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Billion Dollar Unicorns: What Are AUTO1’s Margins?

Posted on Thursday, Oct 12th 2017

According to Technavio, the global used car market is projected to grow at a CAGR of more than 7% to reach 128.4 million units by 2021. The used car market in the mature EMEA market is projected to reach 36.03 million units by 2021 driven by the increasing aging population and rising fuel prices. AUTO1 Group is a Billion Dollar Unicorn that recently raised another massive round.

AUTO1 Group’s Journey

Berlin-based AUTO1 Group was founded in August 2012 by Christian Bertermann and Hakan Koç to change the way cars are bought and sold. It essentially aims to build a stock exchange for used cars, using technology to seamlessly connect buyers with sellers.

The idea for AUTO1 Group came from the frustrated attempts of Christian to value and sell his grandmother’s two cars – a Mercedes 190 and a Golf IV 1.6. Having just quit his job at Groupon, he was looking to start a new company. Together with Hakan, who had worked at Rocket Internet SE and Home24 AG, he decided to create an online business to address the gap in the used car market. In 2014, former Groupon SVP Chris Muhr joined them as co-founder and Chief Operating Officer.

AUTO1 Group buys used cars from OEMs, dealerships, and its own business units and sells them into its global dealership network. It also buys cars from individual sellers based on its own inventory and that of dealerships and manufacturers that use its platform. Prices are determined by its proprietary CORE pricing algorithm. The entire service including inspection and valuation is free of charge. It then sells them to dealers for a higher price.

Auto1’s differentiation from other dealers is that it uses its own cash to buy and store the cars until their sale to dealers. This speeds up the process for sellers from an average of 90 days in Europe to about 10 days.

Today, it operates in more than 20 countries, has about 320 branches, and over 30,000 car dealers across Europe. Germany was its largest market accounting for about 35% of its revenue in 2015.

AUTO1 Group’s Financials

Auto1 reported revenue of 1.5 billion euros ($1.76 billion) in 2016, double its revenue of 750 million euros ($882.5 million) in 2015. Breakdown of 2016 earnings has not been disclosed, but it claims that its core markets are profitable. It facilitated around 330,000 car sales on its platform in Europe in 2016.

AUTO1 Group is venture funded and has raised over $520 million so far from investors including DST Global, DN Capital, Piton Capital, Mutschler Ventures, Barclays, Citigroup, Goldman, BNP Paribas, JP Morgan, Target Global, Princeville Global, Baillie Gifford, BHF Bank, and Cherry Ventures. It last raised 360 million euros in May this year through a mix of equity and debt financing at a valuation of $2.8 billion. In earlier round in early 2015, it raised $100 million at a valuation over $1 billion.

The market is highly fragmented with over a million companies and no dominant player. AUTO1’s goal is a 10% market share in mainland Europe with high growth rates in the mid- to long-term. Its competitors include Swiss company Emil Frey AG and Germany-based AVAG Holding SE.

AUTO1 seems to have stalled its plans to expand globally. That is a wise decision as high costs and low margins have driven players like Beepi out of the market. However, Beepi, which had raised $150 million, was not very cautious with its spending, which ultimately ran it to the ground.

Unlike Beepi, AUTO1 has a decent revenue to valuation ratio and claims to be profitable in core markets. Hopefully, AUTO1 will continue its momentum while staying focused on fundamentals. They have a capital intensive business model, and although specifics are unknown, a thin profit margin. Making the business attractive to public markets in an IPO will not be easy.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

This segment is a part in the series : Billion Dollar Unicorns


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