Bull of the Day: BitAuto Holdings (BITA) - Bull of the Day
November 25 2013 - 3:24AM
Zacks
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.
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 bitauto.com
and taoche.com websites 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. Bitauto.com business provides subscription services to
new automobile dealers and advertising services to dealers and
automakers on the bitauto.com website.
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.
High-Speed Growth
In 2010 through 2012, BITA grew revenues at average
annual pace of 57%. And while 2013 looks to be slowing down quite a
bit to 38%, that's still taking the company from 2012's topline of
$170 million to an estimated $234 million this year. And 2014 full
year estimates are for 29% revenue growth to top the $300 million
mark.
After a strong 3rd-quarter report, Oppenheimer
analysts raised estimates for the this quarter and next year citing
"BITA’s ad sales continued to benefit from robust auto sales growth
in China and marketing dollar shifts from offline to online by auto
OEMs and dealers."
Encouraged by gross margin expansion of
approximately 122bps year-over-year to 74.4% on a mix shift to
higher margin bitauto.com and EP businesses, the analysts raised Q4
EPS estimates to 34-cents from $0.31 and full year 2014 EPS
estimates to $1.18 from $1.10.
Innovation and Partnership
The Chinese have made it clear they like to build
their own dominant companies in key industries, like the Internet
for instance. For this reason, hedge fund manager John Burbank of
Passport Capital has major investments in Baidu (BIDU),
Qihoo 360 (QIHU), which specializes in Internet security,
search, and mobile apps, and SouFun (SFUN) which he calls
the "Zillow of China."
On November 7, the day of their last quarterly
report, BitAuto also announced a joint venture with Kelley Blue
Book and the China Automobile Dealers Association (CADA) to provide
data on the Chinese used car market. But not only did BITA pick a
great US partner, they are also launching these services in mobile
applications to meet the country's increasingly high-tech consumer
demand.
"Bitauto is delighted to cooperate with Kelley Blue
Book and CADA to bring innovative vehicle valuations to China's
used car market," said Mr. William Bin Li, chairman and chief
executive officer of Bitauto in the company press release. "We see
increasingly strong demand for vehicle valuation products
particularly in China's used car market which is currently
under-served and is now entering a period of rapid development.
"We believe that consumers will greatly benefit
from the joint venture's products and services which will offer
quick and easy access to the most market-reflective vehicle
valuations, helping them make informed decisions on their vehicle
transactions. We are confident that these will become the starting
point for consumers and dealers seeking used vehicle pricing
information."
Mr. Li added, "Our combined experience, technology
and brand will drive the development of this joint venture and
allow us to deliver trusted values to China's used car market. We
believe this joint venture will further solidify Bitauto's leading
position in China's online used car market."
The new Web and mobile-based products will be the
direct access point for China's most comprehensive and up-to-date
car valuation information and is expected to serve as a central hub
for the development of China's new and used car industries.
If you are looking for a high-growth play on the
Chinese consumer, BitAuto may be a good option. While the forward
P/E looks pricey at 33X, dips below 30X look worth accumulating for
this key player in the Chinese automarket.
Kevin Cook is a Senior Stock Strategist for
Zacks where he runs the Follow The Money portfolio.
Disclosure: Cook holds shares of QIHU in the FTM
Portfolio.
BAIDU INC (BIDU): Free Stock Analysis Report
BITAUTO HOLDNGS (BITA): Free Stock Analysis Report
QIHOO 360 TECH (QIHU): Free Stock Analysis Report
SOUFUN HLDG-ADR (SFUN): Free Stock Analysis Report
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