Bitauto Hldg Ltd (ADR) (BITA): This Chinese Stock Could Double

Advertisement

After a one-year 62% loss in Bitauto Hldg Ltd (ADR) (BITA), three of China’s super companies Baidu Inc (ADR) (BIDU), JD.com Inc(ADR) (JD) and Tencent Holdings Ltd (TCTZF) have invested a combined $150 million into BITA.

Bitauto Hldg Ltd (ADR) (BITA): This Chinese Stock Could DoubleFurther, the investment firm PA Grand Opportunity Limited (PAG) is buying another $150 million worth of convertible bonds, good for $300 million in new capital for Bitauto.

Not only is this new capital clearly good for BITA stock, but the vote of confidence and vested interest from three of China’s biggest names also carries a ton of weight.

As a result, it might now be time to conclude that BITA’s collapse is overdone, and that now is the time to buy.

Bitauto Catches a Big Break

The fact is that Bitauto is a legitimate company with a stranglehold on one of the largest industries in China: auto. The company is involved in all things auto, almost like the autotrader.com of China, but with an emphasis in the actual sale and financing of vehicles.

Bitauto maintains a close relationship with dealers and manufacturers, but has struggled to maintain acceptable traffic growth across its network with its older, traditional revenue streams falling flat.

During its last quarter, ad revenue rose just 1.4% to $70.3 million and its digital market revenue fell 3.8% to $27.7 million. These declines have been disappointing given the overall growth of internet use in China, and the ad/marketing revenue growth of China’s bigger Web players like Baidu, Tencent and Alibaba Group Holding Ltd (BABA) among others.

However, BITA has found a new and larger revenue stream with its EP Platform, which targets auto dealers and manufacturers specifically via customer relationship management. In other words, it is the business practice that turned salesforce.com, inc. (CRM) into a near-$60-billion juggernaut, but targeted at the auto industry.

In this unit, Bitauto grew revenue 78% to more than $93 million, which helped drive overall revenue growth of 27% and billings growth of 29%. Apparently, Baidu, JD.com and Tencent like what they see at Bitauto.

Yes, BITA stock has fallen significantly, and it is possible that these Chinese stock heavyweights see BITA as a good value investment, but in addition, it is very likely that these investors see great upside in Bitauto’s new CRM-based philosophy.

Up until this point, Bitauto has had to fight for traffic, customers and its share of ad revenue. While BITA’s business model can be highly profitable, margins have been pressured as costs have soared. Most recently, sales and admin spending rose 178% to more than $180 million in Bitauto’s last quarter.

Now that BITA has investment partnerships with several Chinese stock juggernauts, investors must assume that new opportunities to exploit their massive ecosystems and networks will be created. If so, Bitauto won’t have to fight so hard, and traffic should come easier. In other words, Bitauto just caught a big break.

BITA Stock Catches a Break, Too

BITA stock is up nearly 20% in the two days following the $300 million investment. The new cash is in itself significant for BITA stock, but long-term investors have to feel good about this small company’s prospects.

There are now no short-term fears of financing, and Bitauto has the backing and support of three massive Chinese tech companies.

Seeing as how BITA’s growth has remained robust despite the issues in advertising and marketing, I believe the majority of stock losses can attributed to a broader fear of Chinese stocks and speculation that Bitauto is running out of gas.

However, recent stock gains serve as proof that sentiment has reversed, and the potential surrounding the implications of Bitauto’s new partners should keep investors optimistic for some time to come.

Best of all, BITA stock has fallen so much that it could double right now and still be 30% off its 52-week high. I think that’s very possible as new capital is deployed, Bitauto’s CRM business continues to thrive, and its new investors lend a helping hand from time to time.

As of this writing, Brian Nichols owns shares of Bitauto.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/bitauto-bita-chinese-stock-double/.

©2024 InvestorPlace Media, LLC