Carousell needs to scale up quickly in property, auto verticals as it mulls exit strategy

As part of its focus on autos, startup can consider acquiring other used car platforms such as sgCarMart in Singapore

Sep 30, 2021

ONLINE classifieds platform Carousell is now betting on expanding its presence in high-ticket categories such as property, automobile and luxury goods to supercharge its next phase of growth, chief financial officer Edwin Chan told The Business Times. But encroaching on the turf of niche majors like PropertyGuru and Carro is no mean feat, and Carousell will need to do more than buy companies in order to amass significant market share.

Mergers and acquisitions have been key drivers for Carousell's growth strategy in the past years, where several platforms such as Malaysia used-car marketplace Caarly and 701Search were brought under its wing. These served as gateways into new, high-value business verticals and brought some economies of scale for the startup.

It looks like Carousell - now valued at US$1.1 billion - will still be betting on this game plan for some time. The company, which has a platform that allows users to buy and sell items ranging from clothes to houses, plans to spend part of its fresh US$100 million in funding on acquisitions to scale up the business, said co-founder and chief executive Quek Siu Rui earlier this month.

In April, it ventured into the highly competitive space of used-car sales. The company cited this vertical as its largest one, contributing a third of revenue.

If Carousell wants to further grow this vertical in South-east Asia and pit itself against other more established players like Carro and Carsome, it can consider acquiring other used car platforms such as sgCarMart in Singapore.

But the M&A strategy isn't a catch-all. The nine-year-old company now also needs to find creative ways to gain ground in the hotly contested autos and property market. Analysts reckon the online classifieds startup could focus on perfecting the user experience, while doubling down on building credibility and security.

The startup is already working on these aspects. It has set up separate microsites for its property and auto verticals to differentiate from the main platform, while doubling the size of its content moderation team and to help combat fraudulent activity.

"Going forward, Carousell could also look towards providing more complementary end-to-end services such as house inspections in order to improve overall seller experience in strategic categories such as property," said Kristine Lau, an associate at global research firm ThirdBridge.

It will also have to develop a more "aggressive pricing structure" in order to win market share from players such as PropertyGuru and Carro, she added.

Despite the challenges, it is an opportune time for Carousell to make a concerted push into these high-ticket verticals. The Covid-19 pandemic has driven more housebound shoppers online, where a region of 650 million people are getting increasingly comfortable with purchasing valuable items over the Web.

"Most successful classifieds businesses are primarily focused on either housing or autos," said Third Bridge's Ms Lau. "In these categories there are more professional sellers like property agents, developers and dealerships, who are willing to pay for the service."

Ms Lau added: "Carousell's path to profitability would really depend on how much traction they can gain in these two categories against strong competitors like Carro or PropertyGuru."

As it comes up against these specialised platforms, it can leverage its advantages as a horizontal marketplace too by cross-selling its user base to lower customer acquisition costs.

The newly-minted unicorn desperately needs this bet to work, in order to boost its topline and push itself towards profitability as it looks to woo either potential buyers or the public market.

Regulatory filings reveal that Carousell is committed to providing its investors an exit by 2024 through a public listing or trade sale with an implied exit valuation of at least US$1.1 billion, BT reported last year.

The startup has since achieved the US$1.1 billion valuation threshold, but an exit opportunity will likely depend on whether it can ramp up its topline in time. The bet on autos and property could be its last resort.

With US$15.7 million in revenue in 2019 (which might not fully reflect the financial position of the group today), Carousell has some way to go. In 2020, CEO Mr Quek said that Carousell is focused on becoming profitable over the next three to four years.

Carousell is said to be considering a public listing in the United States through a merger with a special-purpose acquisition company, Bloomberg reported in June.

But the startup could also be a prime acquisition target for growing e-commerce players such as Shopee or Tokopedia, due to the "synergistic potential" that the resale market has with broader e-commerce, said Vincent Fernando, an analyst who publishes on SmartKarma, in a research note in April. It could also catch the eye of bigger players such as Norway-based Adevinta, or China-based 58.com, he added.

It will be worth watching how Carousell's financials shape up as it ramps up focus on these verticals, and which buyers - or public market investors - are ready to bite.