Turo’s road to carsharing profitability seems endless
If car-sharing platform Turo can’t make a profit in a boiling car rental market like 2021, when will it?
Unlike traditional car rental brands, Turo is a peer-to-peer marketplace. The San Francisco-based company makes it easier for 85,000 private car owners to rent more than 160,000 vehicles, much like a Airbnb for cars. Many vehicles are kept at home, rather than at remote car rental locations, and many owners offer to deliver vehicles to renters. In the year to September 30, 1.3 million people rented vehicles.
Turo’s main investors are IAC/InterActiveCorp., led by Barry Diller, which owns one-third of the shares before the IPO.
The startup has raised more than $450 million in equity and convertible debt since its inception in 2010, according to Crunchbase.
Where are the benefits?
Turo experienced accelerated growth in 2021. In the first nine months, the startup grew revenue by around 300%, year-over-year, to $330 million.
Observers would expect growth like this in 2021, however, as it was an ideal year to help people gain access to cars for travel. A combination of one-time factors (such as the brief bankruptcy of Hertz) reduced supply, while a boom in US domestic travel boosted demand.
At Avis Budget, net profit reached $900 million in the first nine months of the year, while Hertz enjoyed a net profit of $277 million only in the third trimester.
In contrast, Turo, which has never been profitable, saw its profits deteriorate last year. The company generated $129.3 million in net losses for the first nine months of the year, compared to a net loss of $97.1 million in 2020 and $98.6 million in 2019.
Turo said it was on the path to profitability. In the nine months of 2021, it made $69 million in adjusted earnings before interest, taxes, depreciation and amortization — the company’s personalized measure of its overall financial performance. Last year was the first year he had a positive number on this metric. The company said the progress showed it was heading in the right direction.
Turo aims to go public now at a time when it has a compelling storyline. Especially during the pandemic, a segment of people suddenly worked remotely and did not use their car to commute, opening the possibility for secondary scrambles in renting their vehicles. Meanwhile, another segment needed wheels for rent at a time when vehicle supply from traditional car rental companies was unusually low.
Turo argued that the crisis has given people a taste of a service they will love enough to keep going.
A counter-argument is that once today’s conditions change, interest in Turo will not remain without expensive marketing. The company acknowledged in its filing that it plans to increase operating expenses over time. These growing expenses could impair its ability to earn or maintain profitability.
A headwind for Turo is airport litigation. About one in three of his bookings last year were for airports. But many airports want vehicle transfers to be regulated or otherwise controlled. Similar to how Airbnb has had to battle with short-term rental regulators, Turo will face a protracted battle with regulators and the companies that pressure them, especially at airports.
In October 2021, Dallas/Fort Worth International Airport filed a lawsuit against Turo in Texas state court, alleging that Turo users’ vehicle transfers at the airport violated its rules regarding business activities on airport property. A similar dispute is ongoing with Massport, the operator of Boston Logan International Airport. Turo faces similar battles in court over San Francisco International Airport and Los Angeles International Airport.
Another headwind for the company is competition. The startup’s biggest rival at another Bay Area company, Movewhich is well funded and in talks to go public.
In its filing, Turo proposed an offering amount of $100 million in shares for its initial public offering. He also said that as of September he had an accumulated deficit of $544 million.
New capital could help it continue its expansion while repaying its debt.
But its expansion may depend in part on its skill at performing mergers, and that skill has been questioned. In July 2017, it acquired Croove as a peer-to-peer car-sharing service in Germany which shut it down in March 2020. If the pandemic played a role in the subsidiary’s failure, it wasn’t. only partly a factor.
A generic factor in Turo’s future is that it could be acquired by a bigger player. For example, the mobility giant Uber has shown interest in expanding the mobility options it offers consumers. If it bought Turo, it could profitably boost the platform’s supply and demand. General Motors or another automaker could be another potential buyer.
Below is a copy of Turo filing with the United States Securities and Exchange Commission related to its planned IPO.