iCar Asia: Q2 update

iCarAsia has reported a slightly disappointing half-year trading update – sending its share price down 4% – but after speaking to chief executive Damon Rielly, we're satisfied that things aren't as bad as they might at first appear.

The main source of disappointment is probably the cash receipts of 'in excess of $2.5m' expected for the six months to June. With $1.4m already banked for the first quarter (to March), that looks a little underwhelming. But Rielly points to the seasonality of iCar Asia's display advertising business, which books a large chunk of its business in the December quarter, with much of the cash not coming through until the March quarter.

That fits with the experience in 2014, which saw first-quarter cash receipts of $670k drop to $487k in the second quarter before ongoing business growth pulled them back to $663k in the third and $1,088k in the fourth.

Even so, with an operating loss of $6.5–7m flagged for the first half, the $10.3m loss we forecast for 2015 now looks a little optimistic (see iCar Asia's road to riches on 30 April (Speculative Buy – $0.97)). Recasting it now, we'd say that something around $12m is more likely (taking account of about $0.5m in one-off expenses in the first half associated with the integration of the recently acquired One2Car.com business in Thailand).

iCar Asia's short-term losses, however, are highly dependent on how much management decides to spend on growing the business, and we don't mind seeing higher losses if it's driving the requisite growth in operating metrics – and the hope of higher profits in the future.

Met-tricks

Which brings us back to today's update, in which the operating metrics also look worse than they are.

The combined audience of '7.5 million ' unique visitors in the three months to June looks lacklustre compared to the 7.6 million recorded for the three months to March, but Rielly explained that the June figure excluded the Malaysian site LiveLifeDrive, which has been closed down and contributed about 0.25m to the March figure.

The number of users sending leads to dealers, which is 'on track to exceed 550,000' in June, also looks disappointing compared to the March figure of 800,000. On this, Rielly's admission that the March figure had been incorrectly calculated is hardly ideal, but we'll take some comfort from his estimation that June is ahead of March on the correct numbers.

There was better news on the integration of dealers into the company's 'response management system', with 6,000 dealers logging into the system and performing at least one action in the second quarter, compared to 4,400 in the first. The second-quarter figure will be flattered, though, by the fact that the system was launched to the company's relatively well developed but recently acquired Thai website One2Car.com on 1 April.

All in all, the performance is not out of line with the bumpy ride you'd expect on a quarterly basis from this kind of business. We also take some comfort from Rielly's assertion that he's 'very confident' of the country by country growth figures the company will present at its half-year results.

The stock is down 2% since see iCar Asia's road to riches on 30 April (Speculative Buy – $0.97). SPECULATIVE BUY.

Note: Our Growth Portfolio owns shares in iCar Asia.

Disclosure: The author owns shares in iCar Asia.