Auto Trader is a significant classified brand in many places including the US, Canada, Australia, New Zealand, and South Africa. But the independently-owned UK Auto Trader is the one that has become a 21st century media miracle.
If anything was going to be sunk by the rise of digital media, it should have been a print magazine stuffed with classified ads. But Auto Trader was transformed into a runaway, market-leading digital service that’s now valued at £5bn and is one of the UK’s 100 largest companies.
During its five years as a listed company, Auto Trader Group Plc has increased revenue by 31% and operating profit by 53%. Earnings per share have jumped 75%.
In 2019-20, Auto Trader Group Plc generated £258.9m of operating profit from £368.9m revenue – a 70% margin. Its shareholders have been accustomed to seeing their company generate cash equivalent to almost 100% of the profit, indicating relatively low levels of capex for a tech company.
Auto Trader lists an average of more than 470k cars each month, generates more than 230m page views, and gives consumers access to more than 80% of the UK’s automotive retailers. It may account for two-thirds of all the country’s used car sales.
The original publication was founded in 1977 by Brits John Madejski and Paul Gibbons whose Thames Valley Trader was followed by Southern Auto Trader. The magazine was aubsequently published weekly in regional editions across the UK. Circulation peaked at 368k – and more than 1m around the world before it decided to focus on its domestic market. As if to underline how Auto Trader raced into digital ahead of other print media, the company was attracting 6.6m monthly uniques in 2005-6, probably the peak year for newspaper profits in the UK.
By 2013, Auto Trader copy sales had fallen to just 27k when – after 36 years – the final editions of the magazine were printed.
The pioneering web site had been launched in 1996. But the rapid growth enabled the founders to cash in by selling a £260m stake to BC Partners in 1998. Two years later, it merged with The Guardian’s Automart to create Trader Media. In 2014, Apax private equity acquired the remaining 50% of the company from The Guardian for £600m.
That cash windfall has helped bankroll the daily newspaper ever since. But, if Guardian Media Group could have waited 12 months for the £2bn IPO, it would have done even better.
Auto Trader has more than doubled its value in the past five years and shows no signs of stopping. It’s an almost magical business. Car dealers subscribe to a number of “slots” for a period of time for cars they want to advertise. The average dealer-customer pays £1,950 per month and advertises 35 cars, and the top 10 account for not much more than 10% of total revenue. It’s a cloud-based technology business using open source software and employs 950 people.
The company recently established a new JV to help dealers sell car stock to each other and pushed deep into data, insights and buyer information with the acquisition of KeeResources that strengthens its B2B relationships. Auto Trader’s software helps dealers manage their inventory, and it clearly sees further opportunity in the recent reduction (of 25-50%) in the staff of UK car dealers. Presumably, those cuts could make the digital service an even more important marketing channel. It senses opportunity also in new car sales where, of course, the marketing budgets are much larger. It claims more than 1m people per month are looking at new car content on the site.
Auto Trader’s achievements can be measured by the way that its all-digital service is just as successful as its print classifieds once were. It’s completely dominant, despite the rising competition from Ebay (being sold to Adevinta) and CarGurus, from the US.
It’s also a smart competitor. During the March-May 2020 lockdown, when UK car showrooms were forced to close, Auto Trader didn’t charge its dealers for their advertising. And, in the first month of reopening, it reduced charges by 25%. The result (with a bit of help from pent-up demand) has been substantial year-on-year traffic and revenue growth ever since: “the highest levels of audience ever seen by Auto Trader”. Its share price has gained 41% in the last six months despite a £200m share issue at the start of the lockdown.
But challenge may be on the way, with growing indications that digital classified sites like Auto Trader could themselves be disrupted.
Malcolm Myers, founder-CEO of consultancy EIV, told the Aim Group’s “Global Online Marketplaces Summit” this year that – even before Covid – the growth rates Auto Trader and its equivalents round the world had begun to slow. He also pointed out that, in spite of the profitability, the site actually takes a very small proportion of the sales commission on each car: only about $90 of the $1,200 total commission earned by dealers.
He considers that the classifieds model is actually broken because it does not offer the end-to-end digital shopping experience that online customers have come to expect. He’s got a point. Users of Auto Trader find the car they are interested in and are then pushed to contact the seller in what is just the beginning of a lengthy offline process involving a price negotiation, perhaps a part-exchange deal, inspection, warranties, finance, insurance, and delivery.
It’s a long way from the classic online shopping experience consumers have come to expect from Amazon, ASOS et al. Myers says: “The car classified operators depend on intermediaries. And does it still make sense for dealers to have expensive forecourts with large amounts of stock?”
He predicts the rise of new-wave platforms which allow car buyers to complete the whole transaction online in one place – just like the $4bn-revenue, eight-year-old Carvana, in the US, and Cazoo, in the UK. These services threaten to shake-up the whole business with end-to-end car buying services including finance, insurance, warranties, free home delivery and a seven-day money-back guarantee.
While the listed company Carvana is still lossmaking (but profitable in some of its oldest regional markets), it may actually make as much as £2,800 “profit” per vehicle. Wait till it gets the volume to reduce its unit costs.
The two-year-old Cazoo was founded by Alex Chesterman and backed by 20% shareholder the Daily Mail Group. Less than 10 years ago, they had together made Zoopla into a £2bn homes-for-sale business. Chesterman says: “Our mission is to transform the way people buy used cars in the UK by providing better selection, value, convenience and quality. We aim to make car buying no different than buying any other product online today, where consumers can simply and seamlessly purchase a used car entirely online and have it delivered to their door in as little as 72 hours.”
Cazoo has now raised some £450m in funding but it won’t – to say the least – be easy to beat Auto Trader. The market leader has huge traffic and liquidity, which create high barriers to entry.
Auto Trader and others may themselves have the opportunity to head-off the competitors by, for example, partnering with fintech companies to offer their own separately-branded “direct to consumer” services in parallel with those of their dealer-advertisers. It could be bit like supermarkets selling their “own brand” versions alongside branded products. It might just help the incumbents get the best of both worlds.
But there’s a wider lesson here for the print media that was initially caught flat-footed, especially by the defection of classifieds to online. In recent years, many news and magazine sites have managed to build e-commerce revenues from affiliate e-commerce and lead generation. It is some consolation for their lost classified and display advertising. But, if you note the automotive classified trends, those lead generation commissions may prove only to be transitional.
In the way that even powerful digital classified operators like Auto Trader must eventually become central players in Cazoo-like ‘end-to-end’ car retailing, publishers may be squeezed out of e-commerce and lead gen altogether. Unless…
Legacy media might reflect on the changing digital landscape for the classifieds which once payrolled many of them:
- There is a growing consumer appetite for a seamless digital shopping experience in almost every market. Covid has but accelerated the trend towards online retailing of almost all products and services. The “transactional” commissions earned by publishers may be at risk unless they choose to play a more central role in e-commerce.
- Print and digital media brands need to build enduring partnerships with fintech and other companies in order to capitalise fully on their brands and audiences.
That need for partnerships is always something of a challenge for major news brands accustomed to a world where they didn’t need any help and didn’t have to share revenue with anyone. They need to forget the glorious past. They may also have to recognise that their brands and audiences are actually more valuable than their content. Gulp.
Auto Trader makes the case perfectly.
The phenomenally successful brand is facing the next wave of digital disruption after having itself been the disrupter. It’s much the same as B2B publishers which, having moved to digital, have realised that the real value is in must-have data that can be embedded in workflow systems: “going online” was just the start.
That in itself is a warning to print-centric brands which are still struggling to find the light switch.
But the opportunities are there in a world where, for example, a daily news brand could partner with a supermarket/ home delivery service: Shopping, the news, weather, sport, leisure, financial services, and audio/TV programmes, all courtesy of a membership club created together by your favourite news brand and retailer. There’s also plenty of possibilities in specialist markets too. Don’t wait.
Additional reporting by independent media consultant Alex DeGroote
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