Collaborate Corporation Limited (ASX: CL8) operates peer-to-peer marketplaces. The company’s business model allows owners and renters to transact directly with each other. Through its core business, DriveMyCar, Australia’s leading peer-to-peer car rental platform, Collaborate Corporation has maintained a strong position in the car rental market. Additionally, with its newly launched Car subscription model, Carly, the company is rapidly scaling in the Vehicle Subscription Market. The company’s other businesses include MyCaravan (connecting holidaymakers with caravan owners), Mobilise (rental marketplace for under-utilized assets) and Peerpass (enabling people and companies to safely transact).
Car Subscription – Market Opportunity
The $60 billion per annum automotive sales industry is undergoing enormous changes. The new car sales are declining as Gen Y and Gen Z sees car ownership as a burden. Younger generations prefer access to a car over ownership and; moreover, they want a car that matches their needs now, not what they were three years ago. Besides, owing to banking Royal Commission, car buyers are facing tighter credit conditions to finance car purchases.
Interest in a Vehicle Subscription (Source: Company Reports)
In addition, dealer profit margins are also squeezing which has also put enormous pressure on the automotive industry. Net Profit % of Sales for the average dealer has declined over past few years as depicted in the figure below.
Net Profit % of Sales for the average dealer (Source: Company Reports)
In order to solve the problems of automotive industry, CL8 has come with a solution i.e. Car Subscription. Car Subscription alleviates the above-mentioned issues and is a new recurring revenue stream that can acquire customers online and at the dealer.
Vehicle subscription is being embraced by OEM’s and startups worldwide. The opportunity is wide open in Australia with no well-established players.
It has been forecasted that by 2025 all major manufacturers will offer a subscription program and 10% of new car sales will be via subscription in Europe and USA.
Collaborate seems to be well positioned to leverage this opportunity. The company has experience in delivering thousands of long term, flexible vehicle rental transactions and along with that, it has key relationships in place with automotive dealers, leasing companies, manufacturers and service providers.
Collaborate is addressing the car subscription opportunity in two ways:
- Carly, Australia’s first flexible car subscription service
- White Label subscription platform to enable dealer groups and manufacturers to deliver their own subscription offerings.
Carly Vehicle Subscription
On 29 March 2019, the company launched its first flexible monthly car subscription, Carly, in Sydney. Carly is an online marketplace which is built with expertise gained from over 8 years of managing long term car rentals and creating revenue streams for the automotive industry. The Carly’s team processes all subscriptions and provides customer service before, during and after commencement.
By eliminating the long-term financial commitment required to buy a vehicle, Carly is providing the flexibility that many drivers are seeking. At a time where car buyers are being refused credit due to tighter lending conditions and they are finding it harder to manage and justify long term debt, Carly is offering a subscription model in which no long-term financial commitment is required from the buyer side.
How does CL8’s Car Subscription business Works?
Carly is offering affordable subscription, starting from $119 per week inclusive of the car, insurance, registration and servicing. The person can book the Car online and have the car delivered and if circumstances change, he/she can switch the car for another one or pause the subscription.
Competitor Comparison (Source: Company Reports)
As per the company, new competitors do not have the experience, know-how or technical capability to reduce the risk that Carly possesses. Hence, they compensate by charging large upfront fees that restrict customer uptake. However, Carly charges no upfront fees and accepts no deposits for a subscription.
Along with the placement, both the parties have agreed an exclusivity period to negotiate the launch of a joint vehicle subscription service in New Zealand, allowing Collaborate to leverage its existing investment in the technology platform and access a substantial new market with the support of Turners; which is an encouraging news for the company and its shareholders.
Collaborate has also announced a non-renounceable pro rata entitlement issue to raise $2 million, which along with placement funds, is intended to be used to fund the growth of the Carly vehicle subscription business and the DriveMyCar business through marketing related initiatives and to grow the available fleet size to meet the demand for vehicles. The company intends to issue up to ~ 200 million new shares at an issue price of $0.01 in 1:4 ratio, with free attaching options on 2:3 ratio basis.
Till now, Carly has been successful in gaining attention and strong interest from industry participants including dealers, manufacturers and financiers. JC Motors, an automotive dealer located in Bella Vista, New South Wales recently confirmed the purchase of 40 new vehicles to assist with satisfying subscriber demand for vehicles from Carly.
JC Motor owned 65 vehicles (as on 13 June 2019) listed with DriveMyCar and Carly, which have been previously utilised for long term rentals, rideshare rentals and accident replacement. Carly has shown strong uplift in demand for vehicles and JC Motors has been one of the first of the existing providers to respond by increasing their total fleet size with DriveMyCar and Carly to 105 vehicles, representing a substantial increase in the available fleet of vehicles in Sydney.
DriveMyCar has also expanded its presence in Perth, Western Australia with the addition of the first corporate fleet vehicles in WA including 2017 Subaru Forester and 2018 Hyundai Tucson models.
The recently signed agreement with leading NSW dealership group, Suttons Motors, intends to supply vehicles to the Carly and DriveMyCar businesses, allowing Collaborate to provide customers with new ways to access and experience vehicles from leading manufacturers.
Recently, iungo Pty Ltd signed a Memorandum of Understanding with the company to develop a product specifically targeted towards the car subscription and peer-to-peer car rental segments, allowing DriveMyCar and Carly to provide an additional level of service, security and data to the vehicle providers to make them stickier and increase the fleet size.
The company has assured that DriveMyCar will continue to service the rental market while Carly is scaling up in the vehicle subscription market.
CL8’s shares last traded at $0.010 with a market capitalization of $8.25 million as on 3rd July 2019.
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