In iCar Asia: receipts fall short on 27 Jul 08 (Spec Buy – $0.67), we said the company looked unlikely to meet revenue targets of $11m–12m for 2016. Judging by the market’s reaction to that announcement we weren’t the only ones to be concerned, but this morning’s warning that it will manage only $6.75m–7.75m is worse than most imagined. The stock has fallen around 17% at the time of writing as a result.
Management blamed weak economic conditions in all its markets (Malaysia, Thailand and Indonesia), for the revenue shortfall, ‘with currency weakness reducing the volume of used car imports’.
2016 revenues 37% below target
Losses to increase
Capital raising a racing certainty
The increased investment evident in the June quarter’s large cash outflow will also be stepped up for the rest of the year, leading to a full-year operating loss (before depreciation and amortisation) of $14.5m–15.5m.
The company explained that the higher spending was to consolidate ‘its leadership position across each of its current markets’, which is fine by us – but it was concerning to see the words ‘as competition increases’ added to the end of this statement. No doubt we'll hear more about this in the company's forthcoming interim results.
The message is clear, though: iCar Asia is ahead of the competition in its markets, but it’s going to have to spend more to stay there. This also means that a capital raising – which we’ve previously said looks likely – is now a racing certainty. Still the prize is big and iCar Asia has the right backing (in particular from Carsales.com) to get there.
We note that this is a speculative investment and there will likely be more bumps along the way – which is why we recommend having no more than 2% of your portfolio in the stock. SPECULATIVE BUY.
Disclosure: The author owns shares in Carsales and iCar Asia – more than the recommended 2% in fact, but a few more announcements like this will see to that.