Carsales.com Limited (CRZ) listed as a share to buy in the traders report on September 25th, is an Australian business offering online access to automotive classifieds. It is the largest consumer website in the country that covers automotive, plant machinery, motorcycle, caravan, marine and display advertising.
Revenue is principally derived from online advertising, which includes dealer and private sales, and display adverting, where corporate customers such as insurance companies place ads on CRZ’s website.
The group also has a data and research services division, which provides solutions to customers including importers, dealers and industry bodies.
Strong FY13 Results
CRZ capped off a robust FY13 by reporting a 17% lift in net profit to $71.6 million. Impressively this came on the back of a 17% increase in revenue to $184.2 million.
Dealer revenue (comprising 45% of group revenue) was up 17%, this despite CRZ upping its advertising rates in February and a reflection of the group’s market dominance.
There was a slight lift in EBITDA margin from 55% to 55.8%, which occurred despite a 14% rise marketing costs. Enquiry volumes on new cars were up 23% on-year, whilst overall automotive inventory grew 8% to ~233,000 cars.
This tells us that the marketing spend increase is paying off and likely to translate into stronger revenue growth in FY14.
Whilst the overall market is growing, CRZ operates in an industry with low barriers to entry – it’s relatively easy to setup a website offering a similar service.
However the group is staying ahead of the pack with the investments it is making offshore and in new products. The group has a 20% stake in iCar Asia, whose auto advertising sites are market leaders in Thailand, Indonesia and Malaysia.
In just four months to the end of July 2013, automotive inventory surged 35% on iCar’s sites in these countries CRZ’s focus on product design was on display during the Q32013 launch of tyresales.com.au, a site focused on tyre sales.
We think this site has potential because of the way it complements CRZ’s existing automotive sites, its ability to leverage the carsales brand, and the lack of major players in what is a $4.9 billion domestic tyre advertising market.
CRZ said that trading for the six weeks post June 30, 2013 had shown solid growth. Along with the RBA’s recent interest rate cuts, consumer confidence is ticking higher and the trend Australian vehicle sales is still pointing up; all likely pointing to a continuation of this momentum.