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.
High-Speed Growth
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."
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."
In November, BitAuto 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. When I last wrote
about BITA in November, the forward P/E was pricey at 33X on a $35
stock. Now that shares are back to $32 and the EPS estimates are
higher, you're looking at paying under 25X for high double-digit
earnings growth.
At that price, I think the stock is definitely
worth looking at to own a piece of the key player in the biggest
auto market in the world.
Kevin Cook is a Senior Stock Strategist for
Zacks where he runs the Follow The Money 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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