Carsales.Com Ltd (ASX: CRZ) is the leading online cars sales website in Australia. The $2.47 billion company holds a 70% share of the online car search market. In financial year 2014 revenue was $236 million and net profit was $95 million, up 14% on the previous year.
The main business deals with auto sales from dealers and private sellers. However, a long list of other categories like boats, caravans, motorcycles have their own websites within the business.
Carsales.Com also offers services such as vehicle data services, valuation information and financing. Altogether, this creates a "one-stop shop" that keeps the viewers coming back and maintains the strong company brand name.
Earnings and financial strength
Since 2011, earnings per share have increased an average 17.9% annually. Dividends have risen similarly. Before financial year 2014, there was no long-term debt, but in that year the company borrowed $168 million for acquisitions. However, compared to the $95 million in net annual earnings, the long-term debt is still very manageable.
Business growth
Seeing the need to expand its market and the opportunity of becoming a leading international car sales website business, the company has been quite active in investments and acquisitions. It now owns a 49.9% and 30% stake in the largest car sales websites in South Korea and Brazil, respectively. Also, it has a 22.9% stake in iCar Asia Ltd (ASX: ICQ), an Australian company that operates auto sales websites covering a number of countries in South East Asia.
These strategic holdings allow Carsales.Com to quickly expand into the Asian market and use its technological know-how to grow in the new countries. The company knows the great value and competitive advantage of establishing each business as the market leader in the respective countries.
The South Korean and Brazilian businesses both are seeing double-digit revenue growth.
Barriers to competition
Market dominance with a very wide lead over competitors like carsguide.com – owned by News Corp (ASX: NWS) and a group of auto dealers) creates a "protective moat" around Carsales.Com's business.
Similar to realestate.com.au, the leading property search website, because viewers want to go to the number one site to see the best range of cars, private sellers and dealers want to list on that site where buyers go to most. This continuing virtuous cycle makes it difficult for rivals to take away market share.
That's what investors like to see in a well-performing stock.
But even market leaders need to stay innovative. The company's mobile apps are widely downloaded and getting good reviews for usability and convenience. That follows the general movement of viewers from PC to mobile viewing. New cloud computing business enterprise applications are also being set up with the international business division to improve efficiencies and operating margins.
As long as Carsales.Com can keep its market-leading edge on the competition, it should continue to be successful. The domestic market is growing well and if its move into Asia can establish more number one sites there, the future will be looking good for the company.
