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Some businesses adapt better than others to the online world. Prime examples of the former include those for whom the introduction of an online filtering tool streamlines their entire buying and selling process. 

Take the auto industry, for example. Back in the day you may have gone to a car dealership where a salesperson helped you navigate your way through the numerous options. Or, for a second-hand car, your first port of a call might have been the classifieds section of the local newspaper. 

Move the clock forward and the process is totally transformed thanks to the disruptive power of the internet. Searching for a 1.9 turbo diesel hatchback, with low mileage, within a ten-mile radius of your home, has never been easier. 

One company that has successfully navigated this period of immense change is Auto Trader Group (Auto). At over 40 years old, it could be considered a classic car in its field. In truth, it’s had little difficulty keeping up with the latest models. 

Launched in 1977 as a regional classified-ad magazine called Thames Valley Trader, the company has become the UK’s largest digital automotive marketplace. With an average of 57.3 million cross platform visits a month, the FTSE-100 listed company boasts more than a 75% share of cross platform minutes, seven times that of its nearest competitor. 

In 2013, the final print edition of Auto Trader rolled off the presses and the company became a 100% digital business. 

As Rightmove successfully connects buyers and sellers in the property market, Auto Trader plays the same role in the car marketplace, with that all important online ‘filter’ function enabling a large part of your research to be done at home. 

Factor in the Covid lockdowns forcing buyers and sellers to stay indoors and dealerships to close, and you could argue the company was perfectly placed to adapt to the unexpected trading conditions of the past year. 

Nevertheless, it’s still been a challenging year for Auto Trader. At the start of the pandemic, the company supported retailer customers with free advertising between April and May, followed by a 25% discount in June. This contributed to a £5-7million operating loss in each of those months.  

To increase liquidity and strengthen its balance sheet, the company managed to raise over £182 million from the placing of approximately 46million shares at the start of April. 

While existing shareholders may not have welcomed the share dilution, supporting car retailers with free advertising during those first two months of lockdown was a shrewd move. It prevented cash-conscious dealers from pulling cars off its site to save money, while keeping the website fully stocked and maintain its dominant position in the marketplace. 

It paid off - retailers continued to advertise as lockdown restrictions were eased last June and the company returned to full charging from July, this time at higher rates than before following a pricing review in April. 

Despite acting quickly at the start of lockdown, in November Auto Trader announced a mixed set of first-half results with no dividend for the period. For the six months ended 30 September 2020, pre-tax profit fell 48% to £66.2 million year-on-year as revenue dropped 37% to £118.2 million. 

Then, as lockdown tightened over the winter months, the company took action again to provide free advertising for retail customers in December 2020 and again in February of this year. This meant a further £5-7 million operating loss for each month without paid advertising.

Now, as the UK emerges out of lockdown and we look to a brighter future ahead, Auto Trader faces a host of new questions.

With reports of millions of accidental savings waiting to be spent, will British consumers channel that money towards updating their car or will they make do with what they have already? And, with many people still working from home, will a reliable car to commute to work each day still be such a high priority?  

The transition from diesel cars to electric vehicles could also cause consumers to procrastinate as they deliberate over what to do next.  

As it looks to answer such challenges, perhaps it’s best to consider Auto Trader as a technology company rather than a media stock. Auto Trader’s model relies on collecting data from online visitors which can then be used to match sellers and buyers for new and used cars, irrespective of whether they are powered by an electric battery or a combustion engine.

That kind of valuable data puts Auto Trader in a powerful position as the retail landscape continues to adapt and evolve. Just as the technology behind Ocado makes it more than just an online grocery delivery business, perhaps, thanks to its digital credentials, Auto Trader should be considered more than just an online car marketplace - rich with data to be developed.  

Investors will be keen to know more as the company announces its full year results for the year ending 31 March 2021 on Thursday. 

More on Auto Trader Group

Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choices.

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