Digitization And AI Will Reshape Car Commerce

Key Takeaways

• Embedding Deal Builder and leveraging proprietary AI and data are expected to drive faster revenue and margin growth than market forecasts through operational efficiencies.
  
• Auto Trader's scale, digital channel dominance, and multi-stream platform enhance its ability to create premium offerings, capture market share, and sustain long-term earnings growth.
  
• Shifts toward direct-to-consumer sales, changing mobility trends, regulatory pressures, and heightened competition may undermine Auto Trader's revenue growth, margin strength, and long-term market position.

Catalysts

Operates in the digital automotive marketplace in the United Kingdom and Ireland.

• Analysts broadly agree that Deal Builder adoption and monetization will steadily drive future revenue, but with Auto Trader embedding Deal Builder at the core of every subscription, adoption could scale exponentially and accelerate revenue and ARPU improvements much faster than expected via greater user engagement, leading to significant upside to revenue and earnings growth versus consensus.
  
• Analyst consensus views the Co-Driver AI suite as a margin enhancer; however, the combination of proprietary data access, rapid AI feature launches, and funneling AI and automation through an already-dominant platform is likely to deliver not only sustained margin expansion but a potential structural reduction in operating costs, increasing EBITDA and net margins well beyond current expectations.
  
• Auto Trader's unique integration of proprietary data (such as VIN/build-level vehicle specification) and AI capabilities can create differentiated, premium products for both retailers and consumers, supporting further price increases and new, high-margin revenue streams as digital decision-making transforms the vehicle search and purchase process.
  
• Continued migration of automotive commerce and research to digital channels, with Auto Trader's unmatched scale and user engagement, positions the platform to capture a growing share of the total addressable market-especially as electric vehicle categories and online financing broaden platform use, driving sustained double-digit growth in advertising and transaction revenues.
  
• Auto Trader's "multi-stream" platform approach-including advertising, data/analytics, digital retailing, and value-added services-is building significant operational leverage and cross-selling potential; this should not only boost ARPU but, as the platform reaches higher utilization, could unlock step-change increases in long-term earnings growth far ahead of current market forecasts.

Auto Trader Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Auto Trader Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Auto Trader Group's revenue will grow by 8.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 47.0% today to 48.9% in 3 years time.
• The bullish analysts expect earnings to reach £377.9 million (and earnings per share of £0.47) by about August 2028, up from £282.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 28.6x on those 2028 earnings, up from 25.8x today. This future PE is greater than the current PE for the GB Interactive Media and Services industry at 25.8x.
• Analysts expect the number of shares outstanding to decline by 1.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.18%, as per the Simply Wall St company report.

Auto Trader Group Future Earnings Per Share Growth

Risks

• The rapid acceleration of direct-to-consumer sales and increasing electric vehicle adoption could bypass Auto Trader's third-party platform, compressing the volume of high-quality leads and pressuring long-term advertising revenues and growth.
  
• Potential for increased government regulation or higher taxation on car ownership in response to environmental concerns may lead to sustained declines in second-hand car transactions, reducing Auto Trader's marketplace traffic and impacting revenue stability.
  
• Demographic changes including urbanization and the growing demand for alternative mobility solutions such as car sharing and micro-mobility may structurally depress individual car ownership, restricting Auto Trader's core transaction volumes and undermining future revenue growth.
  
• Intensifying competition from vertically integrated dealer groups, manufacturer-backed platforms, and new AI-driven digital entrants may erode Auto Trader's market share and user engagement, pressuring net margins and making it difficult to sustain pricing power for listing fees and related services.
  
• Over-reliance on the UK market with limited geographic diversification exposes Auto Trader to local economic shocks, macro volatility, and unique regulatory risks, all of which could threaten earnings consistency and future shareholder returns.

Valuation

• The assumed bullish price target for Auto Trader Group is £10.4, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Auto Trader Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £10.4, and the most bearish reporting a price target of just £6.5.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £773.4 million, earnings will come to £377.9 million, and it would be trading on a PE ratio of 28.6x, assuming you use a discount rate of 8.2%.
• Given the current share price of £8.37, the bullish analyst price target of £10.4 is 19.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.