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.
Defensive innovation
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.
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
