There are many ways to play the growth of China’s middle class and BitAuto Holdings (BITA) may offer a combination of two of the best: cars and the Internet.
BitAuto provides Internet content and marketing services for the automotive industry in China. Its BitAuto.com and Ucar.cn websites provide consumers new and used automobile pricing information, specifications, reviews and consumer feedback.
I last wrote about BitAuto as the Bull of the Day in late November when it was trading just below $35. In the subsequent four months, it built a base at $27 and reached an all-time high above $46 in early March. I thought it was a good time to revisit the name as it just became a Zacks #1 Rank again on a big boost in the earnings outlook.
New Name, Experienced Player
Since China overtook the US as the world’s largest automobile market in 2010, Chinese companies have of course been scrambling to capitalize on the boom. While you may have never heard of BitAuto and you may be skeptical about “another Chinese Internet company,” their roots in the auto industry go back more than a decade.
BitAuto was originally an advertising agency focusing on the automobile sector before they expanded into an integrated online vertical/portal model. They operate their websites as vehicles for dealers, automotive advertisers and consumers to converge.
According to analysts at Oppenheimer, “With China’s emerging auto sector coupled with strong secular tailwinds of increasing Internet ad spend, rising domestic consumption, Internet penetration growth, and greater reliance by consumers on the Internet for car information, BITA is positioned to maintain its leading position in the automotive online advertising and agency business.”
The BitAuto Model
The company operates in three segments: BitAuto.com business, Ucar.cn business and digital marketing solutions business. The BitAuto.com business provides subscription services to new automobile dealers and advertising services to dealers and automakers on the their websites.
BitAuto’s Ucar.cn business provides listing and advertising services to used automobile dealers on Ucar.cn website. And their business services division provides automakers with digital marketing solutions, including website creation and maintenance, online public relations, online marketing campaigns and advertising agent services.
In 2010 through 2012, BITA grew revenues at average annual pace of 57%. While that early-stage growth pace is slowing, the numbers are still impressive. In early March, BITA reported standout Q4 2013 results with the following highlights…
Revenue was $79.9 million, a 36.3% increase from the corresponding period in 2012. Revenue in fiscal year 2013 was $237.8 million, a 36.2% increase from 2012.
Operating profit was $17.2 million, a 52.2% increase from the corresponding period in 2012. Operating profit in fiscal year 2013 was $41.4 million, a 63.3% increase from 2012.
The company also guided to 1Q14 sales $53.9-55.5M, suggesting continued 36-40% year-over-year revenue growth. In reaction, Oppenheimer analysts noted…
“BITA continues to focus on providing more value-added services for auto dealers via its CRM system. According to mgmt, the EP platform generated over 11M sales leads for dealers in 4Q and 30M in 2013. The mobile business also started to gain momentum, accounting for over 40% of the sales leads in December.”
And these views, combined with strong forward guidance from the company, also prompted the analysts to bump their EPS projections for this year by 30%…
“We’re raising our 2014 sales and GAAP estimates from $301M/$1.18 to $327M/$1.54, and increasing our target to $45 from $30.”