iCar Asia: receipts fall short

Revenues are growing more slowly than the market hoped, and the risks of another capital raising have jumped.

As we suspected might be the case, in iCar Asia’s speeding ticket on 12 July 2016 (Speculative Buy – $0.80), there was fire beneath the smoke. Today’s release of quarterly cash flow numbers showed that, while revenues are growing quickly, they’re unlikely to meet market expectations this year.

Quarterly cash receipts (for the seasonally weaker three months to 30 June 2016) were $1.9m, making a total of $4m for the half-year. That suggests the company might not meet revenue targets of $11m-12m for 2016 (it has a December financial year-end).

What’s more, iCar Asia stepped up investment in advertising and marketing over the period. While that’s probably the right thing to do long-term, it does mean the cash outflow for the period was a much higher-than-expected $3m. With the company’s cash balance declining to $13m at 30 June, our long-held suspicions that it might not have enough cash to see it through to breakeven are coming true. With new chief executive Hamish Stone in place, another capital raising looks likely.

None of this is overly worrying. Business and website metrics still seem to be heading in the right direction. So is revenue – it grew 45% on the previous corresponding quarter. But it does highlight how start-ups need plenty of cash to get them through to profitability. iCar Asia has cut it too fine.

If you’re not an iCar Asia shareholder and understand the risks of start-up businesses, bad news like this is the time to consider buying. You might also top up if you’re below the 2% suggested maximum weighting (although bear in mind the potential for another capital raising).

There’s still a lot that could go wrong – the addition of a private seller function to the consumer apps this quarter will be particularly important – but iCar Asia is well placed to succeed in the long term. With the leading automotive portals in Malaysia and Thailand, and the backing of two big shareholders who account for 49% of the stock – Catcha Group and Carsales.com – this is a higher quality start-up than most.

iCar Asia is a volatile stock, so it’s fallen 15% since iCar Asia’s speeding ticket. Remember the time to buy is on bad news, though, and we reiterate our SPECULATIVE BUY recommendation.

Note: The Intelligent Investor Growth Portfolio owns shares in iCar Asia. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.

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