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Online used car retailer Cazoo revs up for US float
London’s listed car dealers could soon face stiffer competition from an online disruptor with a souped-up balance sheet and increased brand awareness as used car website Cazoo motors onto the New York Stock Exchange.
Founded as recently as 2018 by tech tycoon Alex Chesterman, Cazoo plans to go public across the pond via a merger with a special-purpose acquisition company or SPAC that will value the digital disruptor at around $8.1 billion.
Cazoo is set to merge with billionaire US investor Dan Och’s Ajax I Spac. Once the deal completes in the third quarter, the combined company will be named Cazoo and listed on the New York Stock Exchange under the ‘CZOO’ ticker symbol.
Used car website Cazoo has a fast-growing presence in Europe. Car sales have shunted online at pace during the pandemic, with physical sales showrooms shuttered during lockdowns.
Wary of contracting the virus, many customers have become increasingly comfortable with purchasing cars at the click of a mouse rather than a vehicle showroom visit.
That has played into the hands of Cazoo, which has a similar business model to high-flying US-listed outfit Carvana. Chesterman’s charge operates an online showroom and delivers used cars straight to customers’ homes in the UK and continental Europe.
LONG WAIT FOR PROFIT
Cazoo expects to achieve revenue approaching $1 billion in 2021, a growth rate of more than 300% in its second full year of operations, although the company doesn’t expect to be profitable at the earnings before interest, taxation, depreciation and amortisation (EBITDA) level until 2024.
The US listing will provide Cazoo with almost $1 billion of further funds to fuel its growth and Daily Mail & General Trust (DMGT), which has seen a bumper return on its £117 million initial investment in the firm, insists Cazoo is ‘well positioned to take advantage of the shift to online car-buying and disrupt the highly fragmented circa $700 billion European used car market’.
Given the growth Cazoo is seeing, it could represent a long-term competitive threat to second hand car specialist Motorpoint (MOTR) as well as auto dealers including Pendragon (PDG), Lookers (LOOK), Vertu Motors (VTU:AIM) and Marshall Motor (MMH:AIM).
That said, it is worth noting that the majority of consumers continue to opt for a showroom experience as part of the car buying process. And the incumbent players have established sales showrooms and won’t surrender market share without a fight.
They’ve been investing in accelerating their digital capabilities with click and collect and home delivery options too and won’t be unduly spooked by Cazoo’s public market arrival.