The Carsales.Com Ltd (ASX: CAR) share price has had a slow year, down 2.9% over the last 12 months. Can they turn it around?
Carsales was founded in 1997. It’s the largest automotive, motorcycle and marine classifieds business in Australia. It is headquartered in Melbourne and employs more than 1,200 people around the world. The company has operations in the Asia Pacific region and has stakes in businesses in Brazil, South Korea, Malaysia, Indonesia and Thailand.
Why Has Growth Been Slow?
Earlier this year, Carsales released their 1H19 report showing revenue had increased 17% and EBITDA had increased 8%.
On closer inspection though, the positive results were only due to an acquisition of SK Encar, Carsales’ South Korean business.
Without this acquisition, revenue was only 3% higher and EBITDA actually fell 7%. Australia is still the primary market for Carsales so the results it achieves here are very important to the company’s bottom line.
Is Carsales A Price-Maker?
I recently wrote an article explaining the difference between price-takers and price-makers.
The article explained that price-makers are typically businesses with a large moat or competitive advantage, and they control the industry that they operate in.
While Carsales claims that the time spent on its websites is 1.8 times higher than its nearest competitor, I don’t think they control the industry and can demand ever-increasing advertising prices. Competition from other websites like Gumtree and even Facebook Inc (NASDAQ: FB) is too intense for Carsales to raise prices without losing customers.
What Do Analysts Say?
According to The Wall Street Journal, analysts are positive about Carsales shares. The average analyst price target (aka valuation) is $13.19, slightly above the current price, while the highest estimate is $15.
Analysts clearly believe that Carsales has growth potential, especially in some of the new Asian markets they’re moving into, such as South Korea. However, in Australia, I don’t think high growth can be expected with the competition that they face here.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.