Wednesday 25 August 2021 5:27 pm

Cazoo goes public: Will it be a hat-trick of triumphs for Alex Chesterman?

For some petrolheads, how quickly a car can go from nought to 60 miles per hour is a good indication of its quality.

If one were to measure Cazoo on a similar scale, the results would be somewhere off the speedometer.

On Friday the used car marketplace will go public in New York in a SPAC deal which values it at a reported $8bn, making it in an instant the highest valued UK firm trading in the US.

Since it was founded in 2018, the firm has roared to prominence with a clutch of big-name sponsorship deals and eye-catching board appointments.

Football fans will know it from the shirts of Aston Villa and Everton, while the hiring of former Labour, Change UK and Liberal Democrat MP Luciana Berger also raised some eyebrows.

But ahead of its Wall Street debut the firm, the latest offering from serial entrepreneur Alex Chesterman, is the subject of fierce scrutiny, largely over the sheer size of its valuation.

In the supporting camp are those who would point to the firm’s recent results – its last two quarters saw revenue rise fivefold and sevenfold respectively – and plans to push into the European car market.

Then there is the Chesterman factor, with investors betting on the British businessman completing a hattrick of high-profile deals after selling LoveFilm for £200m and property firm Zoopla for £2.2bn. If Cazoo’s $8bn valuation stands up, his personal shareholding will be worth $2bn.

Against this are those who point to the fact that the firm’s fundamentals are at best no better than fellow used car dealerships, which have valuations just a fraction of Cazoo’s potential worth.

Before the Open: Get the jump on the markets with our early morning newsletter

A recent analysis from the Sunday Times, for example, showed that competitor Vertu, which has 2,104 on its website compared to Cazoo’s  2,877, but an additional 4,524 new cars on sale, is valued at just £188m.

The crux of the issue, says Hargreaves Lansdown analyst Nicholas Hyett, is that people are divided as to how to define what kind of firm Cazoo is.

To bullish traders, it is at heart an online platform business poised to take advantage of the current boom in tech stocks. But for those who believe it to be overvalued, it is a much more traditional beast, akin to other used car dealers like Pendragon.

“Online platform businesses are very valuable. Once one achieves scale, as Cazoo is rapidly doing, everything is effectively profit”, Hyett explains.

“The problem in applying that logic to Cazoo is that it is not just a platform business, it is also a used car business and that is a very capital intensive type of business. Even if they are very efficient at what they do, they still have to buy used cars at some point.”

The firm is also benefiting from two other factors that some investors see as bubbles set to burst: the ongoing SPAC phenomenon, which has seen billions poured into firms seeking a public listing through so-called “blank cheque” companies, and a record run for US tech stocks.

Ultimately, Friday will tell us which camp has the right idea. Will it be another triumph for Chesterman, or is a Deliveroo-style tumble in store?

Share