One way to make good profits? Follow the money….
For Carsales.Com Ltd (ASX: CAR), the market-leading website in online car sales advertising, that means taking another step into the financing business for auto sales. Just last year, the online auto classifieds company acquired a 50.1% stake in vehicle finance company Stratton Finance.
It leads the industry in car listings and site visitors, well above its competitors. However, before the Stratton Finance acquisition, it was missing out on being a part of the sales transaction by having no vehicle financing service.
This week Carsales.Com announced it made an investment along with Stratton Finance of $10 million in "peer-to-peer" (P2P) lender RateSetter for a 20% stake.
RateSetter Australia chief Daniel Foggo was reported by The Australian as saying, "Car finance represents about 40 per cent of personal loans in Australia, so we see this as an opportunity to change the game for Australia's burgeoning P2P lending industry."
P2P lending is a growing business in Australia and could potentially disrupt the traditional way consumers get financing. Funds are sourced from private individuals and organisations with surplus cash they want to invest. RateSetter was founded in the UK in 2009 and opened the Australian business in October 2014.
Carsales.Com is expanding its business overseas with investments in market-leader auto sales websites in South Korea and Brazil. However, it needs to maintain its Australian business revenue growth by adding the services that keep website visitors coming back repeatedly.
Carsales.Com's first-half revenue was up 34% to $150.9 million. Of that, finance and related services came to $28.4 million, or close to 20%. The RateSetter investment will add to this new finance income stream.
Carsales.Com is making the right moves to strengthen its lead in market share, which is all-important for online businesses. The lead position attracts more auto buyers and sellers and keeps the money flow up.
The company's stock has traded sideways for about a year, while it has been making investments domestically and abroad.
It trades at 22x forward earnings. Yet with analyst forecasts of 11% annual earnings growth on average plus a 3.2% fully franked yield, the share price is reasonable for the expected growth.
