Karooooo expects improved profit after ending direct vehicle sales

Karooooo expects its profit to rise in the next quarter after the group decided to stop buying second-hand vehicles in SA for its Carzuka online platform after consulting with dealerships who said the website was competing with its business.

Karooooo has traditionally competed locally with firms such as Mix Telematics and Altron’s Netstar and is considering extending its mobility business using data analytics and artificial intelligence (AI).

Karooooo CEO Zak Calisto said in an interview with Business Day that the move to scale down its used-car marketplace ultimately came down to keeping its relationships with dealerships intact.

“The relationships are more important in the long run. These relationships are worldwide, from Europe to Asia. It’s not just an SA thing.”

Dealerships typically refer their clients to Cartrack — the group’s wholly owned vehicle tracking system that provides fleet-management and vehicle recovery services — which is by far the group’s biggest business.

However, over the past 18 months customers were increasingly choosing to sell their cars directly via Carzuka rather than trading them in or selling them at dealerships or via dealerships advertising on Carzuka.

Carzuka has essentially folded, parts of the business are now used to serve other divisions in the group. Headcount has gone from about 150 to 15, with no loss of jobs. 

“There are many components within Carzuka’s platform that had been built and developed that will continue to provide substantial value to the existing Cartrack fleet platform,” the group said in its earnings release for the third quarter to November 2023.

“We have integrated the majority of Carzuka’s dedicated staff into Cartrack’s broader business operations and retained staff in Carzuka. Carzuka will continue to add value to our remaining operations by managing the life cycle of Cartrack’s fleet of vehicles and we will continue to provide the Carzuka platform to the dealerships in SA as a software offering.”

The move resulted in Carzuka pulling down Karooooo’s earnings per share by 75c in the quarter. The group does not expect Carzuka to have a significant effect on its earnings per share in future.

Calisto said: “Our profits will go up substantially now. If it wasn’t for that 75c, our profit would probably be up by 50%. So next quarter, we’re going to have a really good quarter. And our free cash flow is also going to go up a lot.”

In the period, Cartrack reported a 12% increase in SA subscribers to 1,446,754, with subscription revenue growth of 13%. Across the group, subscribers increased 14% to 1,908,192.

The group, which aims to become a one-stop logistics and fleet management platform, grew revenue by 16% to R1.08bn in the period, with subscription revenue up 17% to R904m.

Subscription revenue currently makes up 98% of total revenue.

While Carzuka has not worked out, the group’s venture in logistics is pushing ahead. Karooooo Logistics, formerly Picup and 70% owned by the group, grew revenue by 67% to R91m. 

Group adjusted earnings before interest, tax, depreciation and amortisation (ebitda) for the nine months to November increased 15% to R1.227bn. 

The group ended the period with a net cash and cash equivalents balance of R782m, down from R819m. This comes after paying a dividend of $26.3m (R500m) in July 2023 and putting R184m towards its new SA head office in Rosebank, Johannesburg. 

The group, founded by Calisto back in 2004 and listed on the JSE and Nasdaq, is giving extra attention to its Asian business, where prospects were stifled by lengthy Covid-19 lockdowns that finally ended in May 2022

Subscribers in Asia-Pacific, the Middle East and the US increased 26% in the review period to 220,700, translating to 33% growth in subscription revenue. Karooooo is confident that Southeast Asia “continues to present the group’s most compelling growth opportunity in the medium to long term”.

Karooooo shares, up 12.29% over the past 12 months, were up 5.5% at R470, at midday on Tuesday. 

With Nico Gous

gavazam@businesslive.co.za