CarsGuide to list on ASX: A viable threat to Carsales.Com Ltd?

Car classifieds website CarsGuide is working towards a listing on the ASX according to media reports.

Lauren Williams, the company’s CEO, has told the Australian Financial Review (AFR),

At the moment we are funded and we have enough money to get through, but the dealers are very keen and News Corp (ASX: NWS) are very keen to look at IPO in the future.

CarsGuide is 50% owned by News Corp, with the other half owned by a group of 35 car dealers.

According to a report by Forbes, CarsGuide believes the current online car industry is fundamentally broken. The company has outlined a new strategy which is aimed at disrupting the industry and seriously challenging market leader Carsales.Com Ltd (ASX: CRZ). Carsales.Com has an estimated 70% of the online car classifieds market.

CarsGuide says car dealers are charged each time a buyer submits an online enquiry for a new car. But an estimated 30% of these ‘leads’ are actually buyers just trying to find out where the dealer is located – and often may not be in a nearby location.

CarsGuide says it plans to address these issues by putting a map at the heart of the search, so buyers will know where the dealer is located. The company will also change its revenue model to a per-per-view model, charging dealers when users click on their details. And CarsGuide is aiming at the second-hand car market by allowing consumers to list their cars for free. Carsales.Com charges a minimum of $65 for the same service.

But there’s a reason Carsales.Com has the dominant market share over CarsGuide and Fairfax Media Limited (ASX: FXJ) owned Drive. It has a network advantage, meaning more dealers and more private sellers than the other advertisers drive more viewers and potential buyers, who in turn drive dealers and sellers to want to list on Carsales.Com.

Ebay’s Gumtree website already offers free advertising – and is pretty dominant in the private segment according to analysts. Between Gumtree and Carsales.Com, CarsGuide has certainly picked a tough fight – one it may not win, whether it’s listed on the ASX or not.

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Motley Fool writer/analyst Mike King owns shares in Carsales.Com. You can follow Mike on Twitter @TMFKinga

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