BITA Picking Up Speed After 2 Years of Losses
Aggressive investments in services and capabilities took a heavy toll on automotive website provider Bitauto Holdings Ltd the past two years, but the company is finally starting to bounce back.
Aggressive investments in services and capabilities took a heavy toll on automotive website provider Bitauto Holdings Ltd (NYSE: BITA) the past two years, but the company is finally starting to bounce back.
Through the end of 2014, the Beijing-based company was trading near $100 per share. But by early 2016, the company's shares had dipped to around $17.50 as Bitauto shifted its focus towards a transaction-based business, expanding beyond its traditional digital marketing and advertising service for the auto industry in China. Since then, the company has only recently begun to generate significant profits from the shift, largely due to the rapid growth of a key subsidiary, Yixin Capital Ltd. The company closed more than twice that level on Friday, at $36.99 per share.
Yixin Capital is China's largest online auto transaction and service platform. After a number of investment rounds over the past few years, Bitauto holds 48 percent of Yixin's outstanding shares, which are now worth nearly $1.8 billion. During the past few years, Bitauto has also partnered with some of the country's largest commercial banks to sponsor automotive transactions and loans in support of their new services.
The dip in appreciation largely came from some aggressive investments in this new sector. Bitauto's primary focus in the past has been on its digital marketing services for automotive dealerships. The main business was selling web traffic to automotive dealerships by targeting potential buyers through subscriptions and advertisements. Back in 2014, the company only spent $200 million to maintain its advertising and marketing services.
Major investments in automotive financing sector boosted expenses to over $460 million for 2015 and 2016, compared to smaller increases in its net revenue. While the company was still able to grow its revenue over the same period, it was unable to offset the increased costs of administration and selling for the new services, and suffered a net loss of around $80 million for both years.
Patience may finally be paying off, however, as earlier this year, revenue from the company's transaction services grew by nearly 200 percent.
Bitauto hopes to focus more of its efforts on building a platform business that helps buyers and lenders facilitate transactions. Yixin has the advantage of the data that Bitauto has generated over the past 15 years, and offers support for all stages of automotive transactions, from new car purchases with mortgage and insurance, to maintenance services and resale. Yixin is even rumored to be considering a $5 billion IPO in China, which would further raise the value of Bitauto's 48 percent share.