July 18, 2024

Turo, Profitable Car Rental Platform, Remains IPO-Ready Despite Growth Decline in 2023

This week, in an updated IPO filing, Turo, a peer-to-peer car rental service backed by venture capital, disclosed its financial performance for the fourth quarter and the entire year. Initialing an S-1 to go public in early 2022, the organization subsequently submitted quarterly updates to the form in anticipation of its eventual offering. TechCrunch covers the organization’s routine financial disclosures because they offer insight into when a historically billion-dollar-valued, heavily funded startup will list its shares publicly.

In 2019, IAC led a $250 million Series E funding round for Turo, which PitchBook valued at $1.25 billion post-money. As of this moment, Crunchbase estimates Turo’s total funding to be approximately $500 million.

The capital has been effectively utilized by the organization, as evidenced by its rapid revenue growth starting in 2019, positive operating income since 2021, and net profit since 2022.

Nevertheless, Turo’s rate of expansion has slowed in recent years, which complicates the estimation of its IPO timing. The organization would not consistently submit S-1/A filings if an initial public offering were not a critical objective. To my knowledge, no other venture-backed company is employing a comparable strategy, which is unfortunate. Moreover, given the decline in tech valuations from their peak in 2021, determining the optimal time to go public is a challenging endeavor.

Reddit, for instance, attempted to go public for years prior to filing this year, and a swarm of businesses worth billions of dollars or more backed out of the private markets in protest.

What was Turo’s performance in 2023?

Last year, Turo generated $879.8 million in revenue, representing an 18% increase over the previous year. Despite the impressive scope of the company’s total revenue, its growth rate has slowed significantly over the past two years. Turo’s revenue, which was significantly impacted by the pandemic in 2020, rebounded impressively in 2021, increasing by 213% to $469 million. However, the car rental company’s triple-digit growth was short-lived, as its revenue growth slowed to 59% in 2022, when it generated $746.6 million in total revenue.

Although Turo’s annual growth rate has declined in recent years, the company’s most recent filing did contain a speck of positive information for investors. The growth rate from Q3 2022 to Q3 2023, as estimated by TechCrunch, was 13.6%. During the same period, the growth rate from Q4 2022 to Q4 2023 was marginally higher at 14.3%. Although both figures fall short of the company’s annual growth rate, even a marginal increase in revenue growth during the fourth quarter could support its case to public-market investors that the company’s deceleration is not irreversible.

However, 18% growth is not so meager as to prevent Turo from going public, particularly given the company’s profitability; investor apprehension regarding further declines is possible. Last year, there was a marginal decline in its gross margins, which dropped from 54.3% in 2022 to 51.4% in 2023.

Due in part to that decline in gross margin, Turo’s profitability in calendar year 2023 was inferior to that of calendar year 2022. The company recorded its lowest operating profit of $13.7 million since 2020, a decrease from $46.6 million in 2021, and its lowest net profit of $154.7 million since 2022, both of which were recorded last year. Turo stands out from the competition due to the rarity of unadjusted profits at tech companies approaching the public markets; however, it remains to be seen to what extent prospective public shareholders will value its profitability in light of its decelerating growth.

Why delay going public?

Turo is well and truly prepared to go public, as evidenced by its approaching $900 million in net income, growth, and revenue and its profitable business model. Currently valued at just over $1 billion, the company should have little difficulty surpassing its final private price.

Consequently, why not go public at this time? It is possible that the organization is anticipating a resurgence in growth or a resurgence in tech and tech-related revenue multiples in order to secure additional funds with reduced dilution. Or, since the company seems to be self-sufficient through its operations, it may be delaying tech IPOs until investor interest returns.

It is justifiable for it to exercise caution, notwithstanding the S-1’s ongoing updates, which suggest its continued enthusiasm. The value of one of its public comparables, Getaround, has plummeted since its initial public offering in a SPAC-led combination. (However, to be fair, numerous combinations commanded by SPAC have not performed well.)

While we wait, however, Turo’s updated S-1 contains a number of other noteworthy details that are worth highlighting:

Turo stated in its Q3 2023 S-1/A filing that “electric vehicles comprised 8% of the company’s vehicle listings.” This number increased to 9% in the most recent filing, indicating that the proportion of electric vehicles (EVs) available on Turo’s platform is growing significantly.

In its Q3 2023 S-1/A filing, Turo reported “approximately 350,000 active vehicle listings on [its platform]; this represents an increase of 16% year-over-year, which is a deceleration in supply growth.” According to the organization’s latest filing, those figures increased to 360,000 and 12%, respectively. More automobiles, reduced development.

Increased interest income has a negative impact on Turo’s adjusted EBITDA. Turo’s interest incomes increased significantly in 2023, from $5.3 million in 2022 to $18.3 million, in response to the acceleration of interest rates. Although adjusted EBITDA “does not reflect other income and (expense), net, which includes interest income on cash,” the company explains that its adjusted profitability suffered as a result of its increasing interest-based incomes. To clarify, we have observed this in other organizations.

To refresh your memory, the largest investors in Turo are IAC, which holds 39.2 million shares; Canaan Partners, which holds 9.3 million; and G Squared, a venture capital fund, which possesses 16.2 million shares.

More when the company determines the price of its shares and commences its roadshow.