Depending on who you ask, Cazoo – the used car retailer founded in 2018 and rumoured to be preparing a stock market flotation with an incredible valuation of £5 billion – is the definition of a disruptive, once-in-a-lifetime business unicorn or a donkey dressed as a unicorn, trading on hype built up in record time via its key owner’s reputation and a big marketing budget.
That owner is Alex Chesterman, an investor and the creator of LoveFilm (a film rental service sold to Amazon for £200m) and Zoopla (a property market services firm floated and then sold for £2.2bn).
It’s this Midas touch that has lured investors into pouring around £450m into Cazoo, funding everything from the fundamentals of a used car retailer through to high-profile advertising campaigns and sponsorship of Aston Villa, Everton and the English Football League.
The sizzle is Cazoo’s willingness to sell you a used car entirely online, delivering it to your door and offering a money-back guarantee if you don’t like it. If you’re willing to buy a car unseen, it’s a slick service, and one that ties into Chesterman’s reputation for using technology to bring down the barriers inherent in established brick-and-mortar operations.
But Cazoo’s model isn’t without challenges, not least that during the pandemic almost every car retailer has moved to more or less match it, and that consumer laws mean that its money-back guarantee is an obligation, rather than an innovation.
What’s more, it has been swiftly forced to break its USP of selling cars without physical premises, coming to the conclusion that big-ticket buyers often want to see what they’re committing to first. Consequently, it has spent millions buying and opening ‘customer service centres’. They may not be dealerships by name but, to the casual eye, they sure look and operate like them.
Then there’s the small matter of money. Cazoo was created as a start-up with ambitious (and therefore expensive) growth plans, but even so, there was little in its recorded £19m loss in its first year of trading against revenue of £1.1m to suggest that it has untapped a huge market opportunity. Sure, it has huge momentum and more is likely to come, but it’s also fair to observe that it has a long way to go.
To long-established big car retailing groups, valued typically around a single-digit percentage of that £5bn figure yet almost universally recording both vastly more sales and larger profits, it’s all a bit galling. The stock market doesn’t always reflect reality, of course, and many people believe that Cazoo is either overvalued, or that its more traditional rivals are undervalued. Only time will provide the answer.