Summer Series: Carsales.com Ltd (ASX: CAR)

Bryce Leske: [00:01:23] Welcome to the Equity Mates Summer Series of 2020, brought to you by superhero who are offering five dollar brokerage and also zero dollar brokerage on ETFs, head to super hero Dotcom today to find out more over 12 episodes, we're going to be diving into some of Australia's largest and most well-known companies as selected by you. The Equity Mates community will be unpacking the company, its industry, its outlook and some key financials. And in some instances, we'll also be taking the tough questions straight to the CEO to do this. As always, I am joined by my equity buddy Ren. How's it going, bro? [00:01:57][33.9]

Alec Renehan: [00:01:57] I'm good, Bryce. We've made it to the end. Happy Episode 12 [00:02:00][3.1]

Bryce Leske: [00:02:01] Happy Episode 12. I feel like when we say we've made it to the end, it's not like we haven't enjoyed it. And it's been an awesome summer series. I think personally the best summer series yet. I'm really happy with the companies that we've spoken about. There's been a great array of different industries, different countries, all sorts of things. So luckily not all of them have been that small cap, 50 million market. Yeah, yeah. Not a lot going on so well. [00:02:24][22.7]

Alec Renehan: [00:02:24] I mean, I think the fact that we've been able to speak to five CEOs of ASX listed companies has been pretty cool as well. Absolutely. And we are finishing with an interview as well. If you're doing the count in your head and you're saying, hold on. I've only heard them into four CEOs, we have finished with a bang. Yes. Finish with a really interesting company. And we will be speaking to the CEO of said interesting company should be in your favor. If not right now, it will be very soon. The company we're talking about today is carsales.com. [00:02:52][28.3]

Bryce Leske: [00:02:54] carsales.com, not a company that I am familiar with in terms of using. I've obviously heard of carsales.com, but considering that old brassie boy doesn't own a car, [00:03:04][10.3]

Alec Renehan: [00:03:05] do you own a Honda? [00:03:06][1.4]

Bryce Leske: [00:03:06] Actually, actually, you're right. You're right. I do. I have never had to buy one for people. [00:03:12][6.2]

Alec Renehan: [00:03:13] I haven't heard it. We went on the My Millennial Money podcast and I told Glenn, the host, that Bryce owned a Honda Jazz and he got very self-conscious. But I think he's come around and he's really embracing. Yeah. [00:03:23][10.7]

Bryce Leske: [00:03:24] Look, there's actually nothing wrong with the Honda Jazz. [00:03:26][2.4]

Alec Renehan: [00:03:27] It's a guy called Reliable Sturdy. And my parents own one. My sister owns one very the question reliable. [00:03:32][5.9]

Bryce Leske: [00:03:33] The question is, when did they buy it through carsales.com? [00:03:35][2.3]

Alec Renehan: [00:03:37] No. [00:03:37][0.0]

Bryce Leske: [00:03:37] Well, there we go. Not that that has any bearing on this episode. [00:03:40][3.0]

Alec Renehan: [00:03:42] I don't think my parents are the barometer of tech uptake. Yeah, right. I think they are on the cutting edge of the digital economy. Although my dad is a avid podcast listener at the moment, Equity Mates doesn't really get it all. You get an occasional run chase. Yeah, maybe he'll use car sales for his next purchase. [00:03:58][16.2]

Bryce Leske: [00:03:58] Anyway, let's move on. Sorry. Before we jump into it again, as always, we're going to be going through company summary. It's industry competitors as well as its future outlook, some financials and a bit of a chat about valuation. So carsales.com, it's an online marketplace specializing in automotive, motorcycle and marein, classifieds business in Australia. [00:04:21][22.5]

Alec Renehan: [00:04:22] Yeah, it is. Actually, carsales.com is the business name. Yeah. Yeah. Not just car sales. [00:04:26][4.6]

Bryce Leske: [00:04:27] Now, we're not just saying the URL. [00:04:28][1.0]

Alec Renehan: [00:04:28] Yeah, yeah. It's not a bad marketing ploy from them. You know, I like carsales.com, carsales.com, if that's the business it gets in your head. [00:04:36][8.4]

Bryce Leske: [00:04:37] Yeah. It's an immediate call to action really. The business name. [00:04:40][3.3]

Alec Renehan: [00:04:41] Maybe more businesses should follow that. Like maybe we should rebrand to Equity Mates Dotcom. [00:04:44][3.6]

Bryce Leske: [00:04:45] Well, we're not an online marketplace. [00:04:46][1.2]

Alec Renehan: [00:04:47] Search Equity Mates in your preferred podcast Planet. [00:04:49][2.2]

Bryce Leske: [00:04:50] Our name would be our name should be Equity Mates podcast. [00:04:52][2.3]

Alec Renehan: [00:04:53] True. Yeah, sure. But anyway, this isn't about us. This is about carsales.com. ASX tikr say if you're playing along at home and you want to look them up. So a bit about the company and I guess we start with a company history. So it was founded in 1997 and it has really gone through a string of acquisitions to expand from there. It's acquired Quick Sales, which was an Australian auction site which is actually now shut down. It's acquired part of solo Ordos to expand into Mexico. It acquired part of Chile Auto's to expand into Chile. It acquired part of D Motors to expand into Argentina. Also in Chile and Colombia, it purchased České Inka to expand into South Korea. It's owned a whole bunch of other websites. But really, this is a company that started in Australia but is now a global leader in online car sales. [00:05:49][56.8]

Bryce Leske: [00:05:50] I actually had no idea about how globalized it was when we started doing this. And yeah, pretty aggressive acquisition strategy. But I guess if you're looking to enter new markets rather than compete against the competitors, why not buy them? [00:06:03][12.8]

Alec Renehan: [00:06:03] Yeah, so a few just quick company fucks worth five billion dollars today did about four hundred million dollars in revenue and one hundred and twenty dollars million in profit. So pretty strong margins there, which I guess makes sense for an online business. It's been a bit of a market darling since listing in 2009. It's total shareholder return, so that includes dividends paid is up five hundred and fifty six percent. Compare that to one hundred and thirteen percent for the ASX 200 in that time. And as we said, it's a company that operates in a number of markets. So I'll just run through the list. Australia, South Korea, Brazil, Chile, Mexico, Argentina, Thailand, Malaysia, Indonesia. And then it also has presence in China, although not through like a car sales website, through another website called Red Book, 19 percent of its a bidder comes from international markets. So it's a bit of a diverse player in terms of not just being concentrated in Australia. The other thing that it's quite diverse and I've got a little bit of a game for you here, it's quite diverse in a number of websites that it has in Australia. So although the business name is Carsales.com, that's not the only website it has in Australia. So I'm going to read out some websites. You tell me if they're real or fake, [00:07:19][75.9]

Bryce Leske: [00:07:20] as in real, real, real or real. Underneath car sales. [00:07:23][3.4]

Alec Renehan: [00:07:24] Underneath car sales. Good question. I should have checked if there are other websites not owned by car sales. OK, all right. You ready? Yeah. OK, so we'll start easy. Carsales.com? [00:07:32][8.1]

Bryce Leske: [00:07:32] Real. [00:07:32][0.0]

Alec Renehan: [00:07:34] Bike sales.com. [00:07:34][0.4]

Bryce Leske: [00:07:34] Real. [00:07:34][0.0]

Alec Renehan: [00:07:36] And some of these might be .au, but whatever boatsales.com. [00:07:38][2.6]

Bryce Leske: [00:07:41] Real. [00:07:41][0.0]

Alec Renehan: [00:07:41] FourWheelDrivesales.com. [00:07:41][0.0]

Bryce Leske: [00:07:41] Real. [00:07:41][0.0]

Alec Renehan: [00:07:41] Fake. Trucksales.com. [00:07:41][0.0]

Bryce Leske: [00:07:43] Yes. [00:07:43][0.0]

Alec Renehan: [00:07:43] Fake Trucksale.com. [00:07:47][3.8]

Bryce Leske: [00:07:47] Fake [00:07:47][0.0]

Alec Renehan: [00:07:47] Real farm machinery sales.com. [00:07:50][2.6]

Bryce Leske: [00:07:50] Fake. [00:07:50][0.0]

Alec Renehan: [00:07:51] Real construction sales.com [00:07:54][2.8]

Bryce Leske: [00:07:56] construction sites, construction work, [00:07:58][2.3]

Alec Renehan: [00:07:59] All like, you know like heavy machinery and stuff like that. You know. Caterpillar. [00:08:02][3.7]

Bryce Leske: [00:08:03] Fake. [00:08:03][0.0]

Alec Renehan: [00:08:03] Real [00:08:03][0.0]

Bryce Leske: [00:08:05] dumb name. [00:08:06][0.3]

Alec Renehan: [00:08:06] Tyresales.com. [00:08:06][0.0]

Bryce Leske: [00:08:07] Real. [00:08:07][0.0]

Alec Renehan: [00:08:08] Real. Modelcarsales.com. [00:08:09][0.5]

Bryce Leske: [00:08:11] Fake. Real. Prestige new cars.com. [00:08:14][2.9]

Alec Renehan: [00:08:15] This is really is real. [00:08:16][1.8]

[00:08:17] Yeah. I figured I didn't even need to make up fake ones because there are so many that are real. And the last one that I had, which we've already given the game where it's a real carfacts.com Yeah. So cars, boats, trucks, farm machinery, construction tires, model cars, prestage cars and then facts about cars. [00:08:38][21.1]

Bryce Leske: [00:08:39] No skateboards in them, no scooters there. [00:08:41][2.1]

Alec Renehan: [00:08:41] There are things that I could [00:08:42][0.7]

Bryce Leske: [00:08:42] maybe bikes unless it's on the bike. [00:08:43][1.4]

Alec Renehan: [00:08:44] So we are interviewing the CEO of car sales. [00:08:46][2.4]

Bryce Leske: [00:08:47] So I'm going to ask the tough questions. Yeah. [00:08:49][2.1]

Alec Renehan: [00:08:49] Why not call them? They've done very well recently. [00:08:53][3.4]

Bryce Leske: [00:08:54] Yeah. Anyway, it looks like they're trying to own everything with wheels. Yeah. Or in water. [00:08:59][4.8]

Alec Renehan: [00:08:59] Not bad. Maybe that's a tagline. Buy anything with wheels. The point of that game is just to give you an idea of the breadth of different websites they own. And I would hazard a guess that that wasn't even half of them. They then obviously have all their international websites. They have a bunch more based in Australia. So I guess they have a core competency, which is car classifieds. They've really taken them from the old days of the newspaper, put them online, and then they are doing them across a number of different sales verticals. So a number of different things with engines and wheels and then also in a number of different countries as well. [00:09:33][33.7]

Bryce Leske: [00:09:34] So I guess the question is, with so many different websites and you've mentioned that they've also got their sort of vertical approach, digital marketplaces, value add services, industry insights. How are they actually making their money here? I guess, you know, without insider information on how all of this sort of works, you would assume that a lot of it is just generated from advertising on the websites, maybe a clip of the transactions that are done through the website, if that's how it operates, what's the breakdown of revenue? [00:10:00][26.8]

Alec Renehan: [00:10:01] Yeah, so that's probably a key thing that we need to understand about carsales.com. It's not like I well, I guess country makes money from advertising rather than sales, but it's not like an Amazon where, you know, they make money by clipping the ticket as a retailer, Kassala makes money from advertising. So these numbers are a little bit old. But from and I will say inquiry back in the day in 2012, they split out their numbers. So take those numbers with a grain of salt. But to give you an idea of their case, sort of ways that they make money, they made forty five percent of their revenue from selling classified advertising to car dealers. Twenty four percent from sale of banner or display ads. Eighteen percent from selling classified ads to private sellers. So like when you want to sell that Honda Jazz and upgrade to that Ferrari you've been eyeing off. Yes. And in 13 percent provision of data services. So that's about using all the insights that they gather about, you know, what cars are selling, how much they're selling for, blah, blah, blah, and then selling that data to interested parties. The biggest takeaway I had from that is that we often think about these online marketplace businesses as disrupting the incumbent players, disrupting the bricks and mortar retailers that came before them. You can say here that car sales in many ways has a bit of a symbiotic relationship with like traditional car dealers, about half of their revenue from this inquiry. So again. The numbers are a little bit old, but I would hazard a guess that they haven't moved that much, a lot of their revenue comes from the car dealers themselves. And carsales.com is an advertising platform for these car dealers to get in front of more potential customers and to show that the cars that they have at their lots and stuff like that. Yeah. So I think that's a pretty important thing to understand about car sales. It's not disrupting the car selling business. It's disrupting the car advertising business. [00:11:51][110.5]

Bryce Leske: [00:11:52] Yeah, yeah, yeah. It's an interesting one. I don't know if I really like where all of this revenue, particularly sort of coming from. It would be very lumpy, I guess, in terms of how I guess more broadly the economy is going and people's willingness to buy cars. And I'm sure we'll touch on that later, but certainly not a lot of recurring revenue in there that's sort of locked in this month after month. You still trying to sell ads and it's an advertising game. [00:12:17][25.3]

Alec Renehan: [00:12:18] Yeah, I mean, I'm sure they sell advertising packages that give them some recurring revenue to, like, the biggest car dealers, you know, like Brussels's used car dealer that knows that they're going to need 200000 advertising spots a year. I'm sure they sell those packages. But you're right, every new car that is listed, they've got to then sell an ad for. Yeah, yeah. I would imagine you couldn't list without having to list. I imagine it's one of those plays. [00:12:41][23.6]

Bryce Leske: [00:12:42] You'd think so again, wouldn't it? Never used to. Yeah. So in terms of the industry and you mentioned that I will say inquiry back in 2012. So the outcome of that inquiry was that car sales had 36 percent of total listings. And I'm assuming this is why there wasn't a triple C inquiry. [00:13:01][19.7]

Alec Renehan: [00:13:02] The inquiry was about a potential acquisition that car sales was trying to make, sort of as we mentioned at the top, they've rolled up a lot of other companies, potential competitors, and then also overseas companies that say we're looking at them because they were trying to acquire an Australian car advertising website. [00:13:18][15.8]

Bryce Leske: [00:13:18] And I can understand why, because back in 2012, at the time, they had 84 percent of total page impressions with the next highest competitor sitting at six percent. So if you don't call that a domination or even you could say monopoly, really, I can see why the U.S. wanted to take a closer look. [00:13:37][18.8]

Alec Renehan: [00:13:38] Yeah, yeah. And we're resistant to the acquisition I think I may have gone through, but there are a number of competitors, and I think that competitive landscape in 2012 really sets the scene for what's happened since AutoTrader.com, which is a US similar business, has expanded to Australia drive dot com to you, which I think was owned by one of the major Fairfax or News Corp. They are still kicking around. They've got some presence cause God is another one. Interesting. I never knew this before, Kogan, cos I'm not surprised you guys had a car [00:14:10][32.5]

Bryce Leske: [00:14:11] business fingers in every. Yeah, yeah, yeah. Helicon cos that's I'm not surprised but I am if that makes sense. I've never heard of them. [00:14:19][8.0]

Alec Renehan: [00:14:19] I'm surprised just because aside from the fact that Keogan is an online retailer and obviously has a lot of software and tech expertize in four walls, it doesn't feel like there's a lot of synergies between selling electrical goods and advertising car. I wonder [00:14:36][16.7]

Bryce Leske: [00:14:36] if he has private label card and go, [00:14:38][2.1]

Alec Renehan: [00:14:38] oh, that's not bad. Maybe you should pitch it to him. [00:14:42][3.2]

Bryce Leske: [00:14:42] Not anyway. Yeah, that is surprising. [00:14:44][1.7]

Alec Renehan: [00:14:44] So I guess, yeah, there's a bunch of competitors. Carsales.com is the dominant player in the market. And when you're thinking about its competitors, again, if we think about the industry as defined by its substitution possibilities, if you're not really thinking about car dealers, they're a little bit different because in many ways, car dealers are the customers, not the competitors. So you're not really thinking about the market for selling cars. You're more thinking about the market for advertising cars. And so that's where a lot of those online players are there. Gumtree and stuff have you know, you can list your car and country. So there are a number of competitors and I guess the newspapers may still not. I don't think they even have classifieds anymore. Do they know? So it's really these other online platforms that you're looking at in terms of major competitors. [00:15:33][48.5]

Bryce Leske: [00:15:34] Cogan's offer is a price match you find. Yeah. If you get a genuine written offer for your new car purchase or used car trading from a competitor or a dealership, they'll match it or give you 100 Silicon.com credit voucher JASE'S. [00:15:49][15.1]

Alec Renehan: [00:15:49] A lot of the time you think it would just be cheaper for them to give the hundred dollar voucher? Yeah, if you're talking about like a 20 grand car. Yeah. [00:15:55][6.4]

Bryce Leske: [00:15:56] Wow. Well, they go learn new things every day. But to your point, Rinne, I've only really ever thought about carsales.com in this space. Yeah, well I always sort of thought about it as a second hand car marketplace. You think about it as a new car. [00:16:08][12.5]

Alec Renehan: [00:16:09] I guess it makes sense though, because, like, if I was going to buy a car, I wouldn't buy it sight unseen online. And maybe that's in the future. Car sales can develop like such good tech or life. They maybe have some, like car sales verified program where they're like, we guarantee that this car is in good quality, but you want to see and touch and a spin. [00:16:29][20.5]

Bryce Leske: [00:16:30] Yeah. So in terms of the impact of covid ran, you can imagine that there certainly would be one. New car sales across Australia is down almost 50 percent in April 2020, which is the biggest decline in the 30 years these numbers have been tracked. And I'm not surprised, given, I guess, the amount of people that I don't have to commute anymore, I guess general economic feeling of tightening the belt and paying off your debt. And, yeah, I can understand why that would have happened. Devastating for the car industry. [00:16:59][28.9]

Alec Renehan: [00:16:59] Yeah, but you know, the weird thing, so new car sales down almost 50 percent in April. Twenty twenty. I was writing an article that interviewed someone from carsales.com. They were saying that SPUs Yes, secondhand cars, the prices were skyrocketing to the point where a new car bought in twenty nineteen was actually more valuable. Wow. Yeah. Which cars are a depreciating asset. They lose value basically as soon as you drive them off the dealers lot. Yeah. Maybe the first time in history that used cars. Appreciate it. Well maybe probably not the first time in history, but definitely a weird phenomenon. [00:17:35][36.2]

Bryce Leske: [00:17:36] And that is because of the concern that people had over public transport and so. Well, that that's certainly what I understood it to be. And so they were looking to do more, I guess, driving than they otherwise would have because of covid. There's also obviously the limitations to air travel has made car driving emerged as a preferred mode of transport. So that's what's going to be driving those second hand prices. [00:17:59][22.9]

Alec Renehan: [00:18:00] In Carsales.com annual report, they spoke about data from Apple watchers showing that car travel was the preferred mode of transport during covid just surprised me because I've never seen data from Apple watchers being used in this way. Well, I've never really seen it being used, but obviously they just collect heaps of data and then Apple must sell it. [00:18:19][19.3]

Bryce Leske: [00:18:19] Google usually do it through the maps. They'll tell you, you know, transport usage, are cars down, walking, all those sorts of things. So should we talk about Mogren? Let's do it. So two sided network effect. You want to explain a network effect? [00:18:36][16.8]

Alec Renehan: [00:18:37] Yeah. So a network effect is where a product or service gets more valuable with each incremental user that is using that product or service. So for each existing user, it becomes more valuable as more people use it to classic examples that are often used in terms of a network effect. No one is a telephone. If you have a telephone, it's not that valuable. If you and I have a telephone, it's a little bit more valuable because we can speak to each other. If everyone has a telephone, it becomes exponentially more valuable because it's a way for us to communicate. So like that network effect is in play in a big way. Similar example is Facebook. Facebook, if just one person is using it, isn't that valuable? Facebook becomes more valuable as more people use it. Network effects are really hard to disrupt because a competitor who starts a competing product or service, they have to challenge that network effect and drag users off and get users to use their new product that doesn't have all those users that make it more valuable. So, I mean, the classic example is if we tried to start a social media business now and try to drag users of Facebook, it wouldn't be very valuable in the early days because everyone's still on Facebook. That's a network effect. A two sided network effect is I guess it's a term for businesses like Uber, where the network effect has both providers of the service and end users of the service. And if you can have a lot of both, it becomes really valuable for each additional user or provider. And, you know, you think of Obama, you know, if you're going to make money driving your car, you're going to use that because that's where all the passengers are. And if you need to order a car, you're going to use Uber because that's where all the drivers are. There's a two sided network effect at play. The carsales.com is another example of a two sided network effect. If we're looking to buy a used car, we're going to go to carsales.com because that's where all the cars are advertised. It's the most dealers and most people advertising on it. Similarly, if we're going to sell a car, we're going to go to carsales.com because that's where all the potential buyers are. So that to side network effect is in place there. And it's very hard to disrupt because if you want to buy or you want to sell a car, you're going to get a carsales.com because that's where everyone else is. There's some numbers that car sales put out in their annual report about how big they are compared to their competitors. So they reported that two times the amount of money was spent on carsales.com compared to the nearest competitor in Australia. And the daily unique audience is growing compared to the nearest competitor. So over the last three years, it was one point six, nine times as big as the nearest competitor, then one point seven, two times as big last year, and then two point one five times. This is big this year, so really that gap between them and the nearest competitor is growing every year. So that's the first element of them out there to sort a network effect. Second element of there is a little bit simpler to explain. And it's really just around brand and around the trust that that brand has. Based on a market research survey done in June 20, carsales.com is 118 percent more trusted than their nearest competitor. And, you know, when you're making a big purchase or when you're researching a big purchase, like buying a car or having trust in the brand, you know, what's being advertised is true to label. And the information you're getting is factual and not misleading is really important. And so for a business like carsales.com, having consumers trust them and having dealers trust that leads are real leads is critical. [00:22:09][212.4]

Bryce Leske: [00:22:10] So before we jump into the outlook of the company again, let's take a quick break to hear from our sponsors. OK, so it is time to look to the future and then also touch on some of the financials. So what is coming up for car sales? Obviously, it's in that digital era. So you can imagine that expansion is on their cards. Global expansion, that's it. [00:22:33][23.3]

Alec Renehan: [00:22:34] I mean, they've already they are already global, but there's heaps more of the globe to cover. [00:22:38][4.0]

Bryce Leske: [00:22:38] So I guess on their cards when we know that they're looking to grow and expand regionally in Brazil. Yes, pretty big country. [00:22:47][8.4]

Alec Renehan: [00:22:47] Pretty big country. A lot of cars was disrupted because of Brazil's not excellent handling of coronavirus, shall we say, one of the poorer performing countries in the coronavirus times that has affected car sales plans for expansion. But, yeah, basically, I think in a nutshell, we listed a lot of the countries that they're in at the moment, many of them, they're number one in and they want to expand that lead as being number one or they want to become number one. And so, yeah, Brazil was a big one for them. All of those countries we listed earlier, they want to just keep becoming the number one. [00:23:20][32.7]

Bryce Leske: [00:23:20] And then, in addition, they intend to, I guess, offer more value, add services to their vertical integration. Perhaps one of the examples is a partnership with Santander Bank to roll out a digital automotive finance and lead management tools and then also place app. [00:23:39][18.9]

Alec Renehan: [00:23:40] Yeah, let's talk about this, because this one surprised me and I think we're going to have a lot to say about it. [00:23:46][6.5]

Bryce Leske: [00:23:47] So it's an app that helps customers seamlessly combine, compare and book over eight modes of transport to get from place to place faster, cheaper and smarter. So I'm assuming there is a website. It's called Roam to Rio. Yeah. And I like it because especially when you're traveling, you can go I want to go from A to B. It's better than Google Maps at telling you all the different types of transport linking that can get you there. [00:24:14][27.1]

Alec Renehan: [00:24:14] Google Maps has just always been fine for me. This is my thing. Like that was the first question I wrote when I read this. How is this different from Google Maps? [00:24:21][7.2]

Bryce Leske: [00:24:22] It depends, I guess, where they're going to be doing this app. But my experience with Roam to Rio was that when you're in a country, perhaps like Central America or wherever it may be and you've got the small bodgies or the really weird types of transport that perhaps Google map doesn't necessarily cover. It was great. So maybe this is where they're trying to go. Yeah, I mean, Google Maps is pretty much 99 percent fail safe for me. [00:24:45][22.9]

Alec Renehan: [00:24:45] Yeah. You can't really book on Google Maps, can you just tell. Yeah, yeah. We're going to speak to Cameron Macintyre, who's the CEO of Carsales.com, and I'm interested to ask him about this app. Maybe the big thing is that you can book through this app, but can you book on Romario and compare? [00:25:00][14.8]

Bryce Leske: [00:25:01] Well, you can you get the option to book, but then flings you through to the respect. Right. [00:25:04][3.5]

Alec Renehan: [00:25:05] So, like, maybe that's the value add here. So in their annual report, they had a like a picture or like a diagram of all the different modes of transport and the different companies that they've partnered with. So they've got ride share, metro taxi, regional taxi, some other car stuff, then all the public transport, private busses. And then they've also got like micro mobility. So scooters and stuff like that. I assume a bikes as well. The big thing for me was I was looking at the ride share column, which was the first column. They've got all the move. Óscar and SheBar where Zuba not. Well, that's my big question. Well, it feels like there's a big pacemen. [00:25:47][42.3]

Bryce Leske: [00:25:48] Yeah. Yeah. Well, we can take the hard questions straight to Cameron and ask him. [00:25:52][3.8]

Alec Renehan: [00:25:52] Yeah, I feel like I just don't want any part of integrating with other products and services. Yeah. [00:25:57][4.9]

Bryce Leske: [00:25:57] So let's move to financials. Rhen Yes. Revenue in F1 nineteen was reported at four hundred and seventeen point five million revenue in F1. Twenty was reported at three hundred and ninety five point six million. So that's actually a decline in revenue of 5.2 percent. Good news is that they are turning a profit of F1 nineteen one hundred and thirty two million F1 twenty one hundred and nineteen million a fall in profit of about 10 percent. But they are profitable. [00:26:27][30.4]

Alec Renehan: [00:26:28] Yeah. And I think that fall is largely related to covered in their annual report. They provided a whole bunch of adjusted numbers. The biggest one off cost, the Difford between the reported numbers and the adjusted numbers that I presented was they put together a multi million dollar deal, a support package for the car dealers they worked with. And so I imagine when we spoke to Cameron, he'll talk about how some of these one off covid impacts they would have grown. And in the numbers they their adjusted numbers, they reported growth, but in their actual statutory numbers that they had to report to the market. They did fall in twenty twenty. [00:27:03][35.1]

Bryce Leske: [00:27:04] So if we continue to move through the financials, the previous ten year growth rates have been pretty impressive, revenue growing at a compound growth rate of 13 per cent and then net profit. It growing at a compound of 10 percent, not bad, [00:27:18][13.9]

Alec Renehan: [00:27:18] not bad, not bad revenue faster than profit. That's something that I'm looking at for those [00:27:22][4.0]

Bryce Leske: [00:27:24] countries that they operate in, obviously, Australia. But South Korea is generating 71 million in revenue, up 17 per cent, Brazil five million pretty flat. Chile about five million as well. But that is down near 20 percent. Mexico, a small one point eight million, but it is up 22 percent. Argentina, not even over a million, but it's down 50 percent. [00:27:46][22.3]

Alec Renehan: [00:27:47] Yeah, yeah. [00:27:47][0.4]

Bryce Leske: [00:27:48] She's 19 per cent. [00:27:49][1.6]

Alec Renehan: [00:27:50] I just reckon someone's going to have a crack at you for selling Argentina stocks all that up now, because I'm told someone will send us a message on Facebook to the guy that, [00:28:00][9.9]

Bryce Leske: [00:28:00] yeah, it's a nice, nice respect. [00:28:03][3.1]

Alec Renehan: [00:28:03] You know, we heard it. You don't need to messages about [00:28:07][3.2]

Bryce Leske: [00:28:08] 99 percent of a bit comes from their international market. So that is that is good. If you're thinking about ways in which this business can diversify itself and reduce, I guess, the concentration risk of just being in Australia. And that's how they do that through exposure to many different countries. So, yeah, yeah. [00:28:25][17.1]

Alec Renehan: [00:28:25] I think the strong base and the opportunity to grow is really overseas. [00:28:29][3.9]

Bryce Leske: [00:28:30] So if we look at our valuation, we can look at a relative and we can compare to other online marketplaces that offer a similar service. And you're thinking Demesne and Reya Group. So if we're looking at price to earnings, Casscells are at around 42 at the moment. Ptomaine doesn't have one. I guess they're not making money. [00:28:50][20.2]

Alec Renehan: [00:28:50] Didn't make money last year. [00:28:51][0.9]

Bryce Leske: [00:28:51] And Reyher is at 166 [00:28:52][0.9]

Alec Renehan: [00:28:54] used price to earnings. I mean, it's a great company area group. Yeah. Yeah. [00:28:59][4.8]

Bryce Leske: [00:29:00] Then if you're looking at price to sales, it becomes a bit more comparable. Car sales at 13, demesne at ten. Again, Ariah Group is 21, so significantly more expensive. But again, take that all with a grain of salt. [00:29:12][12.5]

Alec Renehan: [00:29:13] My key takeaway is that a price to sales of 13 and a price to earnings of forty two is putting some expectations on the stock. The market doesn't expect this to grow slowly. It expects it to grow. [00:29:24][11.6]

Bryce Leske: [00:29:25] So then if we turn to the DCF as well, then with a 10 percent growth over the next 10 years, which is what it has historically done, for profit, you're looking at a price of eight point thirty two. And if you put in the revenue growth of 13 per cent over the last 10 years, you're looking at a share price of ten point eighteen. What's the currently trading [00:29:45][19.3]

Alec Renehan: [00:29:45] at about twenty bucks. [00:29:46][0.7]

Bryce Leske: [00:29:46] Right. So Market thinks or is expecting some big things if you do [00:29:50][3.9]

Alec Renehan: [00:29:50] a reverse discount cash flow where you put all your inputs in except the growth rate, and then you ask it to tell you what the market is expecting in terms of growth based on your, you know, your discount rate and stuff like that. The market is expecting it to grow at about twenty three per cent over the next ten years. [00:30:07][16.7]

Bryce Leske: [00:30:08] So double what it has been doing the last 10 years. [00:30:10][2.4]

Alec Renehan: [00:30:10] Yeah, yeah. So I guess they expect big things from the international business. [00:30:14][4.5]

Bryce Leske: [00:30:15] Argentinian a better stock. [00:30:16][1.0]

Alec Renehan: [00:30:18] Well they expect farm machinery sales, dotcom and construction sales, dotcom to really true. [00:30:23][5.3]

Bryce Leske: [00:30:24] True or when we talk to Cameron and he finally realizes he should be in scooters and skateboards. True. [00:30:30][6.1]

Alec Renehan: [00:30:30] And maybe I mean, look, maybe this is a big growth driver for them. I think that it only launched an F 20. So it's very new. I mean, I'd never heard of a place, but we shall say, I guess big expectations for a stock that has done well will continue to do well. It's a question of the price you pay and the value you get. [00:30:48][17.8]

Bryce Leske: [00:30:49] Well, and that brings us to the end of the summer series of 2020, brought to you by superhero. Great fun. Certainly got a few stocks on the watchlist. I'm sure you've actually bought a few of them. I have not disclosed [00:31:02][13.3]

Alec Renehan: [00:31:03] so that I've bought, but obviously we don't make by Holden so was not [00:31:06][4.0]

Bryce Leske: [00:31:07] going to mention what they are. It has been a really enjoyable series. We are super pumped to be coming back next week with a fresh start to 2021. Big things coming for Equity Mates, not just this podcast, but across all the podcasts in the Equity Mates community. So thanks for sticking with us through summer and through 2020. A massive thanks to our sponsor for the summer series Superhero. They are offering five dollar brokerage flat fee as well as zero dollar brokerage on all ETFs. So if you like us and want to build your core portfolio in ETFs and a satellite portfolio in individual stocks, then there is perhaps no better place to do that at the moment than through superhero. They have a pretty good state of the art platform as well. So head to super hero Dotcom today. You to check that out again. Looking forward to next summer when we take this, make it even bigger and hopefully [00:32:02][55.1]

Alec Renehan: [00:32:02] we can get twelve, say [00:32:03][0.9]

Bryce Leske: [00:32:04] twelve, say interviews and takes an even tougher questions to them. But great fun. Love chatting. And here's to twenty, twenty one. Yeah. [00:32:12][7.4]

Alec Renehan: [00:32:12] We're recording this at the start of summer on. Looking forward to getting back into the studio with you for our new episode next week, I reckon you're going to be a little bit more tan than you are now, and [00:32:21][9.3]

Bryce Leske: [00:32:22] that's to [00:32:22][0.3]

Alec Renehan: [00:32:23] go. And your golf handicap may be further down. [00:32:25][2.8]

Bryce Leske: [00:32:26] So hopefully yours as well. We'll leave it there, chat next week. Sounds good. [00:32:26][0.0]

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