Prosus to exit OLX Autos to safeguard core classifieds business

Naspers-owned Prosus has decided to cut ties with its vehicle-trading business OLX Autos, citing high costs and a slowdown in the second-hand car market.

Its move comes at a time when it has been insisting that the unit is profitable. Market players appear to have welcomed the move as a sign that CEO Bob van Dijk and his team are serious about achieving break-even in the e-commerce business by 2025. 

Naspers, whose business is centred around online classifieds, education, fintech and food delivery, shut down its OLX unit in SA a year ago. The group has maintained its local vehicle-trading platform Autotrader. 

On Thursday, the group said OLX Group’s core classifieds business has been performing well, with sustained growth and improving profitability, “and is well placed for further growth and margin expansion”.

However, the car transaction part of the business, OLX Autos, has been affected by market challenges and a slowdown in the second-hand car market.

Prosus therefore decided to explore options for exiting OLX Autos to focus on its core classifieds businesses. The decision is expected to lead to a significant improvement in the profitability profile of its classifieds division, the company said. 

“While OLX Autos has built leading positions across many of its key markets as a result of its strong technology platforms and local focus, pursuing a global growth strategy is no longer the right approach for Prosus and its shareholders. Prosus will explore all options for the OLX Autos business, acknowledging that significant value exists within local markets.”

The group cited the higher cost of capital because of elevated interest rates as one reason for its decision. Together with high inflation and the reversal of pandemic trends, these factors had led to a significant and persistent slowdown in the second-hand car market.

Bold action

With the group having committed to reaching profitability in its e-commerce portfolio, valued at about R34bn, Sasfin’s Alec Abraham says the move constitutes bold action from management.

“The initiatives to achieving this goal included, among others, overt active portfolio management and capital allocation decisions,” said Abraham, a senior equity analyst.

He noted that one of the areas attracting much capital investment was the Autos classifieds business, as the group was building out physical inspection and delivery infrastructure.

“Clearly, management have taken a hard look at the losses incurred by this business and the capital investment in the context of the first half of 2025’s break-even target and arrived at the difficult disciplined capital decision that this business may take longer to achieve profitability and may even jeopardise the achievement of the break-even goal.”

To that extent, “the decision makes sense and, in my opinion, provides credibility to management’s commitment to achieving the goal of break-even”, Abraham said. 

During the Covid-19 pandemic, demand for used vehicles shot up around the world as people searched for affordable transport options. At the same time, a shortage of microchips for vehicle computer systems meant the supply of new cars was limited. 

This trend helped to push up local businesses such as WeBuyCars, which has expanded rapidly. In 2020, Transaction Capital bought a 49.9% stake in WeBuyCars, based on an enterprise value of R3.69bn at the time. 

This may explain why Naspers continues to hold on to Autotrader. 

Ironically, Naspers was blocked by the competition authorities from making a R1.4bn investment in WeBuyCars a year earlier. 

While the local used-car market has done well, the tide could be turning as TransUnion’s latest vehicle pricing index shows that in the fourth quarter of 2022, 1.98 used vehicles were sold for every new vehicle in SA. This figure stood at 2.31 the year before.

Naspers’s SA-focused venture arm recently co-led a $15m (R273.8m) equity funding round for the vehicle subscription start-up Planet42. Last week, the start-up disclosed that it had raised $100m (R1.825bn) in new funding through a mixture of equity and debt financing. 

Beyond OLX Autos, Prosus maintains that the core classifieds businesses in OLX are profitable, cash-flow positive and growing fast.

According to Prosus’s latest full-year earnings report, OLX Autos traded 175,000 cars in the year to March 2022 compared with 98,000 cars a year earlier.

In the six months to September, the unit grew its revenue 60% to $1bn, with trading losses up to $206m, owing to investment in retail infrastructure.

gavazam@businesslive.co.za