- The share price of Cazoo Group Ltd (NYSE: CZOO) rose more than 19% last week. That’s why it happened.
The share price of Cazoo Group Ltd (NYSE: CZOO) rose more than 19% last week. Investors are reacting positively to Cazoo – Europe’s leading online car retailer, which makes buying and selling a car as easy and transparent as ordering any other product online – announcing that it has agreed to to issue and sell, via a private placement, 2.00% convertible senior notes in an aggregate principal amount of $630 million.
The Notes will be convertible into Class A common stock of Cazoo at an initial conversion price of $5, which represents a premium of approximately 20% over the last 5 trading day volume weighted average price of the shares. . The deal is led by new investor Viking Global Investors, alongside participation from several existing shareholders, including Mubadala Investment Company, D1 Capital and Willoughby Capital, as well as other new and existing investors. The closing of the transaction is subject to customary conditions.
Following the significant progress made since its launch 2 years ago, the additional capital will support Cazoo’s continued growth in the UK and expansion into Europe. And the funding will complement Cazoo’s current strong liquidity position and provide an important multi-year track for the company to execute its strategy over the next few years. The new product – combined with Cazoo’s existing cash and cash equivalent position of approximately $260 million as of December 31, 2021 – will leave the company with a pro forma cash balance of approximately $900 million at the end of the year. following the agreement.
Over the past 2 years since launch, Cazoo has established a market-leading platform, team, brand and infrastructure in the UK and started to expand its proposition in the EU, having recently launched in France and Germany and acquired strong companies and teams. in Italy and Spain. The company now operates in the five largest markets in Europe: the UK, France, Germany, Italy and Spain.
Over the past year, Cazoo has continued its strong growth trajectory and made significant progress against its key strategic objectives. And the company has expanded its refurbishment capabilities, taking UK refurbishment entirely in-house and growing from a single site this time last year to 11 in-house refurbishment sites with a potential production capacity of around 250,000 units per year.
Last year, Cazoo expanded from a UK-only business to operations in the five largest European markets. And after successfully launching in France and Germany late last year, the recent acquisitions of Swipcar in Spain and brumbrum in Italy have provided the company with strong local teams, infrastructure, capabilities and relationships that will accelerate the launch in the important Spanish and Italian markets. markets in 2022.
In addition to greatly expanding its infrastructure capabilities and geographic reach, the company has also significantly improved its product proposition. And the launch of its fully integrated subscription service resonated very well with customers and Cazoo is now the market leader in consumer car subscriptions in Europe with around 10,000 active subscribers. Cazoo has significantly increased the number of ancillary products it sells, most recently adding service plans, and the launch of its direct-to-consumer car channel in the UK has exceeded expectations and significantly expands capabilities. of supply and diversifies the purchase mix in this attractive channel.
In fiscal 2021, Cazoo sold ~49,500 total units (~230% YoY growth), including ~34,700 retail units (~180% YoY growth). And the group’s full-year revenue of at least £665m was up more than 300% year-on-year and ahead of guidance given at the time of the third quarter 2021 results. And the Retail GPU (gross profit per unit) in the UK was around £450, a significant improvement from £(229) in 2020, with the fourth quarter of 2021 being impacted by regular seasonality and investments to increase capacity internal refurbishment to meet the company’s growth ambitions for 2022.
Cazoo pioneered the shift to buying and selling cars online in the UK and EU, a £475bn+ market with low single-digit digital penetration, at the lags behind nearly every other retail industry and ripe for digital transformation. And it’s an incredibly fragmented space, with no incumbent holding more than a low single-digit market share. By leveraging data and technology to improve selection, quality, transparency and convenience, Cazoo provides consumers with a far superior overall experience.
Cazoo now has a leading proposition in the UK and an established position in France, Germany, Italy and Spain, the four largest EU markets. And together these 5 markets have a combined total addressable market (TAM) of over £300 billion – £100+ billion in the UK and a combined £200+ billion in France, Germany, Spain and in Italy (the 4 major EU markets). The rest of Europe has a TAM of around £175 billion, giving a total market opportunity today of over £475 billion.
Key objectives for 2022 and beyond
Based on key strategic advancements made in 2021 and a strong start to 2022, Cazoo provides its key objectives for 2022 and beyond.
The company’s ever-improving market-leading proposition, combined with a growing level of inventory, is expected to result in rapid and continued market share gains in the UK. Recently launched in France and Germany, the company plans to replicate the success of its UK business in both markets, in addition to launching in Spain and Italy later this year. In 2022, the company expects to sell over 100,000 retail units and generate revenues in excess of £2 billion, representing annual growth of approximately 200%.
Along with the substantial market share opportunity, the company continues to see a clear path for significant improvements in the Retail GPU. And GPU growth will be driven by a continued shift in the buying mix, including new success in sourcing cars directly from consumers. Additionally, investments through 2021 and further progress in 2022 will lead to continued efficiencies and operational leverage in remanufacturing and logistics. Combined with improvements to stock rotation and further enhancements to products, partnerships and company processes, retail GPU in the UK in 2022 is expected to be around £900.
“This transaction, where we raised an additional $630 million, further reinforces the strong confidence in Cazoo from new and existing shareholders who, like us, are extremely excited about the huge market opportunity before us. . We are now very well funded for years to come to continue to capitalize on this opportunity and deliver the best car buying and selling experience to consumers across the UK and Europe.
“I am extremely proud of what Cazoo has achieved since launch and especially over the past 12 months. In 2021, our second full year of operation, we achieved record revenue of over $665 million. sterling and have made significant progress on all aspects of our ambitious strategy.We have built a market-leading proposition that consumers love, a world-class team of over 4,000 people, a household brand that is now recognized by over 75% of the UK population and significant infrastructure capacity in the UK and EU.
“Our strong growth in 2021, combined with the building blocks we have in place, including this new funding, means that we are very well positioned to deliver on our plans and gives us great confidence in achieving our medium-term objectives. and long term. We went through some repackaging stresses in the second half of last year and over the past few months we have seen our website inventory increase significantly. As expected, this contributed to a record start to 2022 with unit sales up significantly both sequentially and year-over-year. Although we plan to continue to grow our market share rapidly, the market opportunity is so large that with single-digit market shares and conservative GPU targets, we would have huge revenue-generating business. significant available cash.
— Alex Chesterman OBE, Founder and CEO of Cazoo
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