Carsales.com recently released a stock trading update and this is an assessment of the effect of their domestic operations as new car sales fall. Also examined is the possible sale of the company and is there is any upcoming positives for the business.
Carsales.com is the largest aggregator of online automotive classified advertising in Australia. In its domestic business, the Company has relationships with consumers, manufacturers, dealers, financiers and insurers Accordingly, the domestic business derived revenue from online classifieds across three segments: Display advertising, Dealer advertising and Private advertising. In addition to its domestic operations (which account for over 75% of group revenue and overall enterprise value), the Company has interests in leading international automotive classified businesses, mostly in Korea and Brazil.
Domestic Business Continues to Struggle
The key messages from the trading update in relation to the performance of the domestic business is that:
i. Weakness in the Display segment has continued. This is driven by the advertising industry’s move towards programmatic digital advertising purchasing, which will continue to be a structural headwind. While the changes are putting pressure on pricing, Carsales still retains its premium pricing in the market. Accordingly, while the rate of revenue growth is expected to rebound in 2H19 from a weak 1H19 (where revenue declined by 16.5%), the rate of revenue decline for the Display segment is FY19 is now likely to be worse than initially thought.
ii. The rate of revenue growth for the Dealer segment is now likely to be less than initially thought. However it still remains solid given that lead volumes for used cars remain robust and is absorbing the weakness in new car sales (CAR’s new car inventory accounts for less than 20% of overall inventory on the domestic site).
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