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iCar Asia Ltd announces positive market update: Should you buy?

South East Asian website operator iCar Asia Ltd (ASX: ICQ) has announced the completion of the purchase of Thailand’s leading automotive website, One2car.com. The deal is valued at around $16.7 million and gives iCar a market-leading position in the online marketplace for buying and selling automobiles in Thailand.

The Thai capital Bangkok is world famous for its traffic jams among other things and iCar now says that approximately 90% of all car dealers in greater Bangkok pay to advertise on its sites.

iCar now has leadership positions in two of its three operating markets namely Malaysia and Thailand, while Indonesia is a market it continues to invest in to gain market share.

Dominant or number one positions are important when it comes to operating online market places as buyers and sellers naturally gravitate to the websites where they believe they are likely to achieve the best deal. Those are likely to be the websites with dominant positions that are entrenched by having the most visitors and goods for sale. This phenomenon creates a moat and snowball effect which once started can be hard to stop.

Moreover, it also gives the website operators greater pricing power in the future as buyers and sellers know using cheaper but far less popular websites may be a false economy. This is an effect that has delivered great success to iCar’s part owner and Australian website operator Carsales.Com Limited (ASX: CRZ).

For the moment iCar is focused on revenue growth and is still in the early stages of development. It has been growing its key operating metrics of total listings and viewing audience, but is yet to post a profit. The stock currently sells for 92 cents and looks a high risk / high return opportunity for investors.

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Motley Fool contributor Tom Richardson has no financial interest in any company mentioned. You can find him on Twitter @tommyr345

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