CAR has seen a large sell off recently on AI disruption and today on the back of the anthropic announcement.

I might be off but isn't the value in the network effect here, not the website being so much better than carsguide or whatever else?!

This AI kills everything software related seems crazy.

On top of Carma launching there is whoever this mob is too.

Global used car trader CARS24 is aggressively moving to transform Australia’s used car market, leveraging a proprietary artificial intelligence platform that it claims saves buyers up to 5 per cent off dealership prices.

The $3.3bn-plus company, founded in India in 2015, is positioning itself as the “Amazon of used cars”. It is challenging both traditional dealers and online juggernaut Carsales by taking the high-risk, high-scale approach of owning all its inventory.

CARS24 co-founder Mehul Agarwal said if it succeeds in winning just 10 per cent of the Australian market, it will become a $12bn business.

He said the prevailing consumer sentiment in the used car market was filled with “stress, scared of what will go wrong.”

“Why carry that stress at all? Why is this industry running the same way it has run for the last 30, 40, 50 years?” Mr Agarwal said.

“Technology came and solved for books, it solved for fashion, it solved for electronics. Why has it not gone beyond and got into a category like auto?”

CARS24 disruption centres on its AI-driven pricing model. Unlike traditional dealerships, where prices are often subjective, Mr Agarwal said CARS24 has converted the process from “heuristic into science.”

CARS24 online car listings.

He said its algorithm analyses thousands of daily listings, a car’s condition, and its history to determine a price that ensures it sits within the most competitive 10 per cent of dealership prices nationwide, typically delivering 2-5 per cent savings to the buyer.

“Pricing is no more a gut call,” Mr Agarwal said. “It is now exactly a science driven by an AI pricing algorithm.”

Crucially, the system is designed to remove emotional and human bias from the transaction for both sides. For sellers, the platform prices the vehicle without human interaction, preventing dealers from trying to “judge your desperation to sell.”

“We want to price the car the same no matter who the seller is,” Mr Agarwal said, highlighting the contrast with marketplace aggregators that do not know the “real transacting price.”

While focused on the traditional used car segment, CARS24 is also grappling with the severe volatility in the second-hand electric vehicle market, as well as faster depreciation rates than internal combustion engine-powered cars.

Mr Agarwal attributed the pressure on EV pricing to the constant launch of new, feature-rich Chinese brands, which puts the earlier generation of cars “into question.”

The central issue, according to Mr Agarwal, is consumer anxiety. “With EV, a lot of uncertainty comes about again, the battery life and the sustainability in the longer run, and therefore buying a second-hand EV carries a greater risk in everyone’s head,” he said.

Mr Agarwal said that the range anxiety also remains one of the “biggest barriers” to wider adoption in the Australian market.

CARS24’s current method for assessing the health of used EVs is a two-step process: initial pricing for sellers is based on the average tenure of the battery, while the final price is determined once the vehicle is in stock and subjected to a reconditioning centre inspection using specialised devices.

“I think all they need is someone to stand up and put raise their hands and say, ‘You know what, I’ll take care of it. Don’t worry’,” Mr Agarwal said.

Mr Agarwal said CARS24 was on track to sell about 600 cars per month in Australia and aims for significant expansion. The long-term goal is to secure a 10 per cent market share of the nation’s $120bn used car market, a feat that would establish it as a “$12bn company” in Australia.

To achieve this, the company is prioritising “throughput and scale” rather than “optimising for margins.” The company has invested $600,000 in a 15,000 sqm operations and logistics hub in Villawood, Western Sydney. The facility is set to serve as a key fulfilment and refurbishment centre, capable of processing over 400 vehicles at a time.

The company currently manages an average inventory turnaround time of 30 days from purchase to sale, a measure of efficiency critical to their high-volume, lower-margin strategy. Initial focus will be on “going deeper” into the three major states — NSW, Victoria, and Queensland — before expanding to other cities, including Newcastle and Perth.

Mr Agarwal said that the company’s primary metric of success, even ahead of revenue and profitability, is its net promoter score – a measure of a customer’s likelihood to recommend a company’s products or services to others – and customer experience. This focus is backed by consumer guarantees that include a 300-point inspection, extended warranties, and a highly unusual seven-day money-back return policy.

“I think that customer first mindset will lead to scale,” Mr Agarwal said. “Magic will follow.

RBC - Raised to Outperform PT $24

Carsales is an example of me becoming my father. What is it with all this newfangled stuff, the place to buy a car is Parramatta Road after looking in the Sydney Morning Herald classifieds...

Well, that was then, and then there was carsales. 

Wait though, now I am informed by Mr 20-year-old, carsales is old school. Everyone now goes to Facebook marketplace. And there I was thinking Facebook was for boomers.

But I digress. 

Carsales.com operates an online marketplace for automotive, motorcycle, and marine classifieds in Australia, Brazil, South Korea, Malaysia, Indonesia, Thailand, Chile, China, Argentina, and Mexico.

Results released today looked good to me, with some results surprisingly for the half to the end of December:

• Revenue of $282M, up 30% year-on-year 
• EBITDA of $149M, up 15% year-on-year
• Adjusted net profit after tax of $89M, up 20% year-on-year 
• Interim dividend up 2% year-on-year

Car prices during the pandemic skyrocketed. None of us wanted to be on public transport so anyone that had to travel to work purchased, and all those hankering for a holiday upgraded their ride to do so in style at home. Apparently, we also purchased caravans and jetskis for the same reason. 

This run for carsales may continue when borders reopen and we all offload this swag of cars, boats, and the like to fund our trips back overseas.

Carsales Australia cemented leadership (seems Mr 20-year-old is not always correct) private car sales were strong (check the price of a used Hilux, something that would have been $15k is now listed for $25), offset by poor dealer contribution as they had no stock – think chip delay.

Of the international sites mentioned above, Brazil was a total boss with revenue up 200+%, with South Korea and the USA up 19% and 12% respectively.

Shares are incidentally trading at almost the price they were 12 months ago, after having fallen about 15% from the end of last year.

This is one I have owned in the past and exited to fund a real-estate purchase. I am not as familiar with the business as I used to be – if I were to seriously look again I would consider the external risks despite them having firmed their market leadership.

CREDIT SUISSE - Raised to Outperform PT $25.80

Should I Buy Carsales Shares Highlights

Carsales is set to benefit massively from the acquisition of Trader Interactive. With such an inflated PE ratio and relatively low growth, we see CAR as overvalued. The massive increasing debt levels are also a concern for us.

Share Price

Carsales has fully recovered from the devastation of the COVID crash, with their share price rocketing to record highs. At the time of writing, ASX: CAR is priced at $22.05. Their share price is up 16.91% over the last 6-months and 19.02% over the course of a year. Although this sounds impressive, the results have actually underperformed the market which is up 21.73% in the last year.

CAR’s share price 52-week range is 16.72-22.09.%. Those who managed to grab shares at its low during the COVID crash of 2020, would have enjoyed a 133% increase from trough to peak.

About Carsales Shares

CAR’s Principal Activity is an online digital platform to buy and sell cars, bikes, and other vehicles. They also offer online advertising services, data, research, finance, and other related services.

Across their websites, they generate an audience of 4.35 million unique visitors a month, with an average on-page time of 31 minutes. They also averaged around 573,000 listed cars globally at any time.

Dividend History

CAR shares typically announce a dividend with the release of its half-yearly results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (Interim Dividend) and September (Final Dividend).

CAR shares have paid a dividend every year since 2010. This includes the 2008 GFC and COVID recession. CAR shares pay dividends that are fully franked. The current average yearly dividend for CAR shares is 50c giving them a net yield of 2.27% or a gross yield of 3.24% at the current share price.

CAR’s current dividend payout ratio is 112%, meaning they are paying out more in dividends than net profits. This is obviously not sustainable and we expect their dividend payout ratio to return to a more modest 75% this year.

Fundamentals

Based on their current share price we can see Carsales shares have a PE of 48.38x, which is far above the current inflated average of 20.8x. A company with a high PE could be seen as overvalued or that investors are expecting large growth in the future. They can also be seen as riskier.

Market Cap:

Carsales share is a mid-cap company with a total market capitalization of just over $6 Billion. This places it as the 85th largest listed ASX company by market cap. For a company of this size, we expect to see an established company in the process of expanding in industries that are expected to experience rapid growth.

Beta:

Carsales current Beta is 1.03. 

Earnings, Debt, and NTA per Share:

We can see Carsales shares currently have earnings per share of 44.4 cents, this gives it its currently inflated PE of 48.38x. Another way of looking at this is only 2% of their share price is backed by solid earnings. This makes us realize at the current conditions their net dividend yield of 2.27% is unsustainable until earnings increase. They also have a significant amount of debt of $467.205 million, giving them a negative Net Tangible Assets per share of -$1.34.

Financials

In February the group released its Half-yearly report. Carsales delivered a strong set of results despite the COVID-19 pandemic, demonstrating the strength of the Australian business and the growth potential of its international markets.

Here are the Half-Yearly highlights:

• Strong double digit earnings growth: Adjusted EBITDA up 18% and Adjusted NPAT up 17%.
  • This reflects earnings growth across all financial segments with South Korea, recording EBITDA growth of 30%.
• Strong margin performance with Group Adjusted EBITDA margin of 60% reflecting good operating leverage and a continued focus on cost management.
• Resilient revenue performance with Adjusted Revenue down by 2% with strong growth in South Korea and good growth in Dealer, offset by declines in the tyresales and Media businesses, largely due to the impact of COVID-19.
• Reported Revenue down 7% to $199m, Reported EBITDA up 9% to $114m and Reported NPAT down 14% to $61m. Reported metrics impacted by $11m COVID-19 dealer support package.

Insider Ownership And Trading

Carsales is largely owned by the general public (57.8%) and institutions (29.7%). Individual Insiders own 5.7% of the company. Skin in the game helps ensure the management’s motives are in line with ours. So we use Simple wall St which shows Insider Ownership and Trading very clearly. For large-cap companies insider ownership will be lower, 3-5% is decent.

Carsales Bookbuild: Raising Capital

The company states the capital will be used to partially fund the acquisition of a 49.0% interest in Trader Interactive for US$624 million.

Trader Interactive

Trader Interactive is a leading platform of branded marketplaces in the United States, providing digital marketing solutions and services across commercial truck, recreational vehicle, powersports, and equipment industries. Their portfolio of US websites is a clear fit with the Carsales group brand.

Trader Interactive is a profitable business with a strong growth track record. They have an Adjusted Revenue of US$123m and Adjusted EBITDA of US$61m in 2020. In comparison car sales group recorded around US$291.29m revenues and US$86.1m. From these statistics, we can say that 49% ownership of Trader Interactive will be responsible for over 20% of CAR’s future profits.

From these results, we can see CAR purchased ownership in Trader Interactive for an effective PE of 10.23x. By acquiring a profitable company at a valuation lower than their own they will effectively reduce the group’s PE.

Prophet’s Take

Carsales is set to benefit massively from the acquisition of Trader Interactive. The purchase of this profitable business at a low multiple will benefit shareholders and improve earnings, boost revenues and allow synergy between the businesses.

We have also seen decent revenue growth from Carsales international subsidies. Although growth has been unimpressive compared to their inflated PE ratio of 48.38x.

With such an inflated PE and relatively low growth, we see CAR as overvalued. The massive increasing debt levels are also a concern for us. And in our opinion, their decision to pay a massive dividend despite their current debt, and capital raising was a poor financial move.

Full Analysis: https://prophet-invest.com/should-i-buy-carsales-shares

Supply of cars has been fubar since all this COVID palava. Lack of chips has been a major cause apparently. I mentioned this is a Carbon Revolution straw. Check it. 

Anyway, boss lady decided it was time for her to get a new motor in February this year. It just got delivered, that chip thing must be real.

Problem is she has now changed her mind, so time to offload it. Where do you go to sell a car, carsales, where else? Twenty somethings will likely disagree*, but I digress. 

Looking at their pricing model they look to have done some real work. Maybe I’m reading too much into it, but somehow, I doubt it. The more expensive the range you pick to position your car, the more expensive the ad. I see science. The company has been awarded for artificial intelligence so who am I to argue.

They also have three tiers to choose from. They use the exclusivity tactic to upsell. I can tell you that works, I have an ad up using the top tier. 

The company is somewhere around the 100 largest listed on the ASX with a market cap north of 5.5B Impressive when it was founded less than 25 years ago. They now operate market places in 8 markets.  This clip the ticket model has resulted in a business that is highly profitable, despite COVID, where all the spare cash inflated the used market. 

Thinking longer term, this is not a company that is going to be impacted by the change from ICE to EV. Carsales doesn’t care how the vehicle is powered. Also, I think the move to autonomous vehicles and thereby lower ownership sprouted by futurists and fellas with a few extra beers in them is further away than is envisioned. Carsales with be fine for years to come. 

Is Carsales a buy? Well it definitely was a year ago, today the price has had a strong run, and probably above my far value calculation.

*Facebook marketplace is apparently the place to be 

- Debt / Equity is high and has been rising

- Growth risk with overseas market expansion in to classifieds

-Superior automotive classifieds business with a competitive advantage

-A history of high RoE

-Positive Cash flow

-Growing earning per share

-Plenty of cash to cover interest bill