Auto Trader shares hit all time high: What is driving the FTSE 100 leader?

Auto Trader shares surged to an all time high today after the company reported strong financial results and showed the market it still holds a dominant position in the online car dealership marketplace.

The London-listed stock has climbed over 35 per cent over the past year and 20 per cent year to date, reaching a record price of 844p today.

Shares revved nearly 16 per cent after the online car dealer posted strong profit and revenue results, thanks to robust demand in the used car market, making it the biggest riser on the FTSE 100 on Thursday.

In the year to March, revenue increased by 14 per cent to £571m. Average revenue per retailer rose 12 per cent, driven by “continued uptake of additional products and services,” boosting pretax profit to £345m.

Besides its healthy balance sheet, Auto Trader has strengthened its competitive position as the UK’s largest digital automotive marketplace.

According to its latest earnings report, the company is 10 times larger than its nearest classified competitor, with over 75 per cent of all minutes spent on automotive sites attributed to Auto Trader.

The company has also benefited from an overall recovery in the automotive, which has increased demand for both new and used cars, leading to higher traffic and transactions on its platform.

“Despite softening car prices, overall, the car market has been strong for the group, and crucially, its operating margins continue to sit in the 70 per cent range,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

“This is a cornerstone of the investment case, as is Auto Trader’s market dominance. Newer entrants to the market, as Cazoo has showed us, have an uphill battle to climb when it comes to muscling in on Auto Trader’s market share,” she explained.

The successful adoption of new products and services has also fuelled Auto Trader’s strong performance and attracted more users and advertisers.

Auto trader chief executive Nathan Coe said on Thursday: “We’re seeing good engagement with both new car buyers and the retailers of those vehicles, and we continue to see this as a significant opportunity for the business given our new car audience and the structural changes that are taking place in that market.

“We’re currently addressing this opportunity with products that enable franchise retailers, manufacturers and leasing companies to sell new cars directly to consumers on Auto Trader. Finally, we’ve continued to scale up our Deal Builder product trial,” he added in an earnings call.

An increasing amount of dealers are trialling the ‘Deal Builder’ product, which allows car buyers to value their part exchange vehicle, apply for finance and reserve a vehicle directly on the platform.

This product has scaled significantly, with approximately 1,100 retailers onboarded by the end of March 2024, up from around 50 in March 2023.

New products like this have made for a rosy outlook. “We are well placed to support the structural changes in this market, which remains a significant opportunity,” Auto Trader said. It expects continued revenue growth, with a focus on maintaining strong operating profit margins and reducing operating losses in its weaker Autorama segment.

“Auto Trader is becoming an increasingly indispensable source for car dealers,” said Peel Hunt analysts. “We believe the new products it is developing will strengthen its position further, despite ongoing economic uncertainties.”

It looks set to remain a core holding in the sector. The consensus City opinion has rated the firm a ‘hold’, with Jefferies analysts giving it a ‘buy’ rating, saying they have long believed Auto Trader will be the top platform for buying and selling cars.