Eric Cheng drove Carsome to become Malaysia’s first tech unicorn during the funding boom in 2021. Now, amid higher interest rates and worries about an impending recession, the cofounder and CEO of Carsome is shifting gears to focus on profitability in an effort to adjust to the lower-risk environment after more than eight years of breakneck growth.
Carsome is expected to break even by the end of the year and reach full-year profit in 2024, Cheng said in an interview on the sidelines of the Forbes Global CEO Conference in Singapore. “We are sacrificing the growth pace of two times every other year now to focus on our [profit] margin,” he said. “That includes us being able to improve the take rate from every single transaction that’s happening on our platform through optimizing the pricing and workforce, and being able to also utilize the marketing awareness we’ve built.”
Carsome’s profit engine is its retail business that offers refurbished cars, as well as related offerings such as auto financing, insurance and after-sale services. The retail business, launched about three years ago, accounted for 35% of Carsome’s $1.5 billion revenue in 2022. Its trade margin, or the transaction profit after deducting associated operating costs, is as high as about 13%, doubling that of the core wholesale business, said Cheng.
The drive toward profitability comes as Carsome continues to contend with fierce competition in Southeast Asia’s auto e-commerce industry. Carsome, which operates in Malaysia, Indonesia, Thailand, Singapore and most recently in the Philippines, claims to be the region’s largest online used-car platform by revenue and transaction. Last year, the company sold more than 150,000 vehicles, equivalent to a 3% market share of Southeast Asia’s used-car e-commerce market, said Cheng.
Going head-to-head with Carsome is SoftBank Vision Fund 2-backed Carro, which operates in Singapore, Malaysia, Indonesia, Thailand and most recently Japan. Carro, which claims to be the most profitable online secondhand car marketplace in Southeast Asia, said its revenue surpassed $800 million in the financial year ended March with over 120,000 vehicles sold.
“The fact that we are a market leader by transaction showcases our ability to replicate the operating playbook from one country to another,” said Cheng. “No one within the region can claim the kind of transaction size that we have, simply because the operating playbook and the know-how are very key towards improving the conversion and decision-making.”
While Cheng is boosting Carsome’s bottom line, he is making sure that expanding market share won’t take a backseat. In June, the company raised an undisclosed amount from investors including 65 Equity Partners, a subsidiary of Singapore’s state-owned investment firm Temasek, as well as Qatar Investment Authority and Hong Kong- and Kuala Lumpur-based venture capital firm Gobi Partners. It also secured a debt facility (amount undisclosed) from EvolutionX Debt Capital, a venture debt fund launched by DBS and Temasek.
Cheng said Carsome’s valuation has stood at $1.7 billion since its $290 million Series E round last January. The latest financing, which has brought Carsome’s liquidity position to about $200 million, will allow the company to pursue several growth initiatives, he said. These include expanding the auto financing, insurance and after-sale services outside of Malaysia to other markets that Carsome operates.
“What we want to achieve next year is to continue to keep up our growth trend, to capture more market share from that 3% to about 5%, and then get closer to 10% in the following years, but keep the company as profitable as we pursue all of these opportunities,” said Cheng.
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