Carsales.Com Ltd (ASX: CAR) has just released a solid set of results for the half-year (HY21). Will this drive up the Carsales share price?
Carsales is the leading digital automotive marketplace in Australia, with a growing global presence in Asia, and Latin America. It is the eBay Inc (NASDAQ: EBAY) for buying and selling cars, bikes, boats, trucks and caravans.
The company generates revenue from online advertising services and providing data and research service solutions.
Strong earnings growth helped by South Korea
Carsales has reported strong growth in EBITDA (earnings before interest, tax, depreciation and amortisation) of 9% compared to the prior corresponding period, HY20 (PCP). However, revenue and net profit after tax (NPAT) fell by 7% and 14%, respectively, relative to the PCP.
The company notes it experienced strong growth in South Korea, which delivered EBITDA growth of 30% based on the PCP. This was offset by lower revenue across the private and media segments for online advertising revenue, declining by 24% and 20%, respectively, compared to the PCP.
It appears the Stage 4 COVID-19 lockdown in Victoria made it difficult for private transactions to take place, resulting in lower private online advertising revenue. For the media segment, Carsales advised this reflects a challenging new car advertising market, with new car sales down 14% in 2020.
The drop in revenue was also affected by Carsales’ decision to provide a 100% rebate for all fixed and variable fees for Victorian Metropolitan dealer customers incurred during the Stage 4 lockdown, which totalled $10.6 million.
Management outlook positive
Carsales CEO, Cameron McIntyre seems buoyant about the future, commenting: “There are positive trends for our business emerging from the pandemic. We have seen accelerated migration to digital platforms across our global network of sites as evidenced by strong traffic growth. Demand for vehicles across all our markets has been strong due to lower public transport usage, the absence of international travel and the evolution of more flexible working arrangements.”
Cameron makes some good points about the current trends that could act as catalysts for vehicle purchases and it’s illustrated by the 20% growth in online traffic across Carsales’ global network of automotive websites.
Summary thoughts
I share Cameron’s sentiment towards the outlook of the demand for vehicles. I think the preference to not use public transport in the current environment will make people ever more reliant on vehicles. In addition, if national borders remain closed, people will look to take long road trips as an alternative holiday outlet.
Another long-term catalyst that could play to Carsales’ favour is the growing trend of people wanting to switch to electric vehicles. Once electric vehicles become cheap as petrol cars, I think people will likely switch.
Carsales’ strong balance sheet and leading market position, combined with its international expansion strategy, places it in a solid position to capitalise on the potential rise in demand for vehicles.
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