CDK Global Misses Q4 Expectations; Shares Sink 10% After-Hours

Shares of CDK Global, Inc. (CDK) sank 9.8% in the extended trading session on August 17 after the company reported that it had missed its fourth-quarter expectations despite recording solid year-over-year revenue and earnings growth. The growth was driven by a significant increase in the company’s auto sites and average revenue per site (RPS).

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CDK provides integrated information technology and digital marketing solutions to the automotive retail industry. Shares have lost 10.1% over the past year. (See CDK Global stock charts on TipRanks)

The company reported fourth-quarter adjusted earnings of $0.66 per share, up 12% year-over-year, but falling 1 cent short compared to the analysts’ estimates of $0.67 per share.

Similarly, revenue for the quarter climbed 12% compared to the year-ago period to $420.1 million but missed the Street’s estimate of $427.66 million.

Additionally, CDK reported full-year 2021 adjusted earnings of $2.57 per share, down 7% year-over-year, while its annual revenue increased 2% to $1.67 billion.

Brian Krzanich, the company’s CEO, said, “The investments we have made in our product and service offerings are resonating with our customers, and we are excited to have added Roadster to the CDK family in the fourth quarter as we continue to enhance the product offerings we have to help drive customer success.”

With continued momentum in the business, CDK expects rapid revenue growth in the future and provided its fiscal 2022 guidance.

For the full year 2022, CDK projects revenue and adjusted earnings to fall in the range of $1.78 – $1.82 billion and $2.70 – $2.90 per share, respectively, while consensus estimates are pegged at $1.68 billion and $2.57 per share, respectively.

In response to the company’s performance, William Blair analyst Matthew Pfau reiterated a Hold rating on the stock.

Pfau believes that CDK’s management is on the right track with its growth initiatives which can be seen by its site growth, increasing revenue per site, improving retention, and Fortellis transactions. Moreover, he notes that the Roadster acquisition will position the company to benefit from more auto sales online.

The analyst said, “A lot of the delta is driven by the acquisitions CDK has made over the past several quarters, and, in our view, trading some near-term margin expansion for long-term growth opportunities, such as auto e-commerce, is a reasonable trade-off. That said, until investors get more comfort that CDK will gain leverage on these investments, it will likely be difficult for the stock to outperform the market.”

Based on 3 Buys and 1 Hold, the stock commands a Strong Buy consensus rating. The average CDK Global price target of $67 implies 47.3% upside potential to current levels.