Cango Builds Up Global Capabilities In Search Of New Direction

Key Takeaways:

• Cango is aggressively building up a customer base and support services to export Chinese cars to the rest of the world, with 60,000 registered users for its AutoCango.com site
• The car trader’s 3.8 billion yuan in cash and short-term investments is one of its most important assets as it looks to build up its new global and domestic businesses

By Doug Young

It’s all about making a good impression.

That was one of the key messages in the latest results from car-trading services provider Cango Inc. CANG, which is in the process of broadening its focus from China’s domestic auto market to the global stage. Specifically, Cango aims to position itself as a leading exporter of used Chinese cars to other countries, piggybacking on China’s recent rise to become the world’s largest exporter of new cars.

At the same time, Cango isn’t completely shifting out of its home China market, which is the world’s largest car market despite recent sluggish sales. But the company has shifted gears from its original aim of directly engaging in car trading in China. Now, it’s moving its focus to the higher-margin, lower-risk business of facilitating vehicle trading between others, earning money from fees and providing related services in the process.

The company’s international foray is quite new, starting with the launch of its AutoCango.com site in March. Its older U-Car service isn’t much older, launched early last year, meaning the company has yet to generate much revenue from two businesses it hopes will become its two main growth engines in the future.

Cango does continue to generate some income from interest on its large cash reserves and its original car financing services that it is now winding down. But investors will be watching closely for the first revenues to start rolling in from its international business, and for its fledgling domestic car trading-services to scale up.

Following AutoCango.com’s launch just eight months ago, Cango is working on several fronts to get it up to speed to record its first transactions – and revenue – for car-trading and related services. One of the most basic requirements is simply getting noticed, which most often happens when its name comes up in search results. That’s where making a good impression comes in, as we initially observed.

In the brief period since its launch, AutoCango has logged over 370,000 page views, the company said in its results. By comparison, the older U-Car service has had a smaller 280,000 page views in its nearly two years of operation. Much of AutoCango.com’s traffic has come in the last few months, as the site’s number of registered users nearly tripled to almost 60,000 at present from just 20,000 at the end of August.

That’s not bad for a site that’s starting from scratch, and speaks to Cango’s recognition that visibility in search engine results will be key to its future success. Speaking on the call to discuss the company’s latest results, CEO Lin Jiayuan said search engine optimization and other efforts have helped AutoCango.com to log more than 2.41 million impressions on search results pages so far. He added the figure is expected to top 4 million impressions by the end of this year.

The site currently lists 65,000 car models and 100,000 total products. Lin said the company has already received inquiries from over 130 countries and regions regarding vehicle purchases and noted that the site would be available in 15 languages by early next year.

Emerging Markets

Cango hasn’t specified what markets it will target yet in its global drive, but developing markets look like one of the most logical places for the used Chinese cars it hopes to export. Customs data shows China exported about 4 million vehicles in the first eight months of this year, up 39% year-on-year, as more manufacturers looked overseas to offset slow sales at home. Their top destinations were all developing markets, led by Russia, followed by Mexico, the United Arab Emirates and Brazil.

Nearly all those exports are new cars, and Cango would be largely developing an entirely new market with its focus on used vehicles. That could work to its advantage since it won’t face much competition, and used cars are unlikely to face any of the trade barriers some countries are now erecting against new Chinese cars.

But the choice of used cars means Cango will have to deal with smaller, less sophisticated buyers who will require more support in a wide range of areas, from inspecting cars still in China to clearing customs in their home countries. Cango is working with a range of partners to provide such services and, on its latest call, said it has already established customs clearance partnerships in four markets.

The company’s strategy is to “gradually develop a business agency framework in Africa … providing services to potential clients in key areas such as customs clearance and logistics among others,” Lin said. He hinted at the possibility of some global M&A to achieve some of those aims, saying: “We are also actively pursuing forward-looking strategic investment opportunities on a global scale.”

Back at home, Cango is still working to develop its domestically focused U-Car platform, whose 280,000 cumulative page views to date was up 21% from three months earlier. Cango continues to develop more services for third-party traders that use the platform, including its recent introduction of a rapid vehicle inspection and listing service conducted through close collaboration with professional third-party inspection teams.

Cango’s car trading services generated a modest 1.2 million yuan ($169,000) in the third quarter, while revenue from its after-market services totaled about 8 million yuan. Its overall revenue for the quarter totaled 27 million yuan, down sharply from 354 million yuan a year earlier, as it moved away from its previous business of direct car trading.

The company posted net income of 67.9 million yuan for the period, thanks largely to non-operational factors such as interest income and a large gain related to its old auto financing business. As a result, it managed to boost its cash and short-term investments to about 3.8 billion yuan from 3.65 billion yuan three months earlier.

That cash is currently one of Cango’s most important assets, since it will be necessary to fund its international push, including any future M&A, and the development of international talent and the systems needed to conduct such car trading.

In the meantime, investors seem willing to give the company time to develop its latest roadmap. Cango’s stock rose 1.1% the day after publication of its latest results. The shares have nearly tripled this year, including a 60% rise since mid-September alone. By comparison, domestic rival and industry leader Autohome ATHM is roughly unchanged for the year, while the smaller Uxin UXIN is down more than 40%.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.