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Can Bitauto Stock Bounce Back After Last Week's 20% Drop?

By Rick Munarriz – Mar 20, 2018 at 1:12PM

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China's leading provider of online auto marketing services hits the brakes after offering up mixed financial results.

Sometimes, it seems as if you're stuck in reverse. Bitauto (BITA) was one of last week's biggest losers, shedding 20.4% of its value after following up solid financial results with weaker-than-expected guidance for the current quarter. The shares are trading at their lowest level in 11 months. 

The online provider of content, marketing, and more recently financing services for the automotive industry in China came through with what initially seemed to be a blowout performance. Revenue soared 54% to hit $413.5 million, well ahead of the $328.9 million that analysts were targeting. Adjusted earnings rose 26% to $15.3 million or $0.11 per American depositary share, also just ahead of what Wall Street pros were forecasting. This is the third quarter in a row that Bitauto is beating the market's profit expectations. Unfortunately for investors, looking back is just part of the story. Bitauto's look ahead left a lot to be desired. 

A car model at a car show in a Bitauto video.

Image source: Bitauto.

Shifting into a new gear

Bitauto stock has now shed more than half of its value since peaking in October. Go back to the all-time highs the shares hit four summers ago and Bitauto has surrendered more than 75% of its peak value. Not every investor is showing a loss on paper here. The stock is actually trading nicely higher since the beginning of last year despite the recent swoon. The shares rose 68% for all of 2017. Bitauto is a volatile beast, packing a one-year beta of 2.64.

Its original auto marketing offerings continue to post double-digit growth. Revenue from its advertising and subscription business went up 18% to $168.9 million, and its digital marketing solutions segment grew its top-line results by 49% to $49.5 million. However, the real driver here is its transaction services business, soaring 116% in the quarter to become the largest division here with $195.2 million in revenue.

Playing a larger role in the actual vehicle sale has been a game changer for Bitauto, and it's also what drew three of China's largest dot-com darlings to take sizable investment stakes in the company two years ago. Bitauto used the capital infusion and the perhaps even more valuable connections to lay the groundwork for one of China's largest online car financing platform. Bitauto closed out the year with $1.7 billion in cash, equivalents, and restricted cash. 

Bitauto's troublesome guidance calls for top-line growth to decelerate in the first quarter. Bitauto sees $301.8 million to $309.5 million in revenue, well short of the $337.1 million that analysts were modeling. Things aren't as bad as the miss is suggesting. Bitauto's forecast reflects revenue net of the value-added tax, a new revenue recognition standard that Bitauto is embracing this year. Some of the higher Wall Street targets probably weren't baking that into their projections. On a gross basis, revenue for the quarter will rise between 37% and 41% to hit $325.6 million and $333.8 million. We're still eyeing a top-line miss and decelerating revenue growth, but growth on a comparable basis remains strong. 

The sell-off appears overdone, and Bitauto is signaling as such by announcing board authorization for $150 million in buybacks. Bitauto's dot-com darling investors may want to consider following suit.   

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Bitauto Holdings

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