According to its updated IPO filing, Turo, the popular car rental service that is backed by venture capitalists and operates on a peer-to-peer model, released its fourth-quarter and full-year financial performance this week. The company, which initially filed for an IPO in early 2022, has been continuously updating its document with regular financial disclosures in preparation for a public offering. As a deeply-funded startup with a historical valuation of over a billion dollars, Turo’s IPO is highly anticipated and might provide insights into the current state of the market.
In 2019, Turo raised a staggering $250 million in a Series E funding round led by IAC, giving it a post-money valuation of $1.25 billion, as reported by PitchBook. Crunchbase records Turo’s total funding at around $500 million to date.
The company has utilized this capital effectively, with steady growth in revenue since 2019, and a positive operating income in 2021, followed by a net profit in 2022.
However, Turo’s growth rate has slowed down in recent years, making it challenging to determine the ideal timing for its IPO. The fact that the company is consistently filing regular updates to its S-1 document suggests that going public is a priority. This strategy is quite unique, and it’s a pity that no other venture-backed startup has adopted a similar approach. However, given the current dip in tech valuations from their highs in 2021, it’s not an easy decision for Turo to make.
Just like Reddit, which has been struggling to go public for years and finally filed for an IPO this year, Turo is facing a similar dilemma along with several other startups with billion-dollar valuations, waiting to enter the public markets.
So, how did Turo fare in 2023?
Despite impressive revenue of $879.8 million in the last year, which saw an 18% increase from the previous year, Turo’s growth rate has significantly declined over the past two years. In 2021, the company bounced back from the pandemic-driven slump in 2020, with an impressive 213% growth, generating $469 million in revenue. However, this triple-digit growth was short-lived as the following year, in 2022, Turo’s revenue growth fell to 59%, with a total revenue of $746.6 million.
Although Turo’s year-over-year growth rate has suffered a significant decline, there was a glimmer of hope in the new filing for potential investors. According to TechCrunch reports, the company’s growth rate from Q3 2022 to Q3 2023 was 13.6%, and the growth rate from Q4 to Q4 over the same period was slightly higher at 14.3%. While these figures are lower than the overall growth rate for the entire year, the fact that there was a slight increase in revenue growth in the fourth quarter could serve as a positive argument for potential public-market investors. It may suggest that the deceleration in growth is not necessarily irreversible.
Despite being profitable, with an 18% growth rate, Turo may face some concerns from investors due to the decline in profitability as well. Gross margins slightly decreased last year, dropping from 54.3% in 2022 to 51.4% in 2023.
Turo’s profitability in 2023 also lagged behind the previous year due to the dip in gross margins. The company recorded its smallest operating profit since 2020, with $13.7 million compared to $46.6 million in 2021, and its lowest net profit since 2021, with $15.6 million compared to $154.7 million in 2022. It’s worth noting that it’s uncommon for tech companies on the verge of going public to report non-adjusted profits, making Turo stand out from its competitors. However, the value that potential shareholders will assign to its profitability, given the slow growth, remains a question.
So, why not go public now?
With close to $900 million in revenue and a profitable business model, Turo is undoubtedly big enough to go public. With a post-money valuation of just over $1 billion, it shouldn’t be challenging for the company to surpass its final private valuation.
So, why wait? There could be several reasons, such as waiting for the growth rate to accelerate or for the market to recover, allowing Turo to raise more capital with less dilution. Alternatively, as the company appears to be self-sufficient with its operations, it may be waiting until investor interest in tech IPOs returns.
Currently, there’s a legitimate reason for caution, even though the continuously updated S-1 document indicates that the company is eager to go public. One of Turo’s peers, Getaround, has witnessed a significant drop in its value since its public debut in a SPAC-led merger (although this may be attributed to the performance of several SPAC-led combinations, and not just one case).
In the meantime, there are other interesting tidbits in Turo’s updated filing:
- EVs: According to Turo’s Q3 2023 S-1/A filing, “electric vehicles represented 8% of Turo vehicle listings.” In its most recent filing, this figure has increased to 9%, indicating that the share of EVs on the platform is growing at a noticeable speed.
- Slowing supply growth: Turo noted in its Q3 2023 S-1/A filing that there were “approximately 350,000 active vehicle listings on [the] platform, up 16% year over year.” In its recent filing, these figures have risen to 360,000 and 12%, respectively. This suggests that while there are more cars on the platform, the growth rate has slowed down.
- Rising interest incomes are impacting Turo’s adjusted EBITDA: The company’s interest earnings have increased with rising interest rates, from $5.3 million in 2022 to $18.3 million in 2023. However, as stated by Turo, the adjusted EBITDA “does not include other income and (expense), net, which includes interest income on cash.” This means that the company’s adjusted profitability has taken a hit due to the increase in interest-based incomes, as seen in other companies.
Turo’s biggest investors include IAC with 39.2 million shares, G Squared with 16.2 million shares, August Capital with 10.3 million shares, and Canaan Partners with 9.3 million shares.
All in all, when Turo finally decides to start its roadshow and price its shares, we can expect more updates and insights into its financial performance. Until then, we will have to wait and see.
