CAR Group’s (ASX: CAR) first-half pro forma EBITDA grew 12%, with revenue growing 13% in constant currency, offset by slightly faster-growing spending, including on artificial intelligence. Shares jumped sharply on the result.

Why it matters: Revenue growth in international markets was strong and trending toward meeting management’s guidance, with revenue in North America up 13%, Latin America up 23%, and Asia up 17%, all in constant currency.

  • Latin America, which primarily consists of the Brazilian webmotors business, was the stand-out. Our thesis that CAR Group would consolidate this market appears validated, with audience leadership expanding to 4.4 times during the half, up from 3.5 times in fiscal 2025.
  • Management spent significant time discussing artificial intelligence-related opportunities to allay market fears. CAR Group now integrates with ChatGPT and has added conversational search to its listing sites. We think the latter has significant future potential but remains quite rudimentary.

The bottom line: We increase our fair value estimate for narrow-moat CAR Group by 5% to $33 per share, reflecting upgrades to our forecasts for Brazil, which is outperforming our expectations. Shares currently screen as undervalued, as fears around AI have cut CAR Group shares by a third since August.

  • We think the threat of competitive displacement from AI is overblown. We believe browsing images will remain by far the preferred method for discovering cars, and that more visually optimized vehicle listing sites will remain dominant.

Big picture: CAR Group owns dominant vehicle marketplaces that are well-protected by network effects, where supply and demand for vehicles attract each other. Dominance in private sellers—for whom listing on multiple websites is too cumbersome—provides a unique supply that others cannot replicate.

Online marketplaces will not be displaced by AI

We expect the medium- and long-term strategic focus for Car Group to revolve around functional and geographic expansion.

We expect Car Group to capture a larger part of the car retailing value chain, especially in its original Australian online marketplace for automotive, www.carsales.com.au. Car Group has been a highly innovative company since its launch over two decades ago, launching countless improvements and features to www.carsales.com.au to increase the return on marketing spend for dealerships and private sellers, while simultaneously increasing its own take rate. However, www.carsales.com.au is currently still mostly a marketing channel, which leaves significant opportunity beyond marketing, especially in the buying and selling of cars through its Instant Offer and Carsales Select products. We believe these products address significant pain points for consumers, especially younger ones, and expect adoption of these products to drive take rate for the medium to long term.

Beyond Australian automotive, we expect Car Group to focus on consolidating its markets. Among Car Group’s overseas markets, we believe its South Korean subsidiary, Encar, has been most successful in entrenching itself as the dominant local online marketplace with its guarantee product, while its Brazilian subsidiary has been successfully leveraging its regional leadership positions into national dominance. We believe online marketplaces for vehicles (as opposed to property and employment) are inherently conducive to consolidation due to the indivisibility of their category. We therefore believe Car Group will be successful in these overseas expansion efforts.

Beyond automotive, we expect Car Group to continue refining its pricing strategy in its United States subsidiary for nonautomotive, Trader Interactive. Trader Interactive boasts impressive market-leading positions in recreational vehicles and powersports, and we believe these are significant enough to enable it to transition toward a more sophisticated pricing strategy, which will improve Car Group’s take rate.

Bulls say

  • Car Group’s online marketplace for Australian automotive, www.carsales.com.au, has established itself as the undisputed leading online marketplace for automotive, supported by networks effects and cost advantages.
  • Car Group has launched new products in Australia to capture a larger part of the automotive retail value chain, which will increase its take rate over time.
  • Car Group has a history of successful overseas expansions and recent investments in lower-maturity online marketplaces in the United States and Brazil provide opportunity for growth.

Bears say

  • Car Group’s recent investments in overseas online marketplaces have been done at arguably expensive multiples.
  • Car Group invests in online marketplaces in developing markets, especially Latin America, where significant investment may be required to capture the market.
  • Self-driving cars may affect the share of the population owning private vehicles and therefore shrink the market in which Car Group operates.

Get Morningstar insights in your inbox

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.