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Carsales.com – the company that started the online car advertising and sales revolution in 2002 – remains in an dominant position after 10 years.
Today, it posted an enviable result – net profit of $71.6 million for the 2011-12 financial year, up 23% on the year before. Earnings before interest, tax, depreciation and amortisation (EBITDA) were $101.3 million. Revenue for year was $184.2 million.
CEO Greg Roebuck, the company’s founder, continues to lead it. It listed in 2009. The company went to the head of the pack, and stayed there. But it hasn’t been easy.
Among Roebuck’s ideas has been to expand the original car sales site – carsales.com.au – and add other nine product categories, each with their own website: bikesales.com.au, caravansales.com.au, etc. The expansion now contributes about 20% of revenue, but that is not the only growth strategy, Roebuck revealed.
Roebuck today revealed a solid EBITDA margin of 55%. But analysts jumped on the number in a results briefing this morning, pointing out that it could be higher.
Roebuck’s position was clear: the company needs to spend some of that margin on innovating in its core business: car sales. “We could deliver a margin of 65-70% without changing much,” he conceded. “But in the long-term you’d be thinking ‘other people have delivered more innovation… or others have expanded more’.
“We have to look at the future. We’re comfortable in low-to-mid-50% margin to support our growth from an innovation perspective.”
Roebuck spent more of the briefing focusing on the innovation.
For buyers, Carsales.com offers the same service printed classified in newspapers used to, but with the benefits of online (including being free to view).
But Carsales.com’s revenue model is more sophisticated than merely charging for ads. When he founded his business, Roebuck pioneered a two-option method to listing ads - either you pay up-front, or per successful lead. Today, the company offers a comprehensive range of dealer tools to help sellers increase their sales per listing.
Roebuck stressed that this conversion of views to sales is key to the websites being able to charge more for their services, and is thus crucial for Carsales.com’s profit margins. The company is spending money to keep its market leading position in the minds of consumers and expanding its services for dealers.
Not that the group’s page views aren’t impressive. Page views generated in June were three times higher than those generated by the Fairfax, News Corp and Telstra auto ad networks combined.
The company says four-fifths of all time spent looking at automotive classifieds in Australia is done on a Carsales.com-owned site.
The importance of mobile
A big factor eating away at Carsales.com’s profit margins – but also delivering it page views and viewing times – is the dramatic explosion of demand for mobile applications for online services.
Carsales has responded, and its mobile app is the second most popular car-selling website in Australia (behind its own desktop website).
Mobile traffic was up 127% on the year before, and more than 1 million people have downloaded Carsales mobile applications on either iPhone or Android.
Roebuck says this is important. “Consumers love mobile; we’re seeing every day. We want to make sure we’re market leaders. I wouldn’t want to be here and saying ‘look how much our desktop has grown’.”
He says mobile is core to the group’s future because customers love it, even if the advertising model for it isn’t entirely workable yet.
“We can slow down our migration to mobile and hope it’s not the huge growth engine, like the newspapers did with the internet.
“Or we can go full-steam ahead with mobile and hope the advertisers will catch up quickly.”
Carsales.com has expanded sideways, buying up and in some cases launching websites aimed at a variety of categories. Campers and caravans has been the biggest hit, with industrial vehicles and bikes also doing well. Today, non-automotive websites are responsible for just over 20% of the group’s revenue.
The group has grown its additional categories through several acquisitions. Roebuck says the company is still open to more.
“We’re a very good cash generative business,” Roebuck says. “If an opportunity arises from acquisition potential, there’s no doubt we’d be a good option to raise funding should we need it.”
The difficulty for Roebuck is that the majority of the Carsales profit model is reliant on professional dealers. It may not translate well to all the other types of goods.