Is a good IPO on the cards for Carro?

Carro latest fy ended March 2023 numbers.. Essentially they are now a car dealer + car marketplace + financing company. With some extras thrown in like selling ads, insurance etc. it’s a nice synergistic business on the financing & marketplace side where 1+1=2.5+. 

The marketplace bit is high gross margin but actually is at odds with dealer side as no smart long term big dealer will work well with a marketplace that also owns one of their biggest competitor. It will be interesting to see how they navigate this issue. The car dealer side is low margin as have to buy and sell the cars but it generates great gmv which  mattered back when revenue was the goal.  Finally the  financing side requires cheap capital access. 

But the financial numbers so far are showing it’s not 1+1=5 or 10 for sure which I suspect was the investor pitch. And I am not sure they run well right now as each component business by right profitable but now combined it’s loss making?

Case in point, TIA article has their CFO saying that employee benefits as % of gross profit has fallen from 110% to 89% in 2023 as if 89% is good. It’s ridiculously high still! Profitable pure software tech companies have it at 30-50%. Also it sounds like a lot of financial engineering going with valuation of investment assets. Be careful here, companies like coassets and many more used such non cash non operating methods to boost numbers to very bad outcome longer term.

Mgmt is saying ebitda in fy2023 is 5m and probably will be 30-40m in fy2024 and that’s a projection and off 1-3 mth annualized. And overall loss making as shown. Down -98m  in fy 2023 which means fy2024 also loss making for sure.

The saving grace is they raised at perfect timing and so still have 160+m cash. By the way 160m put in fd is already 8m profit there….

Other saving grace is carvana stock has rebounded. But big difference is carvana is profitable and trading at 15-20 times ebitda. So carro if valued at 10-12 times ebitda (smaller size and loss making discount), then it’s probably worth $300m-600m at best? Still a lot of money but small for nasdaq. And it’s about right compared to how public markets have cut down asean tech stories. All about 60-80% off inflated last round.

Let’s see what happens next 2 years as they try to get more money in. If I am a long term backer… I would back only if serious smart new money coming in to lead and to validate a new mark to market valuation. Already overpaid don’t overpay more.  Remember the lesson of grab, buka, Pgru, ipo! Latest few Investors all lose money including ipo investors.

The other smart thing the founder has done is looks like cashed out via secondary. It’s less said but quite a few of later stage tech founders have deftly navigated the bubble and cashed out for themselves anything from 1-5m to 20m usd. Willing buyer willing seller of course. And they don’t just buy a home but reinvest some as angels! Now that’s good for ecosystem and I think it’s fair up to 10m as it helps them derisk and at least provide for family. 

Nb: disclosure we are angel investors in motorist which is a car ecosystem platform competing with parts of carro. Previously were one shift investors too which is now owned by carousell. That’s why I am sure this space is fine but need great execution to create the synergies.