares of Class A common stock reserved for future issuance under our Omnibus Incentive Compensation Plan, or our 2017 Plan, which will become effective upon the closing of this offering.

          Immediately prior to the closing of this offering, any remaining shares available for issuance under our 2015 Plan will be added to the shares of our Class A common stock reserved for issuance under our 2017 Plan, and we will cease granting awards under the 2015 Plan. In addition, shares of Class A common stock and shares of Class B common stock subject to outstanding grants under our 2015 Plan as of the effective date of our 2017 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered on or after the effective date of our 2017 Plan without having been exercised, vested, or paid prior to the effective date of the 2017 Plan, including shares tendered or withheld to satisfy tax withholding obligations with respect to outstanding grants under the 2015 Plan, will be added to the shares of Class A common stock reserved for issuance under our 2017 Plan. See the section titled "Executive Compensation — Employee Benefits and Stock Plans" for additional information.

          In addition, unless otherwise noted, the information in this prospectus reflects and assumes the following:

    the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, each of which will occur upon the closing of this offering;

    no exercise of outstanding options or settlement of outstanding RSUs after June 30, 2017;

    the retroactive adjustment to all periods herein of all share and per share information to reflect the share recapitalization effected on June 21, 2017, pursuant to which (i) each share of common stock then issued and outstanding was recapitalized, reclassified, and reconstituted into two fully paid and non-assessable shares of outstanding Class A common stock and four fully paid and non-assessable shares of outstanding Class B common stock, (ii) each outstanding common stock option was adjusted such that (a) each share of common stock underlying such option became two shares of Class A common stock and four shares of Class B common stock and (b) the exercise price per share of common stock underlying such option was adjusted to be one-sixth of the exercise price per share in effect immediately prior to the recapitalization, and (iii) each outstanding RSU was adjusted such that (a) each share of common stock issuable upon settlement of such RSU became two

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      shares of Class A common stock and four shares of Class B common stock and (b) the fair market value per share of common stock issuable upon settlement of such RSU was adjusted to be one-sixth of the fair market value per share in effect immediately prior to the recapitalization;

    the automatic conversion of all shares of our convertible preferred stock outstanding as of June 30, 2017 into 20,188,226 shares of our Class A common stock and 40,376,452 shares of our Class B common stock, and the subsequent conversion of such shares of Class B common stock into 40,376,452 shares of our Class A common stock, which conversions will occur upon to the closing of this offering; and

    no exercise by the underwriters of their option to purchase up to an additional 1,410,000 shares of Class A common stock from us and certain selling stockholders in this offering.

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

          The following tables summarize our consolidated financial and other data. We derived the summary consolidated statements of operations data for the years ended December 31, 2015 and 2016 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated statements of operations data for the six months ended June 30, 2016 and 2017 and our consolidated balance sheet data as of June 30, 2017 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements were prepared on a basis consistent with our annual financial statements and include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period. You should read the summary consolidated financial data set forth below in conjunction with the sections titled "Selected Consolidated Financial and Other Data" and "Management's Discussion and Analysis of Financial Condition and

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Results of Operations" and our consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this prospectus.

    Year Ended
December 31,
    Six Months Ended
June 30,
 

    2015     2016     2016     2017
 

    (in thousands, except share and per share data)  

Consolidated Statements of Operations Data:

                         

Revenue:

                         

Marketplace subscription

  $ 75,142   $ 171,302   $ 71,638   $ 127,952  

Advertising and other

    23,446     26,839     12,603     15,323  

Total revenue

    98,588     198,141     84,241     143,275  

Cost of revenue(1)

    4,234     9,575     3,819     7,647  

Gross profit

    94,354     188,566     80,422     135,628  

Operating expenses:

                         

Sales and marketing

    81,877     154,125     68,313     104,604  

Product, technology, and development

    8,235     11,453     5,150     8,357  

General and administrative

    5,801     12,783     5,618     9,092  

Depreciation and amortization         

    969     1,634     633     1,196  

Total operating expenses

    96,882     179,995     79,714     123,249  

(Loss) income from operations

    (2,528 )   8,571     708     12,379  

Other (expense) income, net

    (12 )   374     153     217  

(Loss) income before income taxes

    (2,540 )   8,945     861     12,596  

(Benefit from) provision for income taxes

    (904 )   2,448     340     4,043  

Net (loss) income

  $ (1,636 ) $ 6,497   $ 521   $ 8,553  

Net (loss) income per share attributable to common stockholders:(2)

                         

Basic

  $ (0.41 ) $ (0.58 ) $ 0.01   $ 0.08  

Diluted

  $ (0.41 ) $ (0.58 ) $   $ 0.08  

Weighted-average number of shares of common stock used in computing net (loss) income per share attributable to common stockholders:

                         

Basic

    43,141,236     44,138,922     44,651,235     42,122,339  

Diluted

    43,141,236     44,138,922     48,026,295     46,182,359  

Pro forma net (loss) income per share attributable to common stockholders:(2)

                         

Basic

        $ (0.24 )       $ 0.08  

Diluted

        $ (0.24 )       $ 0.08  

Pro forma weighted-average number of shares of common stock used in computing pro forma net (loss) income per share attributable to common stockholders:

                         

Basic

          104,703,600           102,687,017  

Diluted

          104,703,600           106,747,037  

(1)
Includes depreciation and amortization expense for the years ended December 31, 2015 and 2016 and for the six months ended June 30, 2016 and 2017 of $153, $438, $203, and $391, respectively.

(2)
See Note 2 of the notes to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our net (loss) income per share attributable to common stockholders, and pro forma net (loss) income per share attributable to common stockholders.

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Other Financial Information:

    Year Ended
December 31,
    Six Months
Ended
June 30,
 

    2015     2016     2016     2017
 

    (in thousands)  

Adjusted EBITDA(1)

  $ (366 ) $ 10,965   $ 1,692   $ 14,116  

(1)
See "Selected Consolidated Financial and Other Data — Adjusted EBITDA" for more information and for a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, or GAAP.

    At June 30, 2017
 

    Actual     Pro forma(1)     Pro forma as
adjusted(2)(3)
 

    (in thousands)  

Consolidated Balance Sheet Data:

                   

Cash, cash equivalents, and investments

  $ 81,309   $ 81,309   $ 110,064  

Property and equipment, net

    15,897     15,897     15,897  

Working capital

    61,534     61,534     91,838  

Total assets

    115,606     115,606     142,507  

Total liabilities

    41,852     41,852     40,303  

Convertible preferred stock

    132,698          

Total stockholders' (deficit) equity

    (58,944 )   73,754     102,204  

(1)
Pro forma amounts reflect (i) the automatic conversion of all of our outstanding shares of preferred stock into shares of Class A common stock upon the closing of our initial public offering and (ii) the stock-based compensation expense of $1.9 million associated with the vesting of restricted stock units upon closing of this offering.

(2)
Pro forma as adjusted amounts reflect the pro forma conversion adjustments described in footnote (1) above, as well as the sale by us of 2,500,000 shares of our Class A common stock in this offering at an assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Additionally, for purposes of the pro forma as adjusted amounts shown above, the net proceeds to be received by us from the sale of Class A common stock in this offering of $28.5 million have been increased by approximately $305,000 to reflect the estimated offering expenses that had been paid by us as of June 30, 2017.

(3)
Each $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, each of cash, cash equivalents, and investments, total assets, and total stockholders' (deficit) equity on a pro forma as adjusted basis by $2.3 million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of Class A common stock offered by us would increase or decrease as applicable, each of cash, cash equivalents, and investments, total assets, and total stockholders' (deficit) equity on a pro forma as adjusted basis by $13.0 million, assuming the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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RISK FACTORS

          Investing in our Class A common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this prospectus, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes, before deciding whether to purchase shares of our Class A common stock. Our business, financial condition, operating results, cash flow, and prospects could be materially and adversely affected by any of these risks or uncertainties. In that event, the trading price of our Class A common stock could decline and you could lose part or all of your investment. See "Special Note Regarding Forward-Looking Statements and Industry and Market Data."

Risks Related to Our Business and Industry

Our business is substantially dependent on our relationships with dealers, and our subscription agreements with these dealers do not contain long-term contractual commitments. If a significant number of dealers terminate their subscription agreements with us, our business and financial results would be materially and adversely affected.

          Our primary source of revenue consists of subscription fees paid to us by dealers for access to enhanced features on our automotive marketplace. Our subscription agreements with dealers generally may be terminated by us with 30 days' notice and by dealers with 30 days' notice after the initial term. While the majority of our contracts with dealers currently include one-month initial terms, we are in the process of transitioning many of these dealers to contracts with one-year initial terms. The contracts do not contain contractual obligations requiring a dealer to maintain its relationship with us beyond the initial term. Accordingly, these dealers may cancel their subscriptions with us in accordance with the terms of their subscription agreements. If a significant number of our paying dealers terminate their subscriptions with us, our revenue would be materially and adversely affected.

If we fail to maintain or increase the number of dealers that pay subscription fees to us, or fail to maintain or increase the fees paid to us for subscriptions, our business and financial results would be harmed.

          If paying dealers do not experience the volume of consumer connections that they expect during their monthly or annual subscription period, or do not experience the level of car sales they expect from those connections, they may terminate their subscriptions or may insist on renewing their subscriptions at a lower level of fees. Even if dealers do experience increased consumer connections or sales, they may not attribute such increases to our marketplace. If we fail to expand our base of paying dealers, or fail to maintain or increase the level of fees that we receive from them, our business and financial results would be materially and adversely affected.

          We allow dealers to list their inventory in our marketplace for free; however dealer identity and contact information is not permitted in such free listings and these dealers do not receive access to the paid features of our marketplace. Many dealers start with us on a non-paying basis and then become paid customers in order to take advantage of the features of our Enhanced or Featured Listing products. If dealers using our site do not convert to our paid offerings at the rates we expect, or if a greater than expected number of our paying dealers elect to terminate their subscriptions, our business and financial results would be harmed.

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If dealers or other advertisers reduce their advertising spend with us and we are unable to attract new advertisers, our business would be harmed.

          A significant amount of our revenue is derived from advertising revenues generated primarily through advertising sales to dealers, auto manufacturers, and other auto-related brand advertisers. We compete for this advertising revenue with other online automotive marketplaces and with television, print media, and other traditional advertising channels. Our ability to attract and retain advertisers, and to generate advertising revenue, depends on a number of factors, including:

    our ability to increase the number of consumers using our marketplace;

    our ability to compete effectively for advertising spending with other online automobile marketplaces;

    our ability to continue to develop our advertising products in our marketplace;

    our ability to keep pace with changes in technology and the practices and offerings of our competitors; and

    our ability to offer an attractive return on investment, or ROI, to our advertisers for their advertising spend with us.

          Our agreements with dealers for display advertising generally include initial terms ranging from one month to one year and may be terminated by us with 30 days' notice and by dealers with 30 days' notice after the initial term. The contracts do not contain contractual obligations requiring an advertiser to maintain its relationship with us beyond the initial term. Our other advertising contracts, including those with auto manufacturers, are typically for a defined period of time and do not have ongoing commitments to advertise on our site beyond the initial time period. We may not succeed in capturing a greater share of our advertisers' spending if we are unable to convince advertisers of the effectiveness or superiority of our marketplace as compared to alternative channels. If current advertisers reduce or end their advertising spending with us and we are unable to attract new advertisers, our advertising revenue and business and financial results would be harmed.

If we are unable to provide a compelling vehicle search experience to consumers through both our web and mobile platforms, the number of connections between consumers and dealers using our marketplace may decline and our business and financial results would be materially and adversely affected.

          If we fail to continue to provide a compelling vehicle search experience to consumers, the number of connections between consumers and dealers facilitated through our marketplace could decline, which in turn could lead dealers to stop listing their inventory in our marketplace, cancel their subscriptions, or reduce their advertising spend with us. If dealers stop listing their inventory in our marketplace, we may not be able to maintain and grow our consumer traffic, which may cause other dealers to stop using our marketplace. This reduction in the number of dealers using our marketplace would likely adversely affect our marketplace and our business and financial results. As consumers increasingly use their mobile devices to access the Internet and our marketplace, our success will depend, in part, on our ability to provide consumers with a robust and user-friendly experience through their mobile devices. We believe that our ability to provide a compelling vehicle search experience, both on the web and through mobile devices, is subject to a number of factors, including:

    our ability to maintain an attractive marketplace for consumers and dealers, including on mobile platforms;

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    our ability to continue to innovate and introduce products for our marketplace on mobile platforms;

    our ability to launch new products that are effective and have a high degree of consumer engagement;

    our ability to maintain the compatibility of our mobile application with operating systems, such as iOS and Android, and with popular mobile devices running such operating systems; and

    our ability to access a sufficient amount of data to enable us to provide relevant information to consumers, including pricing information and accurate vehicle details.

If use of our marketplace, particularly on mobile devices, does not continue to grow, our business and operating results would be harmed.

We rely on Internet search engines to drive traffic to our website, and if we fail to appear prominently in the search results, our traffic would decline and our business would be adversely affected.

          We depend, in part, on Internet search engines such as Google, Bing, and Yahoo! to drive traffic to our website. The number of consumers we attract to our marketplace from search engines is due in part to how and where our websites rank in unpaid search results. These rankings can be affected by a number of factors, many of which are not under our direct control and may change frequently. For example, when a consumer searches for a vehicle in an Internet search engine, we rely on a high organic search ranking of our webpages to refer the consumer to our website. Our competitors' Internet search engine optimization efforts may result in their websites receiving higher search result rankings than ours, or Internet search engines could change their methodologies in a way that would adversely affect our search result rankings. If Internet search engines modify their search algorithms in ways that are detrimental to us, or if our competitors' efforts are more successful than ours, overall growth in our traffic could slow or our traffic could decline. In addition, Internet search engine providers could provide dealer and pricing information directly in search results, align with our competitors, or choose to develop competing products. Search engines may also adopt a more aggressive auction-pricing system for keywords that would cause us to incur higher advertising costs or reduce our market visibility to prospective users. Our website has experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of consumers directed to our website through Internet search engines could harm our business and operating results.

Any inability by us to develop new products, or achieve widespread consumer adoption of those products, could negatively impact our business and financial results.

          Our success depends on our continued innovation to provide products and services that make our marketplace, website, and mobile application useful for consumers. These new products must be widely adopted by consumers in order for us to continue to attract dealers to our subscription products and services. Accordingly, we must continually invest resources in product, technology, and development in order to improve the attractiveness and comprehensiveness of our marketplace and its related products and effectively incorporate new Internet and mobile technologies into them. These product, technology, and development expenses may include costs of hiring additional personnel and of engaging third-party service providers and other research and development costs. In addition, revenue relating to new products is typically unpredictable and our new products may have lower gross margins and higher marketing and sales costs than our existing products. We may also change our pricing models for both existing and new products so that our prices for our offerings reflect the value those offerings are providing to consumers and

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dealers. Our pricing models may not effectively reflect the value of products to consumers and dealers, and, if we are unable to provide a marketplace and products that consumers and dealers want to use, they may become dissatisfied and instead use our competitors' websites and mobile applications. Without an innovative marketplace and related products, we may be unable to attract additional, unique consumers or retain current consumers, which could affect the number of dealers that become paying dealers and the number of advertisers who want to advertise in our marketplace, which could, in turn, harm our business and financial results.

We may be unable to maintain or grow relationships with data providers, or may experience interruptions in the data they provide, which may create a less valuable or transparent shopping experience and negatively affect our business and operating results.

          We obtain data regarding available cars from many third-party data providers, including inventory management systems, automotive websites, customer relationship management systems, dealer management systems, and third-party data licensors. Our business relies on our ability to obtain data for the benefit of consumers and dealers using our marketplace. The large amount of inventory and vehicle information available in our marketplace is critical to the value we provide for consumers. The loss or interruption of such inventory data and other vehicle information, such as vehicle history, could decrease the number of consumers using our marketplace. We could experience interruptions in our data access for a number of reasons, including difficulties in renewing our agreements with data providers, changes to the software used by data providers, efforts by industry participants to restrict access to data, and increased fees we may be charged by data providers. While we believe we have identified other providers in the event any of our current providers terminate their relationships with us, or our service is interrupted, there may be a delay while we transition to new providers, which could disrupt our marketplace. If there is a material disruption in the data provided to us, the information that we provide to consumers and dealers using our marketplace may be limited. In addition, the quality, accuracy, and timeliness of this information may suffer, which may lead to a less valuable and less transparent shopping experience for consumers using our marketplace and could materially and adversely affect our business and financial results.

The failure to build and maintain our brand would harm our ability to grow our audience and to expand the use of our marketplace by consumers and dealers.

          While we are focused on building our brand recognition, maintaining and enhancing our brand will depend largely on the success of our efforts to maintain the trust of consumers and dealers and to deliver value to each consumer and dealer using our marketplace. If consumers were to believe that we are not focused on providing them with a better automobile shopping experience, our reputation and the strength of our brand may be adversely affected.

          Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers, data privacy and security issues, and other aspects of our business, irrespective of their validity, could diminish consumers' and dealers' confidence and participation in our marketplace and could adversely affect our brand. There can be no assurance that we will be able to maintain or enhance our brand, and failure to do so would harm our business growth prospects and operating results.

          The "Questions" section of our website enables consumers and dealers using our site to communicate with one another and other persons seeking information or advice on the Internet. Although all such information or feedback is generated by users and not by us, claims of defamation or other injury could be made against us for content posted on our website. In addition, negative publicity and user sentiment generated as a result of fraudulent or deceptive conduct by

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users of our marketplace could damage our reputation, reduce our ability to attract new users or retain our current users, and diminish the value of our brand.

While we have historically focused our marketing efforts on Internet and mobile channels, we are beginning brand-focused campaigns using television and radio and these efforts may not be successful.

          As a consumer brand, it is important for us to increase the visibility of our brand with potential users of our marketplace. While we have historically focused our marketing efforts on Internet and mobile channels, we are beginning to advertise through television, radio, and other channels we have not used previously, with the goal of driving greater brand recognition, trust, and loyalty from a broader consumer audience. If our brand-focused campaigns are not successful and we are unable to recover our marketing costs through increases in user traffic and increased subscription and advertising revenue, or if we discontinue our brand marketing campaigns, it could have a material adverse effect on our business and financial results.

Our recent, rapid growth is not indicative of our future growth, and our revenue growth rate will decline in the future.

          Our revenue grew from $98.6 million in 2015 to $198.1 million in 2016, representing a 101% increase between such periods, and grew from $84.2 million for the six months ended June 30, 2016 to $143.3 million for the six months ended June 30, 2017, representing a 70% increase between such periods. In the future, our revenue growth rates will inevitably decline as we achieve higher market penetration rates, as our revenue increases to higher levels, and as we experience increased competition. As our revenue growth rates decline, investors' perceptions of our business may be adversely affected and the market price of our Class A common stock could decline. In addition, we will not be able to grow as expected, or at all, if we do not accomplish the following:

    increase the number of consumers using our marketplace;

    maintain and expand the number of dealers that subscribe to our marketplace;

    attract and retain advertisers placing advertisements in our marketplace;

    further improve the quality of our marketplace, and introduce high quality new products; and

    increase the number of connections between consumers and dealers using our marketplace.

If we fail to expand effectively into new markets, both domestically and abroad, our revenue, business, and financial results will be harmed.

          We intend to continue to expand our operations to target new markets, both domestically and abroad, and there can be no assurance our expansion into these new markets will be successful. Our expansion into new markets places us in unfamiliar competitive environments and involves various risks, including the need to invest significant resources and the likelihood that returns on such investments will not be achieved for several years, or possibly at all. In attempting to establish a presence in new markets, we expect, as we have in the past, to incur significant losses in those markets and face various other challenges, such as competition for consumers and dealers using our marketplace, monetizing dealers, new regulatory environments and laws, different consumer shopping habits than those we are familiar with in the United States, and our ability to expand our number of account managers to cover those new markets. Our current and any future expansion plans will require significant resources and management attention. Furthermore, expansion into international markets may not yield results similar to those we have achieved in the United States.

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Our international operations involve risks that are different from, or in addition to, the risks we may experience as a result of our domestic operations, and our exposure to these risks will increase as we expand internationally.

          We have started to expand our operations internationally. We recently launched marketplaces in Canada, the United Kingdom, and Germany and plan to enter additional markets in the next twelve months. We expect to expand our international operations significantly by continuing to enter new markets abroad and expanding our offerings in new languages. In most international markets, we would not be the first entrant, and our competitors may be more established or otherwise better positioned than we are to succeed. Our competitors may offer services to dealers that make dealers dependent on them, such as hosting dealers' webpages and providing inventory feeds for dealers, which would make it difficult to attract dealers to our marketplace. Dealers may also be parties to agreements with other dealers and syndicates that prevent them from being able to access our marketplace. In addition, we may also face litigation from competitors in new markets. Any of these barriers could impede our expansion into international markets, which could affect our business and potential growth.

          Our platform is now available in English, French, German, and Spanish, and we will need to make our platform available in additional languages as we expand into new countries. We may have difficulty modifying our technology and content for use in non-English speaking markets or fostering new communities in non-English speaking markets. Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources, and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute resolution systems, regulatory systems, and commercial infrastructures. Expanding internationally may subject us to new risks or increase our exposure in connection with current risks, including risks associated with:

    recruiting and retaining qualified, multilingual employees, including sales personnel;

    increased competition from local websites and guides and potential preferences by local populations for local providers;

    compliance with applicable foreign laws and regulations, including different privacy, censorship, and liability standards and regulations, and different intellectual property laws;

    providing solutions in different languages for different cultures, which may require that we modify our solutions and features so they are culturally relevant in different countries;

    the enforceability of our intellectual property rights;

    credit risk and higher levels of payment fraud;

    compliance with anti-bribery laws, including compliance with the Foreign Corrupt Practices Act and the U.K. Bribery Act;

    currency exchange rate fluctuations;

    foreign exchange controls that might prevent us from repatriating cash earned outside the United States;

    political and economic instability in some countries;

    double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate; and

    higher costs of doing business internationally.

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We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.

          We face significant competition from companies that provide listings, information, lead generation, and car-buying services designed to help consumers shop for cars and to enable dealers to reach these consumers. Our competitors offer various marketplaces, products, and services that compete with us. Some of these competitors include:

    major U.S. online automotive marketplaces: AutoTrader.com, Cars.com, and TrueCar.com;

    U.S. online automotive content publishers, such as Edmunds.com and KBB.com;

    Internet search engines;

    peer to peer marketplaces; and

    sites operated by individual automobile dealers.

          We compete with these and other companies for a share of dealers' overall marketing budget for online and offline media marketing spend. To the extent that dealers view alternative marketing and media strategies to be superior to our marketplace, we may not be able to maintain or grow the number of dealers subscribing to, and advertising on, our marketplace, and our business and financial results may be harmed.

          We also expect that new competitors will continue to enter the online automotive retail industry with competing marketplaces, products, and services, which could have an adverse effect on our business and financial results.

          Our competitors could significantly impede our ability to expand the number of dealers using our marketplace. Our competitors may also develop and market new technologies that render our existing or future marketplace and associated products less competitive, unmarketable, or obsolete. In addition, if our competitors develop marketplaces with similar or superior functionality to ours, and our web traffic declines, we may need to decrease our subscription and advertising fees. If we are unable to maintain our current pricing structure due to competitive pressures, our revenue would likely be reduced and our financial results would be negatively affected.

          Our existing and potential competitors may have significantly more financial, technical, marketing, and other resources than we have, and the ability to devote greater resources to the development, promotion, and support of their marketplaces, products, and services. Additionally, they may have more extensive automotive industry relationships than we have, longer operating histories, and greater name recognition. As a result, these competitors may be able to respond more quickly with new technologies and to undertake more extensive marketing or promotional campaigns than we can. In addition, to the extent that any of our competitors have existing relationships with dealers or auto manufacturers for marketing or data analytics solutions, those dealers and auto manufacturers may be unwilling to partner with us. If we are unable to compete with these competitors, the demand for our marketplace and related products and services could substantially decline.

          In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Our competitors may also establish or strengthen cooperative relationships with our existing or future data providers, technology partners, or other parties with whom we have relationships, thereby limiting our ability to develop, improve, and promote our solutions. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our business and financial results.

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Our business could be adversely affected if dealer associations or auto manufacturers were to discourage or otherwise deter dealers from subscribing to our marketplace.

          Although the dealership industry is highly fragmented, a small number of interested parties have significant influence over the industry. These parties include state and national dealership associations, state regulators, car manufacturers, consumer groups, independent dealers, and consolidated dealer groups. If and to the extent these parties believe that dealerships should not enter into or maintain subscription agreements with us, this belief could become shared by dealerships and we may lose a number of our paying dealers.

          Furthermore, auto manufacturers may provide their franchise dealers with financial or other marketing support conditioned upon such dealers adhering to certain marketing guidelines. Auto manufacturers may determine that the manner in which certain of their franchise dealers use our marketplace is inconsistent with the terms of such marketing guidelines, which determination could result in potential or actual loss of the manufacturers' financial or other marketing support to the dealers whose use of our marketplace is deemed objectionable. The potential or actual loss of such marketing support may cause such dealers to cease paying for our paid features, which may adversely affect our ability to maintain or grow the number of our paying dealers.

Dealer closures or consolidations could reduce demand for our products, which may decrease our revenue.

          In the past, the number of U.S. dealers has declined due to dealership closures and consolidations as a result of factors such as global economic downturns. When dealers consolidate, the services they previously purchased separately are often purchased by the combined entity in a lesser quantity or for a lower aggregate price than before, leading to volume compression and loss of revenue. Further dealership consolidations or closures could reduce the aggregate demand for our products and services. If dealership closures and consolidations occur in the future, our business, financial position and results of operations could be materially and adversely affected.

We rely on third-party service providers for many aspects of our business, and any failure to maintain these relationships could harm our business.

          Our success will depend upon our relationships with third parties, including those with our payment processor and data center host, our security providers, our data providers for dealer inventory and vehicle information, our human resources information system provider, our billing subscription software provider, our customer relationship manager software provider, and our general ledger provider. If these third parties experience difficulty meeting our requirements or standards, or if the license agreements we have entered into with such third parties are terminated or not renewed, it could make it difficult for us to operate some aspects of our business, which could damage our business and reputation. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruptions, increase their fees, or if our relationships with these providers deteriorate, we could suffer increased costs and delays in our ability to provide consumers with content or provide similar services until an equivalent provider could be found or we could develop replacement technology or operations. In addition, if we are unsuccessful in identifying or finding high-quality partners, if we fail to negotiate cost-effective relationships with them, or if we ineffectively manage these relationships, it could have an adverse impact on our business and financial results.

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If we continue to grow rapidly, we may not be able to manage our growth effectively.

          We have experienced rapid growth in our headcount and operations, which places substantial demand on management and our operational infrastructure. As we continue to grow, we must effectively integrate, develop, and motivate a large number of new employees, while maintaining the beneficial aspects of our company culture. If we do not manage the growth of our business and operations effectively, the quality of our services and efficiency of our operations could suffer, which could harm our brand, results of operations, and overall business.

We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

          We believe our success has depended, and continues to depend, on the efforts and talents of our executives and employees. Our future success depends on our continuing ability to attract, develop, motivate, and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. In addition, the loss of any of our executive officers or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our executive officers and other employees are at-will employees, which means they may terminate their employment relationships with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially and adversely affected.

If we are unable to successfully respond to changes in the market, our business could be harmed.

          While our business has grown rapidly as consumers and dealers have increasingly accessed our marketplace, we expect that our business will evolve in ways which may be difficult to predict. For example, we anticipate that over time we may reach a point when investments in new user traffic are less productive and the continued growth of our revenue will require more focus on developing new products for consumers and dealers, expanding our marketplaces into new international markets to attract new consumers and dealers, and increasing our fees for our products. It is also possible that consumers and dealers could broadly determine that they no longer believe in the value of our marketplace. Our continued success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to do so, our business could be harmed and our results of operations and financial condition could be materially and adversely affected.

We may in the future be subject to disputes regarding the accuracy of Instant Market Value, Deal Rating, Dealer Rating, and other features of our marketplace.

          We provide consumers using our marketplace with our proprietary Instant Market Value, or IMV, Deal Rating, Dealer Rating, and other features to help them evaluate vehicle listings. Revisions to our automated valuation models, or the algorithms that underlie them, may cause the IMV, Deal Rating, or other features to vary from our expectations regarding the accuracy of these tools. In addition, from time to time, consumers and regulators question or disagree with our IMV, Deal Rating, or Dealer Ratings. Any such questions or disagreements could result in distraction from our business or potentially harm our reputation and could result in a decline in consumers' use of our marketplace or could result in legal disputes.

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We are subject to a complex framework of federal, state, and foreign laws and regulations, many of which are unsettled, still developing and contradictory, which have in the past, and could in the future, subject us to claims, challenge our business model, or otherwise harm our business.

          Various aspects of our business are, may become, or may be viewed by regulators from time to time as subject, directly or indirectly, to United States federal and state laws and regulations, and to foreign laws and regulations. Failure to comply with such laws or regulations may result in the suspension or termination of our ability to do business in affected jurisdictions, the imposition of significant civil and criminal penalties, including fines or the award of significant damages against us and dealers in class action or other civil litigation, or orders requiring us to make adjustments to our marketplace and related products and services.

State Motor Vehicle Sales, Advertising and Brokering, and Consumer Protection Laws

          The advertising and sale of new or used motor vehicles is highly regulated by the states in which we do business. Although we do not sell motor vehicles, and although we believe that vehicle listings on our site are not themselves advertisements, state regulatory authorities or third parties could take the position that some of the laws or regulations applicable to dealers or to the manner in which motor vehicles are advertised and sold generally are directly applicable to our business. These state advertising laws and regulations are frequently subject to multiple interpretations and are not uniform from state to state, sometimes imposing inconsistent requirements with respect to new or used motor vehicles. If our marketplace and related products are determined to not comply with relevant regulatory requirements, we or dealers could be subject to significant civil and criminal penalties, including fines, or the award of significant damages in class actions or other civil litigation, as well as orders interfering with our ability to continue providing our marketplace and related products and services in certain states. In addition, even absent such a determination, to the extent dealers are uncertain about the applicability of such laws and regulations to our business, we may lose, or have difficulty increasing the number of paying dealers, which would affect our future growth. For example, in April 2015 the Texas Department of Motor Vehicles, or the TX DMV, notified us that it believed the Price History and IMV information on our website violated the prohibition on advertising savings clauses on used vehicles. The TX DMV gave us 30 days to rectify the issue before it would potentially subject dealers it considered to be advertising on our website to fines. After discussions with the TX DMV, we modified our website to remove the Price History and certain references and comparisons to IMV for used vehicles listed on our website that are for sale in Texas.

          If state regulators or other third parties take the position in the future that our marketplace or related products violate applicable brokering, bird-dog, consumer protection, or advertising laws or regulations, responding to such allegations could be costly, could require us to pay significant sums in settlements, could require us to pay civil and criminal penalties, including fines, could interfere with our ability to continue providing our marketplace and related products in certain states, or could require us to make adjustments to our marketplace and related products or the manner in which we derive revenue from dealers using our marketplace, any or all of which could result in substantial adverse publicity, termination of subscriptions by dealers, decreased revenues, distraction for our employees, increased expenses, and decreased profitability.

Federal Laws and Regulations

          The Federal Trade Commission, or the FTC, has the authority to take actions to remedy or prevent acts or practices that it considers to be unfair or deceptive and that affect commerce in the United States. If the FTC takes the position in the future that any aspect of our business, including our advertising and privacy practices, constitutes an unfair or deceptive act or practice, responding

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to such allegations could require us to defend our practices and pay significant damages, settlements, and civil penalties, or could require us to make adjustments to our marketplace and related products and services, any or all of which could result in substantial adverse publicity, distraction for our employees, loss of participating dealers, lost revenues, increased expenses, and decreased profitability.

          Our website and mobile application enable us, dealers, and users to send and receive text messages and other mobile phone communications in certain circumstances. The Telephone Consumer Protection Act, or the TCPA, as interpreted and implemented by the Federal Communications Commission, or the FCC, and federal and state courts, imposes significant restrictions on utilization of telephone calls and text messages to residential and mobile telephone numbers as a means of communication, particularly when the prior express consent of the person being contacted has not been obtained. Violations of the TCPA may be enforced by the FCC, by state attorneys general, or by others through litigation, including class actions. Statutory penalties for TCPA violations range from $500 to $1,500 per violation, which is often interpreted to mean per phone call or text message. Furthermore, several provisions of the TCPA, as well as applicable rules and orders, are open to multiple interpretations, and compliance involves fact-specific analyses.

          Any failure by us, or the third parties on which we rely, to adhere to, or successfully implement, appropriate processes and procedures in response to existing or future laws and regulations could result in legal and monetary liability, fines and penalties, or damage to our reputation in the marketplace, any of which could have a material adverse effect on our business, financial condition, and results of operations. Even if the claims are meritless, we may be required to expend resources and pay costs to defend against regulatory actions or third-party claims. Additionally, any changes to the TCPA or its interpretation that further restrict the way users and dealers interact through our website and mobile application, or any governmental or private enforcement actions related thereto, could adversely affect our ability to attract customers and could harm our business, financial condition, results of operations, and cash flows.

Federal Antitrust Laws

          The antitrust laws prohibit, among other things, any joint conduct among competitors that would lessen competition in the marketplace. We believe that we are in compliance with the legal requirements imposed by the antitrust laws. However, a governmental or private civil action alleging the improper exchange of information, or unlawful participation in price maintenance or other unlawful or anticompetitive activity, even if unfounded, could be costly to defend and could harm our business, results of operations, financial condition, or cash flows.

Other

          Claims could be made against us under both United States and foreign laws, including claims for defamation, libel, invasion of privacy, copyright or trademark infringement, or claims based on other theories related to the nature and content of the materials disseminated by users of our marketplace and the "Questions" section of our website. In addition, domestic and foreign legislation has been proposed that could prohibit or impose liability for the transmission over the Internet of certain types of information. Our defense against any of these actions could be costly and involve significant time and attention of our management and other resources. If we become liable for information provided by our users and transmitted in our marketplace in any jurisdiction in which we operate, we could be directly harmed and we may be forced to implement new measures to reduce our exposure to this liability.

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          The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the regulatory framework governing our operations is subject to continuous change. As we expand our operations internationally, we are and will continue to be exposed to legal and regulatory risks including with respect to privacy, tax, law enforcement, content, intellectual property, and other matters. The enactment of new laws and regulations or the interpretation of existing laws and regulations, both domestically and internationally, in an unfavorable way may affect the operation of our business, directly or indirectly, which could result in substantial regulatory compliance costs, civil or criminal penalties, including fines, adverse publicity, loss of participating dealers, lost revenues, increased expenses, and decreased profitability. Further, investigations by governmental agencies, including the FTC, into allegedly anticompetitive, unfair, deceptive or other business practices by us or dealers using our marketplace, could cause us to incur additional expenses and, if adversely concluded, could result in substantial civil or criminal penalties and significant legal liability, or orders requiring us to make adjustments to our marketplace and related products and services.

Our business is subject to risks related to the larger automotive industry ecosystem, including consumer demand, global supply chain challenges, and other macroeconomic issues.

          Decreases in consumer demand could adversely affect the market for automobile purchases and, as a result, reduce the number of consumers using our platform. Consumer purchases of new and used automobiles generally decline during recessionary periods and other periods in which disposable income is adversely affected. Purchases of new and used automobiles are typically discretionary for consumers and have been, and may continue to be, affected by negative trends in the economy, including the cost of energy and gasoline, the availability and cost of credit, reductions in business and consumer confidence, stock market volatility, and increased unemployment. Further, in recent years the market for motor vehicles has experienced rapid changes in technology and consumer demands. Self-driving technology, ride sharing, transportation networks, and other fundamental changes in transportation could impact consumer demand for the purchase of automobiles. A reduction in the number of automobiles purchased by consumers could adversely affect dealers and car manufacturers and lead to a reduction in other spending by these constituents, including targeted incentive programs. In addition, our business may be negatively affected by challenges to the larger automotive industry ecosystem, including global supply chain challenges and other macroeconomic issues. The foregoing could have a material adverse effect on our business, results of operations, and financial condition.

Our dedication to making decisions based primarily on the best interests of our marketplace may cause us to forgo short-term gains in pursuit of potential but uncertain long-term growth.

          Our guiding principle is to build our business by making decisions based primarily upon the best interests of our entire marketplace, including consumers, dealers, and other constituents, which we believe has been essential to our success in increasing our user growth rate and engagement and has served the long-term interests of our company and our stockholders. In the past, we have forgone, and we will in the future continue to forgo, certain expansion or short term revenue opportunities that we do not believe are in the best interests of our marketplace and its users, even if such decisions negatively impact our results of operations in the short term. For example, we have begun to manage the text-chat feature of our website where consumers can message paying dealers. Our management of this feature has helped improve dealer response times to consumers, which in turn improves the consumer experience. While our management of this feature provides value to both consumers and paying dealers and could be a potential source of short-term revenue for us, we are not charging for this feature and are instead focusing on the potential long-term value of this feature to our marketplace and its users. However, this strategy

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may not result in the long-term benefits that we expect, in which case our user traffic and engagement, business, and financial results could be harmed.

A significant disruption in service on our website or our mobile application could damage our reputation and result in a loss of consumers, which could harm our business, brand, operating results, and financial condition.

          Our brand, reputation, and ability to attract consumers, dealers, and advertisers depend on the reliable performance of our technology infrastructure and content delivery. We may experience significant interruptions with our systems in the future. Interruptions in these systems, whether due to system failures, computer viruses, ransomware, or physical or electronic break-ins, could affect the security or availability of our marketplace on our website and mobile application, and prevent or inhibit the ability of consumers to access our marketplace. For example, past disruptions have impacted our ability to activate customer accounts and manage our billing activities in a timely manner. Such interruptions could also result in third parties accessing our confidential and proprietary information, including our intellectual property. Problems with the reliability or security of our systems could harm our reputation, our ability to protect our confidential and proprietary information, result in a loss of consumers and dealers, and result in additional costs.

          Substantially all of the communications, network, and computer hardware used to operate our website and mobile application is located in the United States in Boston, Massachusetts and Dallas, Texas, and in Europe in London, United Kingdom. Although we have two locations in the United States and we believe our systems are fully redundant, there may be exceptions for certain hardware. In addition, we do not own or control the operation of these facilities. We also use Amazon Web Services and Google Cloud Storage to back up our data. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes, and similar events. The occurrence of any of these events could result in damage to our systems and hardware or could cause them to fail. In addition, we may not have sufficient protection or recovery plans in certain circumstances.

          Problems faced by our third-party web hosting providers could adversely affect the experience of consumers using our marketplace. Our third-party web hosting providers could close their facilities without adequate notice. Any financial difficulties, up to and including bankruptcy, faced by our third-party web hosting providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.

          Any errors, defects, disruptions, or other performance or reliability problems with our network operations could cause interruptions in access to our marketplace as well as delays and additional expense in arranging new facilities and services and could harm our reputation, business, operating results, and financial condition.

          Although we carry business interruption insurance, it may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our service as a result of system failures.

We collect, process, store, share, disclose, and use consumer information and other data, and our actual or perceived failure to protect such information and data or respect users' privacy could damage our reputation and brand and harm our business and operating results.

          Use of some functions of our marketplace involves the storage and transmission of consumers' information, some of which may be private, and security breaches could expose us to a

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risk of loss or exposure of this information, which could result in potential liability, litigation, and remediation costs. For example, hackers could steal our users' profile passwords, names, email addresses, phone numbers, and zip codes. We also rely on encryption and authentication technology licensed from third parties to effect secure transmission of such information. Like all information systems and technology, our website, mobile application, and information systems may be subject to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service or other attacks, ransomware, and similar incidents or disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays, or website shutdowns, or could cause loss of critical data or the unauthorized disclosure, access, acquisition, alteration, or use of personal or other confidential information. If we experience compromises to our security that result in website or mobile application performance or availability problems, the complete shutdown of our website or mobile application, or the loss or unauthorized disclosure, access, acquisition, alteration, or use of confidential information, consumers and advertisers may lose trust and confidence in us, and consumers may decrease the use of our website or stop using our website entirely, and advertisers may decrease or stop advertising on our website. Further, outside parties may attempt to fraudulently induce employees, consumers, or advertisers to disclose sensitive information in order to gain access to our information or our consumers' or advertisers' information. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures.

          Any or all of the issues above could negatively impact our ability to attract new consumers and increase engagement by existing consumers, cause existing consumers to curtail or stop use of our marketplace or close their accounts, cause existing advertisers to cancel their contracts, or subject us to governmental or third-party lawsuits, investigations, regulatory fines or other actions or liability, thereby harming our business, results of operations, and financial condition.

          There are numerous federal, state, and local laws in the United States and around the world regarding privacy and the collection, processing, storing, sharing, disclosing, using, cross-border transfer, and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which may be costly to comply with, may result in regulatory fines or penalties, and may be inconsistent between countries and jurisdictions or conflict with other rules.

          We seek to comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which could include personally identifiable information or other user data, may result in governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us by consumer advocacy groups or others, and could cause consumers and dealers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties that we work with violate applicable laws or our policies, such violations may also put consumer or dealer information at risk and could in turn harm our reputation, business, and operating results.

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We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.

          We may from time to time face allegations that we have infringed the trademarks, copyrights, patents, and other intellectual property rights of third parties, including from our competitors or non-practicing entities, or may learn of possible infringement to our trademarks, copyrights, patents, and other intellectual property. We could also be subject to lawsuits where consumers and dealers posting content on the "Questions" section of our website disseminate materials that infringe the intellectual property rights of third parties. We have encountered lawsuits in the past containing allegations of intellectual property infringement. For example, in December 2015, Trader Corporation, or Trader, alleged that we infringed its copyright in 196,740 photos of cars that were uploaded onto our Canadian website. Trader sought statutory and punitive damages of approximately CAD$ 99 million along with a permanent injunction prohibiting us from reproducing any other photos in which Trader owns copyright without Trader's consent. On April 6, 2017, the Commercial List of the Ontario Superior Court, or the Commercial List, granted an order declaring that we infringed Trader's copyright in 152,532 photos and awarded Trader statutory damages of CAD$ 305,064 in the aggregate, but dismissed Trader's claim for punitive damages and a permanent injunction. Following release of the decision, the parties agreed that there would be no legal fees or interest payable. In addition, the parties agreed that neither would appeal the decision of the Commercial List.

          Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may require us to stop offering some features, purchase licenses, or modify our marketplace and features while we develop non-infringing substitutes or may result in significant settlement costs.

          In addition, we use open source software in our marketplace platform and will use open source software in the future. From time to time, we may face claims from companies that incorporate open source software into their products, claiming ownership of, or demanding release of, the source code, the open source software, or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional product, technology, and development resources to change our platform or services, any of which would have a negative effect on our business and operating results.

          Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results, and our reputation.

Failure to adequately protect our intellectual property could harm our business and operating results.

          Our business depends on our intellectual property, the protection of which is crucial to the success of our business. We rely on a combination of patent, trademark, trade secret, and copyright law and contractual restrictions to protect our intellectual property. In addition, we attempt to protect our intellectual property, technology, and confidential information by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements as we deem appropriate. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website features, software, and functionality or obtain and use information that we consider proprietary.

          Competitors may adopt service names similar to ours, thereby harming our ability to build brand identity and possibly lead to user confusion. In addition, there could be potential trade name

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or trademark infringement claims brought by owners of other registered trademarks, or trademarks that incorporate variations of the term "CarGurus." If we are restricted in any way in registering our CARGURUS mark in the United Kingdom or elsewhere in the European Union, it would impact our ability to establish and grow our business in Europe. For example, O2 Holdings Limited (now O2 Worldwide Limited, which we refer to as O2 Worldwide), based in the United Kingdom, previously opposed our UK application to register the mark CARGURUS based on its prior registered rights for the mark GURU in the United Kingdom. We have reached an agreement with O2 Worldwide that provides that we are permitted to continue to use our CARGURUS mark in the United Kingdom and the European Union for our services in the automotive field in the manner we have to date, and to register such mark in the United Kingdom and the European Union for such services.

          We currently hold the "CarGurus.com" Internet domain name and various other related domain names. The regulation of domain names is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the name CarGurus.

We may acquire other companies or technologies, which could divert our management's attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and harm our operating results.

          Our success will depend, in part, on our ability to grow our business in response to the demands of consumers, dealers, and other constituents within the automotive industry as well as competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:

    diversion of management time and focus from operating our business to addressing acquisition integration challenges;

    coordination of technology, research, and development, and sales and marketing functions;

    transition of the acquired company's consumers and data to our marketplace and products;

    retention of employees from the acquired company;

    cultural challenges associated with integrating employees from the acquired company into our organization;

    integration of the acquired company's accounting, management information, human resources, and other administrative systems;

    the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures, and policies;

    potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results in a given period;

    potential liabilities for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and

    litigation or other claims in connection with the acquired company, including claims from terminated employees, consumers, former stockholders, or other third parties.

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          Our failure to address these risks or other problems encountered in connection with future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expense, or impairment charges associated with acquired intangible assets or goodwill, any of which could harm our financial condition. Also, the anticipated benefits of any acquisitions may not materialize.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

          In order to protect our technologies and processes, we rely in part on confidentiality agreements with our employees, independent contractors, and other advisors. These agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in such cases we may not be able to assert our trade secret rights against such parties. To the extent that our employees, contractors, or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights to related or resulting know-how and inventions. The loss of confidential information or intellectual property rights, including trade secret protection, could make it easier for third parties to compete with our products. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations, reputation, and competitive position.

We may be unable to halt the operations of websites that aggregate or misappropriate our data.

          From time to time, third parties may misappropriate our data through website scraping, robots, or other means and aggregate this data on their websites with data from other companies. In addition, copycat websites may misappropriate data in our marketplace and attempt to imitate our brand or the functionality of our website. If we become aware of such websites, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against the impact of the operation of such websites. Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations, or financial condition. In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business could be harmed.

We have incurred operating losses in the past and we may generate losses in the future.

          We have incurred net operating losses in the past. Although we did not experience such losses in 2016 and have experienced significant growth in revenue, our revenue growth rate may decline in the future as a result of a variety of factors. Our international expansion may cause our costs to increase in future periods as we continue to expend substantial financial resources to enter into those markets. Our costs may also increase due to our continued new product development and general administrative expenses, such as legal and accounting expenses related to being a

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public company. If we fail to increase our revenue or manage these additional costs, we may incur losses in the future.

Complying with the laws and regulations affecting public companies has increased and will continue to increase our costs and the demands on management and could harm our operating results.

          Throughout the process of becoming a public company, and then operating as a public company, we expect to incur significant legal, accounting, and other expenses that we did not incur as a private company and these expenses will increase after we cease to be an "emerging growth company." In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the Securities and Exchange Commission, or the SEC, and NASDAQ impose various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel expect to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal, accounting, and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.

          In addition, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, beginning with the year ending December 31, 2018, we will need to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. As an "emerging growth company" we may elect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an "emerging growth company" and, when our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements.

Any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation.

          If we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC, or other regulatory authorities, which would require additional financial and management resources. Furthermore, investor perceptions of our company may suffer if, in the future, material weaknesses are found, and this could cause a decline in the market price of our stock.

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          Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an adverse opinion on internal control from our independent registered public accounting firm.

Seasonality may cause fluctuations in our operating results.

          Across the retail automotive industry, consumer purchases typically increase through the first three quarters of each year, due in part to the introduction of new vehicle models from manufacturers, and our consumer marketing spend grows accordingly. As consumer purchases slow in the fourth quarter, our marketing spend growth also slows. This seasonality has not been immediately apparent historically due to the overall growth of other operating expenses. As our growth rates begin to moderate, the impact of these seasonality trends on our results of operations could become more pronounced.

We expect our results of operations to fluctuate on a quarterly and annual basis.

          Our revenue and results of operations could vary significantly from period to period and may fail to match expectations as a result of a variety of factors, some of which are outside of our control. Our results may vary as a result of fluctuations in the number of dealers subscribing to our marketplace and the size and seasonal variability of our advertisers' marketing budgets. As a result of the potential variations in our revenue and results of operations, period-to-period comparisons may not be meaningful and the results of any one period should not be relied on as an indication of future performance. In addition, our results of operations may not meet the expectations of investors or public market analysts who follow us, which may adversely affect our stock price.

We may require additional capital to pursue our business objectives and respond to business opportunities, challenges, or unforeseen circumstances. If capital is not available to us, our business, operating results, and financial condition may be harmed.

          Although we have not needed to raise substantial equity in the past to support the growth of our business, we intend to continue to make investments to support our growth and may require additional capital to pursue our business objectives and respond to business opportunities, challenges, or unforeseen circumstances, including to increase our marketing expenditures to improve our brand awareness, develop new products, or further improve our marketplace and existing products, enhance our operating infrastructure, and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Volatility in the credit markets may also have an adverse effect on our ability to obtain debt financing.

          If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition, and prospects could be adversely affected.

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Risks Related to this Offering and Our Class A Common Stock

Following this offering, our founder will control a majority of the voting power of our outstanding capital stock, and, therefore, will have control over key decision-making and could control our actions in a manner that conflicts with the interests of other stockholders.

          Langley Steinert, our founder, Chief Executive Officer, President, and Chairman, is able to exercise voting rights with respect to a majority of the voting power of our outstanding capital stock and therefore has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support, or conversely this concentrated control could result in the consummation of such a transaction that our other stockholders do not support. This concentrated control could also discourage a potential investor from acquiring our Class A common stock, which has limited voting power relative to the Class B common stock, and might harm the trading price of our Class A common stock. In addition, Mr. Steinert has the ability to control the management and major strategic investments of our company as a result of his positions as our Chief Executive Officer, President, and Chairman, and his ability to control the election or replacement of our directors. As a board member and officer, Mr. Steinert owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. If Langley Steinert's status as an officer and director is terminated, his fiduciary duties to our stockholders will also terminate, but his voting power as a stockholder will not be reduced as a result of such termination unless such termination is either made voluntarily by Mr. Steinert or due to Mr. Steinert's death. As a stockholder, even a controlling stockholder, Mr. Steinert is entitled to vote his shares in his own interests, which may not always be aligned with the interests of our other stockholders. See the section titled "Description of Capital Stock — Conversion" for a description of the limited events that will result in the conversion of outstanding Class B common stock into Class A common stock.

          We believe that Mr. Steinert's continued control of a majority of the voting power of our outstanding capital stock is beneficial to us and is in the best interests of our stockholders. In the event that Mr. Steinert no longer controls a majority of the voting power, whether as a result of the disposition of some or all his shares of Class A or Class B common stock, the conversion of the Class B common stock into Class A common stock in accordance with its terms, or otherwise, our business or the trading price of our Class A common stock may be adversely affected.

The multiple class structure of our common stock has the effect of concentrating voting control with our founder and certain other holders of our Class B common stock, which will limit or preclude your ability to influence corporate matters.

          Our Class B common stock has ten votes per share and our Class A common stock has one vote per share. Stockholders who hold shares of Class B common stock, including certain of our executive officers, employees, and directors and their affiliates, together hold a substantial majority of the voting power of our outstanding capital stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our common stock and therefore are able to control all matters submitted to our stockholders for approval so long as the shares of Class B common stock represent at least 9.1% of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future.

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          Transfers by holders of Class B common stock will generally result in those shares converting into Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning or charitable purposes. The conversion of Class B common stock into Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Mr. Steinert retains a significant portion of his holdings of Class B common stock for an extended period of time, he could, in the future, continue to control a majority of the combined voting power of our outstanding capital stock.

An active trading market for our Class A common stock may not develop, and you may not be able to resell your shares at or above the initial public offering price.

          Prior to this offering, there has been no public market for shares of our Class A common stock. Although we anticipate that our Class A common stock will be approved for listing on the NASDAQ Global Select Market, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price of our Class A common stock will be determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our Class A common stock after this offering. In the absence of an active trading market for our Class A common stock, investors may not be able to sell their Class A common stock at or above the initial public offering price or at the time that they would like to sell.

The price of our Class A common stock may be volatile and the value of your investment could decline.

          The trading price of our Class A common stock may be volatile and fluctuate substantially. The trading price of our Class A common stock depends on a number of factors, including those described in this "Risk Factors" section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our Class A common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the trading price of our Class A common stock include the following:

    price and volume fluctuations in the overall stock market from time to time;

    changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

    sales of shares of our Class A common stock by us or our stockholders;

    failure of securities analysts to maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

    announcements by us or our competitors of new products;

    the public's reaction to our press releases, other public announcements, and filings with the SEC;

    rumors and market speculation involving us or other companies in our industry;

    actual or anticipated changes in our operating results or fluctuations in our operating results;

    actual or anticipated developments in our business, our competitors' businesses, or the competitive landscape generally;

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    litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

    developments or disputes concerning our intellectual property or other proprietary rights;

    announced or completed acquisitions of businesses or technologies by us or our competitors;

    new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

    changes in accounting standards, policies, guidelines, interpretations, or principles;

    any significant change in our management;

    conditions in the automobile industry; and

    general economic conditions and slow or negative growth of our markets.

          The effect of such factors on the trading market for our Class A common stock may be enhanced by the lack of a large and established trading market for our Class A common stock. In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of our Class A common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market prices of a particular company's securities, securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.

Allen & Company LLC, one of the underwriters in this offering, has an interest in this offering beyond customary underwriting discounts and commissions due to its ownership interests, and the ownership interests of its associated persons, in our capital stock.

          Allen & Company LLC, one of the underwriters in this offering, and its associated persons, own, in the aggregate, in excess of 10% of our outstanding preferred stock. Allen & Company LLC therefore is deemed to have a "conflict of interest" under Rule 5121 of the Financial Industry Regulatory Authority, Inc., or FINRA, which could expose us to certain risks in connection with this offering.

          Rule 5121 requires that no sale be made to discretionary accounts by underwriters having a conflict of interest without the prior written approval of the account holder, and that a "qualified independent underwriter," as defined in Rule 5121, participate in the preparation of the registration statement and the prospectus for the offering and exercise the usual standard of due diligence with respect thereto, in addition to pricing this offering. Goldman Sachs & Co. LLC is serving as the qualified independent underwriter in this offering.

          Although Goldman Sachs & Co. LLC has, in its capacity as qualified independent underwriter, participated in due diligence and reviewed and participated in the preparation of the registration statement of which this prospectus forms a part, and, although Allen & Company LLC will not confirm sales of the shares to any account over which it exercises discretionary authority without the prior written approval of the account holder, we cannot assure you that these measures will adequately address any potential conflicts of interest. See "Underwriting (Conflicts of Interest)."

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Because the initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our outstanding Class A and Class B common stock following this offering, new investors will experience immediate and substantial dilution.

          The initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A and Class B common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our Class A common stock in this offering, you will experience immediate dilution of $13.03 per share, the difference between the price per share you pay for our Class A common stock and its pro forma net tangible book value per share as of June 30, 2017, after giving effect to the issuance of shares of our Class A common stock in this offering. See "Dilution" for more information. Furthermore, investors purchasing shares of our Class A common stock in this offering will only own approximately 8.9% of our outstanding shares of Class A and Class B common stock (and have approximately 2.6% of the combined voting power of the outstanding shares of our Class A and Class B common stock), after giving effect to the issuance of shares of our Class A common stock in this offering and sale of 6,900,000 shares of our Class A common stock by certain selling stockholders. To the extent outstanding options to purchase our Class A common stock or Class B common stock are exercised or additional restricted stock units for our Class A common stock or Class B common stock are settled, investors purchasing our Class A common stock in this offering will experience further dilution.

Sales of substantial amounts of our Class A common stock in the public markets, or the perception that such sales might occur, could depress the market price of our Class A common stock.

          The market price for our Class A common stock could decline as a result of the sale of substantial amounts of our Class A common stock, particularly sales by our directors, executive officers, and significant stockholders, a large number of shares of our Class A common stock becoming available for sale, or the perception in the market that holders of a large number of shares intend to sell their shares. Based on shares outstanding at June 30, 2017, upon the closing of this offering we will have outstanding approximately 77,145,294 shares of Class A common stock, including the 9,400,000 shares of Class A common stock that we and the selling stockholders are selling in this offering that may be resold in the public market immediately. The remaining 67,745,294 shares of Class A common stock, or 87.8% of our outstanding shares of Class A common stock after this offering, are currently, and will be following the closing of this offering, restricted as a result of securities laws or lock-up agreements but will be able to be sold, subject to any applicable volume limitations, under federal securities laws with respect to affiliate sales. Our executive officers, directors, and the holders of substantially all of our capital stock and securities convertible into or exchangeable for our capital stock have entered into market standoff agreements with us or have entered into lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell, directly or indirectly, any shares of common stock without the permission of Goldman Sachs & Co. LLC for a period of 180 days following the date of this prospectus. We refer to such period as the lock-up period. When the lock-up period expires, we and our security holders subject to a lock-up agreement or market stand-off agreement will be able to sell our shares in the public market. In addition, Goldman Sachs & Co. LLC may, in its sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason. See "Shares Eligible for Future Sale" for more information. Sales of a substantial number of such shares upon expiration of the lock-up and market stand-off agreements, the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

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          One hundred eighty days after the effective date of the registration statement of which this prospectus forms a part, the holders of 54,998,789 shares of our common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares of Class A common stock or to include their shares in registration statements that we may file for ourselves or our stockholders.

          In addition, the shares of Class A common stock subject to outstanding options and restricted stock units for Class A common stock under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. See "Shares Eligible for Future Sale" for a more detailed description of sales that may occur in the future.

          If a substantial number of shares are sold, or if it is perceived that they will be sold, in the public market, before or after the expiration of the contractual lock-up period, the trading price of our Class A common stock could decline substantially.

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

          The provisions of our amended and restated certificate of incorporation and amended and restated bylaws to be effective on the closing of this offering, and provisions of Delaware law, may have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents to be effective on the closing of this offering will include provisions:

    creating a classified board of directors whose members serve staggered three year terms;

    authorizing "blank check" preferred stock, which may contain voting, liquidation, dividend, and other rights superior to our Class A common stock and which, from and after the date, referred to as the threshold date, on which the votes applicable to the Class A common stock and Class B common stock controlled by our founder, Chief Executive Officer, President, and Chairman, Langley Steinert, represent less than a majority of the aggregate votes applicable to all shares of the outstanding Class A common stock and Class B common stock, could be issued by our board of directors without stockholder approval;

    limiting the liability of, and providing indemnification to, our directors and officers;

    limiting the ability of our stockholders to call and bring business before special meetings;

    requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

    limiting the ability, from and after the threshold date, of stockholders to amend our amended and restated certificate of incorporation;

    limiting the ability, from and after the threshold date, of stockholders to fill vacant directorships and remove directors; and

    prohibiting cumulative voting by stockholders.

          These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

          As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

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          Any provision of our amended and restated certificate of incorporation, amended and restated bylaws, or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.

Our amended and restated certificate of incorporation that will become effective upon the closing of this offering will include a forum selection clause, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.

          Our amended and restated certificate of incorporation that will become effective upon the closing of this offering will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for any stockholder to bring: (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or agents to us or to our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our amended and restated certificate of incorporation or amended and restated bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; or (v) any action asserting a claim against us or any of our directors, officers, or other employees or agents governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. This forum selection provision in our amended and restated certificate of incorporation may limit our stockholders' ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in our certificate of incorporation, a court could rule that such a provision is inapplicable or unenforceable.

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

          The net proceeds from the sale of our shares of Class A common stock by us in this offering may be used for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. However, we do not have any agreements or commitments for any acquisitions at this time. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be invested with a view towards long-term benefits for our stockholders and this may not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

          The trading market for our Class A common stock is influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our

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company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We do not intend to pay cash dividends for the foreseeable future.

          We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any cash dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Class A common stock if the trading price of your shares increases.

Our status as a "controlled company" could make our Class A common stock less attractive to some investors or otherwise harm our stock price.

          Upon the closing of this offering, more than 50% of our voting power will be held by Langley Steinert. As a result, we will be a "controlled company" under the corporate governance rules for NASDAQ-listed companies. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a "controlled company" and may elect not to comply with certain NASDAQ corporate governance requirements, including

    the requirement that a majority of our board of directors consist of "independent directors" as defined under the rules of NASDAQ;

    the requirement that we have a compensation committee that is composed entirely of directors meeting NASDAQ independence standards applicable to compensation committee members with a written charter addressing the committee's purpose and responsibilities;

    the requirement that our compensation committee be responsible for the hiring and overseeing of persons acting as compensation consultants and be required to consider certain independence factors when engaging such persons; and

    the requirement that director nominees either be selected, or recommended for board of directors' selection, either by "independent directors" as defined under the rules of NASDAQ constituting a majority of the board of director's "independent directors" in a vote in which only "independent directors" participate, or by a nominations committee comprised solely of "independent directors."

          Following the closing of this offering, we may rely on certain of these exemptions. Accordingly, should the interests of our controlling stockholder differ from those of other stockholders, the other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules for NASDAQ-listed companies. Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price.

We are an "emerging growth company," and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.

          We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on

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exemptions from some disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

    being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure;

    not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

    not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;

    reduced disclosure obligations regarding executive compensation; and

    exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

          We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus we have provided only two years of audited financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our Class A common stock less attractive if we rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND INDUSTRY AND MARKET DATA

          This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases you can identify forward-looking statements because they contain words such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "might," "likely," "plans," "potential," "predicts," "projects," "seeks," "should," "target," "will," "would," or similar expressions and the negatives of those terms. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

    our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, and ability to achieve, and maintain, future profitability;

    our ability to attract and retain consumers and dealers using our marketplace;

    our ability to develop new and enhanced products and services to attract and retain consumers and dealers, and our ability to successfully monetize them;

    our anticipated growth and growth strategies and our ability to effectively manage that growth;

    our ability to maintain and build our brand;

    our reliance on our third-party data providers;

    our ability to expand internationally;

    the impact of competition in our industry and innovation by our competitors;

    our ability to hire and retain necessary qualified employees to expand our operations;

    our ability to adequately protect our intellectual property;

    our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business;

    the increased expenses and administrative workload associated with being a public company;

    failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud; and

    the future trading prices of our Class A common stock.

          We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

          You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and growth prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled "Risk Factors" and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. Further, our

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forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

          The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law.

          This prospectus also contains estimates and other statistical data, including those relating to our industry and the market in which we operate, that we have obtained or derived from industry publications and reports, including reports from comScore, Borrell Associates, and publicly available information. We rely on Google Analytics for data relating to our own key business metrics and, for consistency, we rely on comScore for all data relating to comparisons with our competitors. Google Analytics and comScore use different methodologies to derive their data and therefore their data for similar statistics is not comparable. These industry publications and reports generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates, as there is no assurance that any of them will be reached. Based on our industry experience, we believe that the publications and reports are reliable and that the conclusions contained in the publications and reports are reasonable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled "Risk Factors." These and other factors could cause our actual results to differ materially from those expressed in the industry publications and reports.

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USE OF PROCEEDS

          We estimate that the net proceeds from the sale of 2,500,000 shares of our Class A common stock in this offering will be approximately $28.5 million, based on an assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' option to purchase additional shares of Class A common stock from us is exercised in full, we estimate that our net proceeds would be approximately $37.6 million, after deducting estimated underwriting discounts and commissions, and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders, although we will bear the costs, other than underwriting discounts and commissions, associated with the sale of these shares.

          Each $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds that we receive from this offering by approximately $2.3 million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of Class A common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $13.0 million, assuming the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the offering price or the number of shares of Class A common stock by these amounts would have a material effect on our use of the proceeds from this offering.

          The principal purposes of this offering are to increase our financial flexibility, improve our visibility in the marketplace, create a public market for our Class A common stock, and facilitate our future access to the public capital markets. We currently intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital, operating expenses, and capital expenditures. We may also use a portion of the net proceeds to acquire or invest in complementary technologies, solutions, products, services, businesses, or other assets, although we have no present commitments or agreements to enter into any acquisitions or investments.

          As of the date of this prospectus, we cannot specify with certainty all of the particular uses of the net proceeds from this offering. The amount and timing of our actual expenditures will depend on numerous factors, including the cash used in or generated by our operations, sales and marketing efforts, competition, the pace of our expansion plans, our investments, and acquisitions. Accordingly, we will have broad discretion in using these proceeds. Pending these uses, we intend to invest the net proceeds from this offering in short-term and intermediate-term investment-grade interest-bearing securities and obligations, such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government. We cannot predict whether the invested proceeds will yield a favorable return.

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DIVIDEND POLICY

          We have never declared or paid cash dividends on our Class A common stock. We currently intend to retain all available funds and any future earnings for use in the development, operation, and expansion of our business and do not anticipate declaring or paying any dividends on our Class A common stock in the foreseeable future. Any future determination to declare dividends on our Class A common stock will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions, any restrictions on paying dividends, and other factors that our board of directors may deem relevant. As a result, we anticipate that only appreciation of the price of our Class A common stock, if any, will provide a return to investors in this offering for at least the foreseeable future.

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CAPITALIZATION

          The following table sets forth our consolidated cash, cash equivalents, and investments and capitalization as of June 30, 2017 on:

    an actual basis;

    on a pro forma basis to reflect (i) the automatic conversion of all shares of our convertible preferred stock outstanding as of June 30, 2017 into 20,188,226 shares of our Class A common stock and 40,376,452 shares of our Class B common stock, which Class B common stock will subsequently convert into 40,376,452 shares of our Class A common stock, which conversions will occur upon the closing of this offering and (ii) the stock-based compensation expense of $1.9 million associated with vesting of restricted stock units upon the closing of this offering; and

    on a pro forma as adjusted basis giving effect to the pro forma adjustments set forth above and to further reflect (i) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur in connection with the closing of this offering and (ii) our receipt of the net proceeds from the sale by us of 2,500,000 shares of Class A common stock in this offering at an assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the front cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Additionally, for purposes of the pro forma as adjusted amounts shown above, the net proceeds to be received by us from the sale of Class A common stock in this offering of $28.5 million have been increased by approximately $305,000 to reflect the estimated offering expenses that had been paid by us as of June 30, 2017.

          The information below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table together with the section titled "Management's

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Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

    At June 30, 2017
 

    Actual     Pro forma     Pro forma
as adjusted(1)
 

    (in thousands, except share and
per share data)
 

Cash, cash equivalents, and investments

  $ 81,309   $ 81,309   $ 110,064  

Convertible preferred stock, $0.001 par value per share; 11,091,782 shares authorized, 10,094,108 issued or outstanding, actual; 11,091,782 shares authorized, no shares issued or outstanding, pro forma; 10,000,000 shares authorized, no shares issued or outstanding, pro forma as adjusted

  $ 132,698   $   $  

Stockholders' (deficit) equity:

                   

Class A common stock, $0.001 par value per share, 120,020,700 shares authorized, 14,080,616 shares issued and outstanding, actual; 120,020,700 shares authorized, 74,645,294 shares issued and outstanding pro forma; and 500,000,000 shares authorized, 77,145,294 shares issued and outstanding pro forma as adjusted          

    14     75     77  

Class B common stock, $0.001 par value per share, 80,013,800 shares authorized, 28,161,232 shares issued and outstanding, actual; 80,013,800 shares authorized, 28,161,232 shares issued and outstanding pro forma; and 100,000,000 shares authorized, 28,161,232 shares issued and outstanding pro forma as adjusted              

    28     28     28  

Additional paid-in capital

    4,032     138,566     167,014  

Accumulated deficit

    (63,145 )   (65,042 )   (65,042 )

Accumulated other comprehensive loss

    127     127     127  

Total stockholders' (deficit) equity

    (58,944 )   73,754     102,204  

Total capitalization

  $ 73,754   $ 73,754   $ 102,204  

(1)
Each $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, each of cash, cash equivalents, and investments, additional paid-in capital, total stockholders' (deficit) equity, and total capitalization on a pro forma as adjusted basis by $2.3 million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of Class A common stock offered by us would increase or decrease as applicable, each of cash, cash equivalents, and investments, additional paid-in capital, total stockholders' (deficit) equity, and total capitalization on a pro forma as adjusted basis by $13.0 million, assuming the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

          If the underwriters' option to purchase additional shares of our Class A common stock from us were exercised in full, pro forma as adjusted cash, cash equivalents, and investments, total stockholders' (deficit) equity, total capitalization, and shares outstanding as of June 30, 2017 would be $119.2 million, $111.4 million, $111.4 million, and 106,011,526, respectively.

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          The number of shares of our Class A common stock and Class B common stock that will be outstanding after this offering is based on 74,645,294 shares of our Class A common stock outstanding and 28,161,232 shares of our Class B common stock outstanding, in each case, as of June 30, 2017 (assuming the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 60,564,678 shares of Class A common stock upon the closing of this offering), and excludes:

    1,737,056 shares of Class A common stock issuable upon the exercise of options outstanding as of June 30, 2017 with a weighted-average exercise price of $1.65 per share and 3,474,112 shares of Class B common stock issuable upon the exercise of options outstanding as of June 30, 2017 with a weighted-average exercise price of $1.65 per share;

    789,934 shares of Class A common stock and 1,579,868 shares of Class B common stock issuable upon the vesting and settlement of restricted stock units, or RSUs, outstanding as of June 30, 2017; and

    8,457,912 shares of Class A common stock reserved for future issuance under our equity compensation plans, consisting of (i) 657,912 shares of Class A common stock reserved for future issuance under our Amended and Restated 2015 Equity Incentive Plan, as amended, or the 2015 Plan, as of June 30, 2017, plus (ii) 7,800,000 additional shares of Class A common stock reserved for future issuance under our Omnibus Incentive Compensation Plan, or our 2017 Plan, which will become effective upon the closing of this offering.

          Upon the closing of this offering, any remaining shares available for issuance under our 2015 Plan will be added to the shares of our Class A common stock reserved for issuance under our 2017 Plan, and we will cease granting awards under the 2015 Plan. In addition, shares of Class A common stock and shares of Class B common stock subject to outstanding grants under our 2015 Plan as of the effective date of our 2017 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered on or after the effective date of our 2017 Plan without having been exercised, vested, or paid prior to the effective date of the 2017 Plan, including shares tendered or withheld to satisfy tax withholding obligations with respect to outstanding grants under the 2015 Plan, will be added to the shares of Class A common stock reserved for issuance under our 2017 Plan. See the section titled "Executive Compensation — Employee Benefits and Stock Plans" for additional information.

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DILUTION

          If you invest in our Class A common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of Class A common stock immediately after closing of this offering.

          Our historical net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding as of June 30, 2017. Our historical net tangible book value as of June 30, 2017 was $73.8 million, or $1.75 per share. Our pro forma net tangible book value was $73.8 million, or $0.72 per share, and is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding as of June 30, 2017, after giving effect to the automatic conversion of all shares of our convertible preferred stock outstanding as of June 30, 2017 into 20,188,226 shares of our Class A common stock and 40,376,452 shares of our Class B common stock, which Class B common stock will subsequently convert into 40,376,452 shares of our Class A common stock, which conversions will occur upon the closing of this offering.

          After giving effect to the sale by us of 2,500,000 shares of our Class A common stock in this offering at the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and the receipt of the net proceeds therefrom after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2017 would have been approximately $102.2 million, or $0.97 per share. This represents an immediate increase in pro forma net tangible book value of $0.25 per share to our existing stockholders and an immediate dilution of $13.03 per share to investors purchasing shares of Class A common stock in this offering at the assumed initial public offering price.

          The following table illustrates this dilution:

Assumed initial public offering price per share

        $ 14.00  

Pro forma net tangible book value per share as of June 30, 2017

  $ 0.72        

Increase in pro forma net tangible book value per share attributable to new investors in this offering

    0.25        

Pro forma as adjusted net tangible book value per share as of June 30, 2017

        $ 0.97  

Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering

        $ 13.03  

          Each $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $0.02, and would increase or decrease, as applicable, dilution in pro forma as adjusted net tangible book value per share to new investors in this offering by $0.98, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of Class A common stock

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offered by us would increase or decrease our pro forma as adjusted net tangible book value per share after this offering by $0.11 per share and would increase or decrease dilution in pro forma as adjusted net tangible book value per share to investors in this offering by $0.11 per share, assuming the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. In addition, to the extent that any outstanding options to purchase common stock are exercised or restricted stock units, or RSUs, are settled, new investors will experience further dilution.

          If the underwriters exercise their option to purchase additional shares of Class A common stock from us in full, the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after this offering would be $1.05 per share, and the dilution in pro forma as adjusted net tangible book value per share to new investors in this offering would be $12.95 per share.

          The following table summarizes, on a pro forma as adjusted basis at June 30, 2017, the total number of shares purchased from us, the total consideration paid to us, and the average price per share paid to us by existing stockholders and by new investors purchasing shares of Class A common stock in this offering from us at the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

    Shares
Purchased
    Total
Consideration
    Average
Price
 

    Number     Percent     Amount     Percent     Per Share
 

Existing stockholders

    102,806,526     97.6 % $ 133,580,251     79.2 % $ 1.30  

New investors

    2,500,000     2.4     35,000,000     20.8     14.00  

Total

    105,306,526     100.0 % $ 168,580,251     100.0 % $ 1.60  

          Each $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors and total consideration paid by all stockholders by approximately $2,500,000, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same.

          Sales of shares of Class A common stock by the selling stockholders in our initial public offering will reduce the number of shares of common stock held by existing stockholders to 95,906,526, or approximately 91.1% of the total shares of common stock outstanding after our initial public offering, and will increase the number of shares held by new investors to 9,400,000, or approximately 8.9% of the total shares of common stock outstanding after our initial public offering. In addition, to the extent that any outstanding options to purchase common stock are exercised or RSUs are settled, new investors will experience further dilution.

          After giving effect to the sale of shares in this offering by us and the selling stockholders, if the underwriters exercise their option to purchase additional shares of Class A common stock from us and the selling stockholders in full, our existing stockholders would own 89.8% and our new investors would own 10.2% of the total number of shares of our common stock outstanding upon the closing of this offering.

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          The number of shares of our Class A common stock and Class B common stock that will be outstanding after this offering is based on 74,645,294 shares of our Class A common stock outstanding and 28,161,232 shares of our Class B common stock outstanding, in each case, as of June 30, 2017 (assuming the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 60,564,678 shares of Class A common stock upon the closing of this offering), and excludes:

    1,737,056 shares of Class A common stock issuable upon the exercise of options outstanding as of June 30, 2017 with a weighted-average exercise price of $1.65 per share and 3,474,112 shares of Class B common stock issuable upon the exercise of options outstanding as of June 30, 2017 with a weighted-average exercise price of $1.65 per share;

    789,934 shares of Class A common stock and 1,579,868 shares of Class B common stock issuable upon the vesting and settlement of RSUs outstanding as of June 30, 2017; and

    8,457,912 shares of Class A common stock reserved for future issuance under our equity compensation plans, consisting of (i) 657,912 shares of Class A common stock reserved for future issuance under our Amended and Restated 2015 Equity Incentive Plan, as amended, or the 2015 Plan, as of June 30, 2017, plus (ii) 7,800,000 additional shares of Class A common stock reserved for future issuance under our Omnibus Incentive Compensation Plan, or our 2017 Plan, which will become effective upon the closing of this offering.

          Upon the closing of this offering, any remaining shares available for issuance under our 2015 Plan will be added to the shares of our Class A common stock reserved for issuance under our 2017 Plan, and we will cease granting awards under the 2015 Plan. In addition, shares of Class A common stock and shares of Class B common stock subject to outstanding grants under our 2015 Plan as of the effective date of our 2017 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered on or after the effective date of our 2017 Plan without having been exercised, vested, or paid prior to the effective date of the 2017 Plan, including shares tendered or withheld to satisfy tax withholding obligations with respect to outstanding grants under the 2015 Plan, will be added to the shares of Class A common stock reserved for issuance under our 2017 Plan. See the section titled "Executive Compensation — Employee Benefits and Stock Plans" for additional information.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

          We derived the summary consolidated statements of operations data for the years ended December 31, 2015 and 2016 and the consolidated balance sheet data as of December 31, 2015 and 2016 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated statements of operations data for the six months ended June 30, 2016 and 2017 and the consolidated balance sheet data as of June 30, 2017 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements were prepared on a basis consistent with our annual financial statements and include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period. You should read the summary consolidated financial data set forth below in conjunction with the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this prospectus.

    Year Ended
December 31,
    Six Months Ended
June 30,
 

    2015     2016     2016     2017
 

    (in thousands, except share and per share data)  

Consolidated Statements of Operations Data:

                         

Revenue:

                         

Marketplace subscription

  $ 75,142   $ 171,302   $ 71,638   $ 127,952  

Advertising and other

    23,446     26,839     12,603     15,323  

Total revenue

    98,588     198,141     84,241     143,275  

Cost of revenue(1)

    4,234     9,575     3,819     7,647  

Gross profit

    94,354     188,566     80,422     135,628  

Operating expenses:

                         

Sales and marketing

    81,877     154,125     68,313     104,604  

Product, technology, and development

    8,235     11,453     5,150     8,357  

General and administrative

    5,801     12,783     5,618     9,092  

Depreciation and amortization

    969     1,634     633     1,196  

Total operating expenses

    96,882     179,995     79,714     123,249  

(Loss) income from operations

    (2,528 )   8,571     708     12,379  

Other (expense) income, net

    (12 )   374     153     217  

(Loss) income before income taxes

    (2,540 )   8,945     861     12,596  

(Benefit from) provision for income taxes

    (904 )   2,448     340     4,043  

Net (loss) income

  $ (1,636 ) $ 6,497   $ 521   $ 8,553  

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Net (loss) income per share attributable to common stockholders, basic and diluted:(2)

                         

Basic

  $ (0.41 ) $ (0.58 ) $ 0.01   $ 0.08  

Diluted

  $ (0.41 ) $ (0.58 ) $   $ 0.08  

Weighted-average shares used to compute net (loss) income per share attributable to common stockholders:(2)

                         

Basic

    43,141,236     44,138,922     44,651,235     42,122,339  

Diluted

    43,141,236     44,138,922     48,026,295     46,182,359  

Pro forma net (loss) income per share attributable to common stockholders:(2)

                         

Basic

        $ (0.24 )       $ 0.08  

Diluted

        $ (0.24 )       $ 0.08  

Pro forma weighted-average shares used to compute pro forma net (loss) income per share attributable to common stockholders:(2)

                         

Basic

          104,703,600           102,687,017  

Diluted

          104,703,600           106,747,037  

Other Financial Information:

                         

Adjusted EBITDA(3)

  $ (366 ) $ 10,965   $ 1,692   $ 14,116  

(1)
Includes depreciation and amortization expense for the years ended December 31, 2015 and 2016 and for the six months ended June 30, 2016 and 2017 of $153, $438, $203, and $391, respectively.

(2)
See Note 2 of the notes to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our net (loss) income per share attributable to common stockholders and pro forma net (loss) income per share attributable to common stockholders.

(3)
See "— Adjusted EBITDA" below for more information and for a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

    December 31,     June 30,
 

    2015     2016     2017
 

    (in thousands)  

Consolidated Balance Sheet Data:

                   

Cash, cash equivalents, and investments

  $ 61,363   $ 74,250   $ 81,309  

Property and equipment, net

    7,147     12,780     15,897  

Working capital

    52,751     56,457     61,534  

Total assets

    77,781     100,331     115,606  

Total liabilities

    20,534     35,605     41,852  

Convertible preferred stock

    73,378     132,698     132,698  

Total stockholders' deficit

    (16,131 )   (67,972 )   (58,944 )

Adjusted EBITDA

          To provide investors with additional information regarding our financial results, we monitor and have presented within this prospectus Adjusted EBITDA, which is a non-GAAP financial measure. This non-GAAP financial measure is not based on any standardized methodology prescribed by U.S. generally accepted accounting principles, or GAAP, and is not necessarily comparable to similarly titled measures presented by other companies.

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          We define Adjusted EBITDA as net income (loss), adjusted to exclude: depreciation and amortization, stock-based compensation expense, other expense (income), net, the (benefit from) provision for income taxes, and other one-time, non-recurring items, when applicable. We have presented Adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating Adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business.

          We use Adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making. In addition, we evaluate our Adjusted EBITDA in relation to our revenue. We refer to this as Adjusted EBITDA margin and define it as Adjusted EBITDA divided by total revenue.

          Our Adjusted EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), which is the most directly comparable GAAP equivalent. Some of these limitations are:

    Adjusted EBITDA excludes stock-based compensation expense, which will be, for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;

    Adjusted EBITDA excludes depreciation and amortization expense and, although these are non-cash expenses, the assets being depreciated may have to be replaced in the future;

    Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest, which reduces cash available to us;

    Adjusted EBITDA does not reflect income tax payments that reduce cash available to us; and

    other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, we consider, and you should consider, Adjusted EBITDA together with other operating and financial performance measures presented in accordance with GAAP.

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          The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable measure calculated in accordance with GAAP, for each of the periods presented.

    Year Ended
December 31,
    Six Months
Ended
June 30,
 

    2015     2016     2016     2017
 

    (in thousands)  

Reconciliation of Adjusted EBITDA:

                         

Net (loss) income

  $ (1,636 ) $ 6,497   $ 521   $ 8,553  

Depreciation and amortization

    1,122     2,072     836     1,587  

Stock-based compensation expense

    1,040     322     148     150  

Other expense (income), net

    12     (374 )   (153 )   (217 )

(Benefit from) provision for income taxes

    (904 )   2,448     340     4,043  

Adjusted EBITDA

  $ (366 ) $ 10,965   $ 1,692   $ 14,116  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or elsewhere in this prospectus, including information with respect to our plans and strategy for our business and our performance and future success, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. In this discussion, we use financial measures that are considered non-GAAP financial measures under Securities and Exchange Commission rules. These rules require supplemental explanation and reconciliation, which is included elsewhere in this prospectus. Investors should not consider non-GAAP financial measures in isolation from or in substitution for, financial information presented in compliance with U.S. generally accepted accounting principles, or GAAP.

Company Overview

          CarGurus is a global, online automotive marketplace connecting buyers and sellers of new and used cars. Using proprietary technology, search algorithms, and innovative data analytics, we provide information and analysis that create a differentiated automotive search experience for consumers. Our trusted marketplace empowers users with unbiased third-party validation on pricing and dealer reputation as well as other information that aids them in finding "Great Deals from Great Dealers." As of June 30, 2017, we had an active dealer network of over 40,000 dealers, and our selection of over 5.4 million car listings is the largest number of car listings available on any of the major U.S. online automotive marketplaces. In addition to the United States, we operate online marketplaces in Canada, the United Kingdom, and Germany.

          Since our founding in 2006, a core principle of our marketplace has been unbiased transparency. In pursuing this principle, we have continually innovated our product offerings to bring greater transparency, trust, and efficiency to a consumer's car research and buying process, leading to higher engagement and a more informed consumer who is better prepared to purchase at the dealership. Highlights of our history of innovation and commitment to unbiased transparency include:

    In 2007, we launched the www.cargurus.com marketplace in the United States.

    In 2010, we introduced Instant Market Value, or IMV, Deal Ratings, Price History, and Time on Site.

    In 2011, we launched Dealer Reviews and deployed the first version of our mobile-optimized website.

    In 2012, we established a direct-to-dealer sales model for our marketplace listing subscription products.

    In 2013, we launched Sell My Car, a free platform which enables consumers to sell their cars in our marketplace, and new car price analysis features that provide price guidance on new cars.

    In 2014, we launched our first international marketplace in Canada at ca.cargurus.com.

    In 2015, we launched our second international marketplace in the United Kingdom at www.cargurus.co.uk.

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    In 2016, we launched our Deal Rating Badges, which allow dealers to add Deal Rating icons on their own websites, user-generated car comparison pages to provide users side-by-side comparisons of vehicles, and a managed text and chat offering to complement our existing communication channels between consumers and dealers.

    In 2017, we launched our third international marketplace in Germany at cargurus.de and we launched dealer search engine marketing, a product that helps dealers more effectively acquire prospects through paid search marketing, social media, and retargeting.

          We generate marketplace subscription revenue from dealers through Listing and Dealer Display subscriptions, and advertising revenue from automobile manufacturers and other auto-related brand advertisers. Our rapid revenue growth and financial performance over the last several years exemplifies the strength of our marketplace. In 2016, we generated revenue of $198.1 million, a 101% increase from $98.6 million of revenue in 2015. Our revenue for the six months ended June 30, 2017 was $143.3 million, a 70% increase from $84.2 million of revenue in the six months ended June 30, 2016.

          In 2016, we generated net income of $6.5 million and our Adjusted EBITDA was $11.0 million, compared to a net loss of $1.6 million and Adjusted EBITDA of $(0.4) million in 2015. For the six months ended June 30, 2017, we generated net income of $8.6 million and our Adjusted EBITDA was $14.1 million, compared to net income of $0.5 million and Adjusted EBITDA of $1.7 million for the six months ended June 30, 2016. See "Selected Consolidated Financial and Other Data — Adjusted EBITDA" for more information regarding our use of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our net income (loss).

          We have two reportable segments, United States and International. See Note 8 of our consolidated financial statements included elsewhere in this prospectus for more information.

Key Business Metrics

          We regularly review a number of metrics, including the key metrics listed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make operating and strategic decisions. We believe it is important to evaluate these metrics for the United States and International segments. International is defined as all non-U.S. markets in which we operate. International markets will likely perform differently than the U.S. market due to a variety of factors, including our operating history in the market, our rate of investment, market size, market maturity, and other dynamics unique to each country.

Monthly Unique Users

          We define a monthly unique user as an individual who has visited our website within a calendar month, based on data as measured by Google Analytics. We calculate average monthly unique users as the sum of the monthly unique users in a given period, divided by the number of months in that period. We count a unique user the first time a computer or mobile device with a unique IP address accesses our website during a calendar month. If an individual accesses our website using different IP addresses within a given month, the first access by each such IP address is counted as a separate unique user. We view our average monthly unique users as a key indicator of the quality of our user experience, the effectiveness of our advertising and traffic acquisition, and the strength of our brand awareness. Measuring unique users is important to us because our marketplace subscription revenue depends, in part, on our ability to provide dealers with connections to our users and exposure to our marketplace audience. We define connections as interactions between consumers and dealers on our marketplace through phone calls, email,

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managed text and chat, and clicks to access the dealer's website and map directions to the dealership.

    Year Ended
December 31,
    Six Months
Ended
June 30,
 

Average Monthly Unique Users

    2015     2016     2016     2017
 

    (in thousands)  

United States

    14,986     20,120     19,510     23,089  

International

    198     1,396     1,034     2,183  

Monthly Sessions

          We define monthly sessions as the number of distinct visits to our website that take place each month within a given time frame, as measured and defined by Google Analytics. We calculate average monthly sessions as the sum of the monthly sessions in a given period, divided by the number of months in that period. A session is defined as beginning with the first page view from a user IP address and ending at the earliest of when a user closes their browser window, after 30 minutes of inactivity, or at midnight each night. A session can be made up of multiple page views and visitor actions, such as performing a search, visiting vehicle detail pages, and connecting with a dealer. We believe the volume of sessions in a time period, when considered in conjunction with the number of unique users in that time period, is an indicator of consumer satisfaction and engagement with our marketplace.

    Year Ended
December 31,
    Six Months
Ended
June 30,
 

Average Monthly Sessions

    2015     2016     2016     2017
 

    (in thousands)  

United States

    31,531     46,706     44,953     61,593  

International

    342     2,627     1,833     4,871  

Number of Paying Dealers

          Paying dealers are the number of dealers subscribing to one of our Enhanced or Featured Listing products at the end of a defined period. We believe that the number of paying dealers is indicative of the value proposition of our Listing products, and our sales and marketing success, including our ability to retain paying dealers and develop new dealer relationships.

    As of
December 31,
    As of June 30,
 

Number of Paying Dealers

    2015     2016     2016     2017
 

United States

    12,276     20,349     16,944     23,347  

International

    53     952     306     1,694  

Average Annual Revenue per Subscribing Dealer (AARSD)

          We measure the average annual revenue we receive from each paying dealer. We define AARSD, as measured at the end of a defined period, as the total marketplace subscription revenue during the trailing 12 months divided by the average number of paying dealers during the same trailing 12-month period. Our ability to grow the AARSD is an indicator of the value proposition of our products and the return on investment, or ROI, our paying dealers realize from our products.

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Increases in AARSD are driven by our ability to grow the volume of connections to our users and the quality of those connections, effectively illustrate the value of brand exposure to our engaged audience in relation to subscription cost, upsell package levels, and cross-sell additional products to our paying dealers.

    As of
December 31,
    As of June 30,
 

Average Annual Revenue per
Subscribing Dealer (AARSD)

    2015     2016     2016     2017
 

United States

  $ 8,835   $ 10,383   $ 9,510   $ 11,048  

International

    n/a * $ 3,830     n/a * $ 4,944  

*
International revenues were not generated before October 2015 and, therefore, annual data for the trailing 12-month calculation is not available.

Adjusted EBITDA

          We define Adjusted EBITDA as net income (loss), adjusted to exclude: depreciation and amortization, stock-based compensation expense, other expense (income), net, the (benefit from) provision for income taxes, and other one-time, non-recurring items, when applicable. We monitor and have presented in this prospectus Adjusted EBITDA as a non-GAAP financial measure to supplement the financial information we present on a GAAP basis to provide investors with additional information regarding our financial results. Adjusted EBITDA, as a non-GAAP financial measure, should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP. We consider, and you should consider, Adjusted EBITDA together with other operating and financial performance measures presented in accordance with GAAP. Also, our non-GAAP measure may not necessarily be comparable to similarly titled measures presented by other companies.

          We believe that Adjusted EBITDA is a key indicator of our operating results. For further explanation of the uses and limitations of this measure and a reconciliation of our Adjusted EBITDA to the most directly comparable GAAP measure, net income (loss), please see "Selected Consolidated Financial and Other Data — Adjusted EBITDA."

Factors Affecting Our Performance

          We believe that our performance and future growth depends on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled "Risk Factors."

Grow Our Paying Dealer Base

          Our success depends in part on the retention and growth of our paying dealer base. We allow any dealer to list its inventory in our marketplace, receive anonymized email connections and access a subset of the tools on our Dealer Dashboard for free through our Basic Listing product. Through our sales and marketing efforts, we aim to convert those non-paying dealers to Enhanced or Featured Listing subscribers. Dealers with a paid subscription to our Enhanced and Featured Listing products receive connections to consumers that are not anonymous and can be made through a wider variety of methods, including phone calls, email, and managed text and chat. Our platform allows paying dealers to provide a link to their websites, dealership information such as name, address, and hours of operation, and map directions to their dealerships, helping consumers easily contact or visit them, which we believe results in increased local brand awareness and walk-in traffic. Paying dealers also gain access to our Pricing Tool and Market Analysis tool.

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          As of June 30, 2017, we had over 40,000 dealers in our active dealer network. Based on estimates by Borrell Associates, there are approximately 43,000 dealers in the United States, and therefore our ability to expand our total U.S. dealer count is limited by the diminishing number of dealers that do not actively list their inventory in our marketplace. However, as of June 30, 2017, only 23,347 of the more than 40,000 U.S. dealers in our active dealer network were paying dealers, and we believe that our ability to convert non-paying dealers to paying dealers will be the biggest driver of our future U.S. paying dealer growth. Bringing new non-paying dealers onto our platform and ultimately seeking to convert them to paying dealers will be an additional, but smaller, driver of such growth.

          Our marketplace subscription revenue is a product of the number of paying dealers and their average subscription fees, and therefore, increasing the number of paying dealers is a key growth driver. In 2016, marketplace subscription revenue totaled $171.3 million, accounting for 86% of total revenue. We have made a substantial investment in our sales organization, which focuses on converting dealers from Basic Listing to Enhanced or Featured Listing subscribers. Having more paying dealers provides consumers with more dealer information and methods to contact those dealers. More consumers and connections drives greater value to paying dealers on our platform.

Increase Average Annual Revenue per Subscribing Dealer (AARSD)

          AARSD is a key driver of our marketplace subscription revenue. AARSD is driven by the volume and quality of connections we deliver to dealers, the perceived value of their brand exposure in our marketplace, and our ability to upsell package levels and cross-sell additional products to our paying dealers. In 2016, we provided our U.S. dealer base with over 42 million connections to prospective car buyers. Historically, our growing user traffic has led to an increase in the volume of connections that we provide our U.S. paying dealers, from 10.3 million connections during the second quarter of 2016 to 12.4 million connections during the same period of 2017. This growth has been a primary contributor to the increase in U.S. AARSD, which grew from $9,510 as of June 30, 2016 to $11,048 as of June 30, 2017, or 16%. In the future, we expect new products to play a more important role in helping us grow AARSD.

          We have a history of attracting new paying dealers and increasing their annual spend with us over time primarily due to the value they receive from increased connections provided to them from our marketplace. Additionally, paying dealers increase their spend with us by adding products such as display advertising to their listings subscription. As of June 30, 2017, 15% of our U.S. paying dealers subscribed to our dealer display advertising product, up from 5% as of June 30, 2016. The chart below illustrates the total monthly marketplace subscription revenue from each of several cohorts over the fiscal years presented. Each cohort represents dealers that made their initial purchase from us in a given fiscal year. For example, the fiscal year 2015 cohort represents all dealers that made their initial purchase from us between January 1, 2015 and December 31, 2015. The fiscal year 2015 cohort increased its monthly subscription revenue from $6.0 million as of December 31, 2015 to $6.9 million as of December 31, 2016, an increase of 16%. The cohorts prior to January 1, 2015 had monthly subscription revenue of $3.0 million on December 31, 2014, which increased two years later to $4.9 million on December 31, 2016, representing a compound annual growth rate of 27%.

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U.S. Monthly Marketplace Subscription Revenue by Cohort

GRAPHIC


Note: Data through June 30, 2017.

Launch of New Dealer Products and Services

          We intend to introduce additional products and services to help dealers better acquire customers in our marketplace and other digital channels, build relationships with prospects, and better manage their inventories, websites, and dealerships. For example, in 2017, we began offering our dealer search engine marketing product, which helps dealers more effectively acquire customers through paid search, social media, and retargeted advertising. Our revenue growth in the future will be dependent, in part, on our ability to successfully innovate, develop, launch, and gain market acceptance of these new products and services. We believe that new products should not only increase our AARSD, but also make our platform more appealing to a broader pool of dealers.

Grow Our Consumer Audience

          Our revenue growth depends, in part, on our ability to grow our consumer audience, a critical driver of the number of connections that we provide to our dealers. Increasing our volume of unique users and their engagement is critical to our success as it incentivizes more dealers to purchase our Enhanced or Featured Listing products to benefit from improved access to and engagement with that audience as well as the additional features those subscription products provide. We intend to continue investing in our proprietary algorithmic traffic acquisition and building our brand awareness. We also plan to add new consumer-facing features, tools, and services to assist consumers with more aspects of the car ownership lifecycle, from researching and buying a car through maintaining and eventually selling the car, which we believe will help us grow our consumer audience.

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Increase Our Brand Awareness

          We believe that stronger brand awareness among consumers and dealers will contribute to our future growth. Historically, our marketing efforts have been focused on algorithmic traffic acquisition rather than brand marketing. We plan to further expand our marketing on television, radio, and social media to drive greater brand recognition, trust, and loyalty from a broader consumer audience. The timing and magnitude of our advertising activities will impact our sales and marketing expense and overall profitability in each period, and the effectiveness of such activities in attracting consumers and dealers to our platform could impact our revenue in future periods.

Drive Growth and Profitability in International Markets

          We believe that our opportunity in international markets is significant. To capitalize on this opportunity, we have launched marketplaces in Canada, the United Kingdom, and Germany, and will continue to invest in growing our presence in these and other countries. We have experienced losses in these countries and it is likely we will experience losses in other countries in which we launch marketplaces. Our ability to successfully grow these markets and drive profitability comparable to our performance in the United States will depend on our ability to acquire a critical mass of dealer inventory, grow consumer traffic, provide high quality connections between consumers and dealers, and increase the number of paying dealers in these markets.

Components of Consolidated Statements of Operations

Revenue

          Our revenue is derived from two primary sources: marketplace subscription revenue, which consists of listing and display advertising subscriptions from dealers, and advertising and other revenue, which consists primarily of display advertising revenue from auto manufacturers and other auto-related brand advertisers.

Marketplace Subscription Revenue

          We offer three types of marketplace Listing products to our dealers: Basic Listing, which is free; and Enhanced or Featured Listing, which require a paid subscription under a monthly, quarterly, semiannual, or annual subscription basis. As of June 30, 2017, 17% of our U.S. paying dealers were on an annual subscription, compared to fewer than 1% of U.S. paying dealers as of June 30, 2016. Subscription pricing is determined based on a dealer's inventory size, region, and our assessment of the connections and ROI our platform will provide them. We also offer dealers access to our Dealer Dashboard, which includes a performance summary, Dealer Insights tool, user review management platform, Pricing Tool, and Market Analysis tool. The Pricing Tool and Market Analysis tool are available only to paying dealers.

          In addition to listing their inventory in our marketplace and gaining access to our Dealer Dashboard, we offer Enhanced and Featured Listing dealers other subscription advertising and customer acquisition products, including display advertising that appears in our marketplace and on other sites on the Internet, which can be targeted by geography, search history, and a number of other factors, and dealer search engine marketing, which helps dealers more effectively acquire customers through paid search, social media, and retargeted advertising.

          Marketplace subscription revenue is recognized on a monthly basis as the service is delivered to the dealer.

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Advertising and Other Revenue

          Advertising and other revenue consists primarily of non-dealer display advertising revenue from auto manufacturers and other auto-related brand advertisers sold on a cost per thousand impressions, or CPM, basis. An impression is an advertisement loaded on a web page. Auto manufacturers and other brand advertisers can execute advertising campaigns that are targeted across a wide variety of parameters, including demographic groups, behavioral characteristics, specific auto brands, categories such as Certified Pre-Owned, and segments such as hybrid vehicles.

          For a description of our revenue accounting policies, see "— Critical Accounting Policies and Significant Estimates."

Cost of Revenue

          Cost of revenue primarily consists of costs related to supporting and hosting our product offerings. These costs include salaries, benefits, incentive compensation, and stock-based compensation expense related to the customer support team and third-party service provider costs such as data center and networking expenses, allocated overhead, depreciation and amortization expense associated with our property and equipment, and amortization of capitalized website development costs. We allocate overhead costs, such as rent and facility costs, information technology costs, and employee benefit costs, to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each operating expense category. We expect these expenses to increase as we continue to scale our business and introduce new products.

Operating Expenses

    Sales and Marketing

          Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, incentive compensation, commissions, stock-based compensation, and travel costs; costs associated with consumer marketing, such as traffic acquisition, brand building, and public relations activities; costs associated with dealer marketing, such as content marketing, customer and promotional events, and industry events; and allocated overhead. We expect sales and marketing expenses to increase as we grow our audience and attempt to strengthen our brand awareness and, as informed by trends in our business and the competitive landscape of our market, fluctuate from quarter to quarter, which will impact our quarterly results of operations.

    Product, Technology, and Development

          Product, technology, and development expenses, which include research and development costs, consist primarily of personnel costs of our development team, including payroll, benefits, stock-based compensation expense and allocated overhead costs. Other than website development costs that qualify for capitalization, research and development costs are expensed as incurred. We expect product, technology, and development expenses to increase as we develop new solutions and make improvements to our existing platform.

    General and Administrative

          General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, human resources, and administrative personnel, including salaries, benefits, incentive compensation, and stock-based compensation expenses, in addition to the costs associated with professional fees for external legal, accounting and other consulting services, insurance premiums, payment processing and billing costs, and allocated overhead costs. We expect general and administrative expenses to increase as we incur the costs of compliance associated with being a publicly traded company, including legal, audit, and consulting fees.

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    Depreciation and Amortization

          Depreciation and amortization expenses consist of depreciation on property and equipment and leasehold improvements.

Other (Expense) Income

          Other (expense) income consists primarily of interest income earned on our cash, cash equivalents, and investments, interest expense on lease obligations, and net foreign exchange gains and losses.

(Benefit from) Provision for Income Taxes

          We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions in which we operate. We have recorded a provision for income taxes for the period ended December 31, 2016 as a result of our consolidated taxable income position. We have recognized a benefit from income taxes for the period ended December 31, 2015 due to our taxable loss position for that period. We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. We regularly assess the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We have not provided a valuation allowance against our net deferred tax assets at December 31, 2015 or 2016, or at June 30, 2017.

Results of Operations

          The following table sets forth our selected consolidated statements of operations data for each of the periods indicated. The period-to-period comparison of financial results is not necessarily indicative of future results.

    Year Ended
December 31,
    Six Months
Ended June 30,
 

    2015     2016     2016     2017
 

    (in thousands)  

Revenue:

                         

Marketplace subscription

  $ 75,142   $ 171,302   $ 71,638   $ 127,952  

Advertising and other

    23,446     26,839     12,603     15,323  

Total revenue

    98,588     198,141     84,241     143,275  

Cost of revenue

    4,234     9,575     3,819     7,647  

Gross profit

    94,354     188,566     80,422     135,628  

Operating expenses:

                         

Sales and marketing

    81,877     154,125     68,313     104,604  

Product, technology, and development

    8,235     11,453     5,150     8,357  

General and administrative

    5,801     12,783     5,618     9,092  

Depreciation and amortization

    969     1,634     633     1,196  

Total operating expenses

    96,882     179,995     79,714     123,249  

(Loss) income from operations

    (2,528 )   8,571     708     12,379  

Other (expense) income, net

    (12 )   374     153     217  

(Loss) income before income taxes

    (2,540 )   8,945     861     12,596  

(Benefit from) provision for income taxes

    (904 )   2,448     340     4,043  

Net (loss) income

  $ (1,636 ) $ 6,497   $ 521   $ 8,553  

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    Year Ended
December 31,
    Six Months
Ended June 30,
 

    2015     2016     2016     2017
 

    (in thousands)  

Additional Financial Data

                         

Revenue

                         

United States

  $ 98,566   $ 195,824   $ 83,760   $ 139,560  

International

    22     2,317     481     3,715  

Total

  $ 98,588   $ 198,141   $ 84,241   $ 143,275  

(Loss) income from Operations

                         

United States

  $ 637   $ 27,461   $ 8,467   $ 24,280  

International

    (3,165 )   (18,890 )   (7,759 )   (11,901 )

Total

  $ (2,528 ) $ 8,571   $ 708   $ 12,379  

          The following table sets forth our selected consolidated statements of operations data as a percentage of revenue for each of the periods indicated.

    Year Ended
December 31,
    Six
Months
Ended
June 30,
 

    2015     2016     2016     2017
 

Revenue:

                         

Marketplace subscription

    76 %   86 %   85 %   89 %

Advertising and other

    24     14     15     11  

Total revenue

    100 %   100 %   100 %   100 %

Cost of revenue

    4     5     4     5  

Gross profit

    96     95     96     95  

Operating expenses:

                         

Sales and marketing

    83     78     81     73  

Product, technology, and development

    9     6     6     6  

General and administrative

    6     6     7     6  

Depreciation and amortization

    1     1     1     1  

Total operating expenses

    99     91     95     86  

(Loss) income from operations

    (3 )   4     1     9  

Other income (expense), net

                 

(Loss) income before income taxes

    (3 )   4     1     9  

(Benefit from) provision for income taxes

    (1 )   1         3  

Net (loss) income

    (2 )%   3 %   1 %   6 %

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    Year Ended
December 31,
    Six
Months
Ended
June 30,
 

    2015     2016     2016     2017
 

Additional Financial Data

                         

Revenue

                         

United States

    100 %   99 %   99 %   97 %

International

        1     1     3  

Total

    100 %   100 %   100 %   100 %

(Loss) income from Operations

                         

United States

    %   14 %   10 %   17 %

International

    (3 )   (10 )   (9 )   (8 )

Total

    (3 )%   4 %   1 %   9 %

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2017

Revenue

Revenue by Source

    Six Months
Ended June 30,
    Change
 

    2016     2017     Amount     %
 

    (dollars in thousands)  

Revenue

                         

Marketplace subscription

  $ 71,638   $ 127,952   $ 56,314     79 %

Advertising and other

    12,603     15,323     2,720     22  

Total

  $ 84,241   $ 143,275   $ 59,034     70 %

Percentage of total revenue:

   
 
   
 
   
 
   
 
 

Marketplace subscription

    85 %   89 %            

Advertising and other

    15     11              

Total

    100 %   100 %            

          Overall revenue increased by $59.0 million, or 70%, in the six months ended June 30, 2017 compared to the six months ended June 30, 2016. Marketplace subscription revenue grew by 79%, while advertising and other revenue grew by 22%.

          Marketplace subscription revenue increased by $56.3 million in the six months ended June 30, 2017 compared to the six months ended June 30, 2016, and represented 89% of total revenue in the six months ended June 30, 2017, as compared to 85% of total revenue in the six months ended June 30, 2016. This increase in marketplace subscription revenue was attributable primarily to a 45% growth in the number of paying dealers, from 17,250 as of June 30, 2016 to 25,041 as of June 30, 2017, and to a 16% growth in our U.S. AARSD from $9,510 as of June 30, 2016 to $11,048 as of June 30, 2017. We believe that this increase in paying dealers was driven by the overall growth in the number of unique users to our website and mobile application and the continued efforts from our sales and marketing teams to convert Basic Listing dealers to Enhanced and Featured Listing paying dealers.

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          Advertising and other revenue increased $2.7 million in the six months ended June 30, 2017 compared to the six months ended June 30, 2016, and represented 11% of total revenue in the six months ended June 30, 2017, compared to 15% of total revenue in the six months ended June 30, 2016. The increase in advertising and other revenue is due primarily to a 35% increase in the number of impressions delivered and a 10% increase in the average price per thousand impressions in the six months ended June 30, 2017 compared to the six months ended June 30, 2016. These increases were partially offset by a reduction in other advertising revenue.

Revenue by Segment

    Six Months
Ended June 30,
    Change
 

    2016     2017     Amount     %
 

    (dollars in thousands)  

Revenue

                         

United States

  $ 83,760   $ 139,560   $ 55,800     67 %

International

    481     3,715     3,234     NM  

Total

  $ 84,241   $ 143,275   $ 59,034     70 %

Percentage of total revenue:

   
 
   
 
   
 
   
 
 

United States

    99 %   97 %            

International

    1     3              

Total

    100 %   100 %            

NM — Not Meaningful

          U.S. revenue increased $55.8 million, or 67%, in the six months ended June 30, 2017 compared to the six months ended June 30, 2016, due primarily to a 38% increase in the number of U.S. paying dealers.

          International revenue increased $3.2 million in the six months ended June 30, 2017 compared to the six months ended June 30, 2016, due primarily to a 454% increase in the number of international paying dealers.

Cost of Revenue

    Six Months
Ended June 30,
    Change