Carsales Earnings: Acceleration in Nonauto Monetisation Drives Strong Result

We raise our fair value estimate for narrow-moat-rated Carsales CAR by 9% to AUD 25 per share following the release of its fiscal 2023 results. The increase in our fair value estimate reflects the time value of money and upgrades to our assumptions for Carsales’ North American business, as it transitions to a more aligned pricing model faster than we previously expected. At current prices, Carsales shares screen as slightly overvalued.

We believe Carsales has decidedly moved to the next phase of maturation of its North American business. We distinguish several phases of maturity for vehicle marketplaces, starting with consolidating a market for a specific category, subsequently increasing monetization by aligning pricing closer to the value delivered to the customer, and finally, moving beyond pure marketing into the broader retailing value chain. Carsales’ recently acquired Trader Interactive, which owns and operates online marketplaces in the nonautomotive segment in North America, such as recreational vehicles and motorcycles, appears to have moved beyond the consolidation and into the monetization phase. In March 2023, Carsales introduced dynamic pricing in its Trader Interactive business, as it had already done in Australia and South Korea, from a volume-based pricing model before, resulting in a private yield increase of 30% by June 2023. Additionally, in April 2023, Trader Interactive introduced Premium Select, a media product based on intellectual property developed in its Australian business, and rapidly signed over 400 dealers in a matter of months. We had previously expected Trader Interactive to transition toward a more customer-aligned pricing model, but we are surprised and impressed by the speed with which Trader Interactive is moving to this next phase and have updated our models accordingly.