Shares in South East Asia focused automobile website business iCar Asia Ltd (ASX: ICQ) plunged around 15 per cent to 55 cents this morning after the business revealed some disappointing full year profit guidance.

For the full year ending June 31 2016 it now expects revenue to be in the region of $6.75 million to $7.75 million with an EBITDA loss in the range of $14.5 million to $15 million. The company blamed the downgrade on increased investments to consolidate its market position across its countries of operation and softer-than-expected revenues in Malaysia, Thailand and Indonesia.

The full year numbers are not pretty for a business that is around 20 per cent owned by Australian online automobile classifieds market leader Carsales.com Ltd (ASX: CAR). Revenue growth is now expected to be up around 23% over the prior year, which is a moderate result at best given it is cycling off a low base.

The substantial cash outflows as a result of the rising costs are the other big concern as the business posted a loss of $3.2 million for the quarter ending June 30 2016, with $13 million of cash left on its balance sheet. This suggests it may need to raise more capital within a year unless it is able to grow revenues substantially as it seems costs will keep rising via increased investments.

I have written previously of my concerns that iCar Asia’s valuation was overly inflated as a result of, inter alia, investor expectations that Carsales may launch a full takeover offer. It was not long ago that the business was valued at over $300 million despite annualised revenues of around $7 million and the foreseeably large operating losses. I expect the share price will remain under selling pressure until the business provides further updates about operating performance and its capital management intentions.

Management at Carsales which owns 20 per cent of the business are also likely to share my concerns, as unless iCar Asia can grow its topline significantly it does not look an attractive takeover target at current valuations. In my opinion this remains a business for the watch list as it needs to move up through the gears to justify investors’ expectations.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.