Two Online Automotive Advertising Players: CAR & ICQ

The Online automotive advertising industry is tapping up the growing penetration of mobile phones and digitisation. Digital advertising is becoming increasingly evident in the automotive industry due to its reliability; for instance, customers can check prices digitally while standing in an automotive dealership. These services are offered by websites which are dedicated to providing an online marketplace for buyers & sellers of the vehicles, and these sites enable customers to post an advertisement for sale of the vehicle/used car business while dealerships are also hosted by these websites – new car business. These websites enable the customers to conduct research for the vehicles and allow them to compare brands, models, colours and prices conveniently from their smartphones or computers. Websites or portals eradicate the need for paying a visit to a car dealership for necessary information regarding any vehicle and adds value to the customer.

carsales.com Ltd (ASX: CAR)

Founded in 1997, carsales.com Ltd (ASX: CAR) is a well-known brand in Australia. carsales.com operates the largest online classified business in Australia and offers automotive, motorcycle and marine classifieds. Recently, the company reported that a strategic review is underway while it is pursuing the sale of its interest in Stratton Finance Pty Ltd. It was reported that carsales.com would sell its 50.1% stake in Stratton, and timing of the sale would be determined after the completion of a strategic review. CAR had appointed Miles Advisory Partners to conduct the strategic review.

As per the release, to-be divested arm ‘Stratton’ would be classified as a discontinued operation and a non-current asset held for sale in the FY19 financial disclosure. Also, the disclosure of FY19 financial statements would be reported separately as results from continuing operations (excluding Stratton) and discounted operations (Stratton). Lastly, the current book value of Stratton would be carried in the books as a held for sale while carsales.com expects to achieve the valuation through the sale process, and CAR would monitor the developments regarding the valuation.

Results Highlights (Source: Half Year Results Presentation, February 2019)

carsales.com also reported the expected performance of the business for the current financial year period (FY19). CAR asserted that the performance of classifieds business in Australia was strong in the current economic environment, depicting the strength and extent of its offering to consumers & commercial customers; meanwhile, the international business of the company continues to perform well & build scale in each market. The expected performance of the business by carsales.com:

Excluding Stratton (Adjusted excludes A$5 million one-off expenses)

carsales.com expects the revenue from continuing operations to be in the range of A$418 to A$420 million, this represents a growth of 10-11% from FY18, and it expects the Adjusted EBITDA in between A$209 to A$211 million, which represent a growth of 7-8% from FY18. CAR also reported that Adjusted net profit after tax would be in between A$130 to A$132 million, depicting 1-3% growth from FY18.

Including Stratton (Adjusted exclude A$5 million one-ff expenses)

carsales.com expects the revenue to be in the range of A$473 to A$475 million, this represents a growth of 6-7% from FY18, and it expects the Adjusted EBITDA in between A$211 to A$213 million, which represent a growth of 3-4% from FY18. CAR also reported that Adjusted net profit after tax would be in between A$130 to A$132 million, depicting 0-1% growth from FY18.

Stratton is a leading player in the asset finance and insurance market, and finances assets worth over $750 million each year for its customers. The business has a rich customer base backed by 22-year history, and it is adapting to regulatory changes in the automotive finance market, progressing towards digital transformation. carsales believes appreciation in the shareholders’ value could be propelled by investing in the development & growth of core Australian and international business; however, carsales’ platform would offer Stratton’s products along with additional finance products benefiting carsales’ entire customer base.

At around 1:47 PM AEST on 17 June 2019, CAR is trading at A$13.32, down by -0.671% from the previous close. Its year-to-date return is +24.4% while over the past one year, the return has been -8.02%. Returns for the past six-months and three-months were recorded at +16.2% and +6.68%, respectively. The market capitalisation of the stock is ~A$3.28 billion with 244.35 million shares outstanding.

iCar Asia Limited (ASX: ICQ)

iCar Asia Limited (ASX: ICQ), headquartered in Kuala Lumpur, Malaysia, operates almost a dozen automotive portals in ASEAN markets. Some of its portals include Carlist.my, LiveLifeDrive.com, Mobil123.com, Otospirit.com and Thaicar.com.

In the recently released Investor Presentation, ICQ reported that Malaysia business is witnessing profit growth in 2019 with March 2019 audience grew at 25% y-o-y. It further presented that the business in Malaysia has been profitable since September 2018 with EBITDA in Q1 2019 recorded at +$35k against -$145k in Q1 2018.

ICQ reported that due to general elections & quality improvement Thailand business saw fall in the leads & audience during the March 2019 quarter However, the group reported Q1 2019 as overall Thailand business profitable with EBITDA in Q1 2019 of +$11K compared to -$200K in Q1 2018. The fall of leads & audience accounted for 27% and 41% decline y-o-y basis. As per the presentation, Indonesia business ramped up monetisation & halved EBITDA losses in Q1 2019 versus Q1 2018; audience increased 4% y-o-y but leads decreased 8% y-o-y due to general election & improved quality during the Q1 2019.

As per the presentation, the company would be introducing WhatsApp & Line integration in its used car platform, and some test results have depicted 80% to 109% rise in lead conversion across Thailand, Indonesia & Malaysia. Also, ICQ would be launching an integration with Wechat Miniprogram while review for Facebook Messenger is underway.

Messenger Penetration (Source: Investor Presentation, April 2019)

On 13 June 2019, ICQ announced a receipt of A$7,674,463 from the exercise of options issued under the terms detailed in 2017 Right Issue Prospectus dated 15 November 2017. Subsequently, the cash and cash equivalents of the company has more than doubled from the balance on 31 March 2019.

ICQ stated that the receipt from exercised options had strengthened the balance while A$5 million debt facility remains undrawn. It was reported that ICQ issued approximately 38,372,315 fully paid ordinary shares against the exercised options including the options exercised by substantial shareholders Catcha Group and PM Capital.

At around 1:49 PM AEST on 17 June 2019, ICQ is trading at A$0.225, down by -2.174% from the previous close. Its year-to-date return is +70.37% while over the past one year, the return has been +6.98%. Returns for the past six-months and three-months were recorded at +91.67% and +31.43%, respectively. The market capitalisation of the stock is ~A$88.42 million with 384.45 million shares outstanding.

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