Auto Trader Group PLC (LSE:AUTO) shares fell after JPMorgan warned that the company faces a demanding future as weak underlying trends and the growth of artificial intelligence-led car searches threaten its earnings and valuation.
The US investment bank retained an 'underweight' rating, arguing that the online vehicle marketplace had entered the 2027 financial year with a weak run-rate, while the potential entry of Amazon Autos into Britain would increase competition.
Auto Trader's investment case now depends on a back-end-loaded recovery in retailer engagement, paid vehicle listings and take-up of higher-priced advertising packages, said analyst Lara Simpson.
She said tracked data showed some improvement in dealer numbers and live listings, but cautioned that this appeared partly driven by promotional offers. Visibility remained limited over how many listings were paid for and whether average revenue per retailer was returning to normal levels.
The analyst expects first-half earnings per share to come in 3% below consensus, with its full-year estimate 2% below market forecasts. This leaves a "high burden of proof" for Auto Trader during the second half.
Longer term, Simpson also highlighted the risk from changes in how consumers search for vehicles.
AI-led discovery tools could challenge Auto Trader's position as the main starting point for UK car buyers, while the analyst also highlighted the potential stiffening of competition of Amazon Autos enters Britain.
Auto Trader trades at around 10 times forecast enterprise value to earnings, below the European peer average of 11.9 times.
However, Simpson said the discount was justified by slower expected growth and heightened execution, competition and regulatory risks. She forecasts annual earnings growth of about 4% between the 2027 and 2029 financial years, compared with roughly 9% for peers.
Shares in the company fell over 2% to below 522p on Wednesday morning, before climbing back to 530p, a decline of 1% on the day.
