Cazoo IPO: Everything you need to know about Cazoo

Cazoo, which is disrupting the used car industry in the UK and Europe with its online model, is set to go public in the US later this year by merging with a SPAC. We explain everything you need to know about the company and its listing, including how to trade Cazoo shares.

Uptrend 3

When is Cazoo going public?

Cazoo is going public by merging with a Special Purpose Acquisition Vehicle, better known as a SPAC, named AJAX I in a deal that should be completed during the third quarter of 2021. The combination will result in Cazoo being listed on the New York Stock Exchange under the ticker ‘CZOO’.

A SPAC is essentially a shell company that raises money from investors by listing on a stock exchange and then using those funds to acquire an existing business in private hands. This is an increasingly popular method of going public in the US as it is quicker, simpler and cheaper than the traditional IPO process.

AJAX I was launched by Dan Och, the billionaire who founded Och-Ziff Capital Management before leaving the hedge fund in 2019, as well as a number of high-profile entrepreneurs including the founders of firms like Chipotle, Square, Instagram and 23andMe.

The combination will generate $1.6 billion in investment for the business. That is made up of the $805 million AJAX I has in cash sitting in the bank and a further $800 million from private investors.

Cazoo said it expects the deal to inject $1 billion in to the business as some of the proceeds will go to existing shareholders cashing-in on some of their investment rather than to the company itself.

Notably, existing Cazoo shareholders will own 79% of the business after the deal. SPAC investors will own 10%, the private investors will own 9.9% and sponsors will own the remaining 1.1%.  

Cazoo share price: how much is Cazoo worth?

Cazoo shares will be sold at $10 each under the combination with AJAX I, which is typical for a SPAC deal. The true value of shares will be determined when the deal is done and Cazoo shares start publicly trading, allowing the markets to decide how much the company is worth.

The combination gives Cazoo a value of $7 billion and a pro forma equity value of $8.1 billion, which is impressive considering the company was only founded three years ago. It boasted a value of just $2.5 billion last October when it raised cash privately, and the company will be eyeing another considerable uplift in value when it goes public.

How to trade Cazoo shares

You will be able to trade Cazoo shares with City Index using spread-bets or CFDs once the combination with AJAX I is completed.

Follow these easy steps to start trading Cazoo shares when they go live:

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for ‘Cazoo’ or its ticker ‘CZOO’ in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade 

What is Cazoo?

Cazoo was founded in 2018 and sells second-hand cars in the UK and Europe. The company is digitally-led and built around the belief that buying a car online should be as easy as buying any other product, with the vast majority of used cars still being bought directly from dealerships or owners.

Cazoo purchases used cars and reconditions them using its five refurbishment centres. It then conducts a 300-point inspection which, if passed, means it can be sold on through its website. The car will then either be delivered directly to the customer’s home using one of its 150 car transporters or can be collected from one of its 17 customer centres within 72 hours of purchase.

The appeal of Cazoo’s pitch to customers is the simplicity, speed and convenience of its all-in-one offering, with partners helping to provide the likes of finance and insurance to provide a fill-and-go option. All of its cars come with a 7-day money back guarantee and a 90-day warranty, including roadside assistance.

It has sold over 20,000 cars to date and currently has 7,000 in inventory. The tech-led business uses data and algorithms to determine what cars and models it needs to buy and sell, as well as at what price.

How does Cazoo make money?

Cazoo’s bread and butter has been making money from buying cars and selling them on for a profit, but the company has started to supplement this income with a new subscription model that has been adopted by several carmakers. This involves customers paying a monthly subscription to use a car rather than having to buy a car. In return for your monthly subscription you get all the frills like tax and servicing included, which is not something you get from the likes of leasing. Just fill it with fuel and you’re off.  

Cazoo is pushing the subscription model in Europe and has over 6,000 subscribers in the UK, Germany and France. Subscriptions provide a form of recurring revenue compared to one-off sales, and widens the potential pool of customers it can try to tap. It also means Cazoo can recycle cars more effectively by shifting cars to new users once another ends their subscription.

Is Cazoo profitable?

Cazoo is not profitable. The company falls into the category of a fast-growing tech business that has mounting losses as it continues to invest and expand.

Cazoo said revenue has been growing by over 300% year-on-year and that it expects to break through the $1 billion mark in 2021, and it has outlined a path to profitability with plans to escape the red by the end of 2024. Notably, it expects the UK market to remain the core driver of income over the coming years even as it expands into more European countries.

Cazoo (£, millions)

2020E

2021F

2022F

2023F

2024F

Revenue

162

698

2072

3957

5883

Gross Profit

-3

44

159

401

746

Operating Profit

-88

-156

-186

-100

83

Ebitda

-81

-138

-149

-42

160

Free Cashflow

-101

-178

-202

-85

92

What is Cazoo’s strategy?

Cazoo’s immediate priority is to drive its expansion into Europe. It has already launched subscription services in Germany and France and intends to do the same in Spain, Italy and Portugal over the coming years with a view of operating across Europe by the end of 2024.

The current market for second-hand cars is ripe for disruption by newer online players like Cazoo. The used car market in Europe is worth around $700 billion and just 2% of them are bought online, but Cazoo and others expect this to change. This is particularly true amid the pandemic, which has not only forced people to shop for more items online but also heightened demand for cars as people look for ways to travel while avoiding other people. A Cazoo survey found that almost two-thirds of consumers are now willing to buy a used car online compared to just 36% before the pandemic erupted.

Cazoo expects this shift to be permanent, partly because the traditional market dominated by dealerships and marketplaces isn’t working for consumers anymore. It claims over 30% of people are reluctant to buy a car from a dealer because they don’t trust them and believe they have more information about the vehicle than they are letting on.

The funds generated by the SPAC combination will be used to drive its expansion in Europe and help fulfil its goal to sell over 320,000 cars by 2024, an ambitious target considering it has sold only 20,000 since inception. It has room to expand, with its existing refurb facilities capable of tinkering with up to 250,000 cars a year that, if sold, could be worth up to £3 billion in annual revenue.

Cazoo will also continue to be active in the M&A market, snapping-up companies that can bolster its offering or partnering up with those that can add an edge to its service. It has already bought car subscription services like Cluno and Drover, dealerships like Imperial Cars and refurb specialists such as Smart Fleet Solutions. It also has 10 strategic partners including Lombard and Blackhorse that help Cazoo provide its fill-and-go option.

Who are Cazoo’s competitors?

Cazoo, as a UK-based company listing in the US, finds itself with two layers of competition.

The first and most important rivals are the companies that it physically competes with in the UK and Europe, ranging from other digitally-savvy sellers like Cinch and online marketplaces like Auto Trader to the slew of used car dealerships such as Vertu Motors, Pendragon and Lookers.

The second layer comes from competition with US stocks like Carvana, Vroom and Auto Hero. Cazoo is not competing with these US-focused players as it is concentrating on the UK and Europe, but it will have to vie for the attention of investors looking for the best way to gain exposure to the disruption happening in the market.

Cazoo argues that the UK and Europe are much more attractive than the US because consumers are more digitally-savvy, change cars more often and use more financing compared to American customers. Plus, expansion is easier because the region is more densely populated, making it easier to roll-out national logistics.  

Cazoo board of directors

Cazoo is led by its founder and chief executive Alex Chesterman, who founded Zoopla Property Group which went on to achieve a £900 million IPO valuation before being taken private in a £2.5 billion deal. He also founded postal film service LoveFilm and sold it to Amazon for £200 million. He will remain at the helm after the SPAC combination is complete.

Dan Och will join the board of Cazoo as part of the combination with AJAX I.

The current team leading Cazoo are as follows:

  • Founder and chief executive – Alex Chesterman
  • Chief financial officer – Stephen Morana
  • Chief technology officer – Jonathan Howell
  • Chief operating officer – Paul Whitehead
  • UK chief of operations – Fern Wake
  • Chief customer officer – Darren Bentley
  • EU managing director – Nico Polleti
  • Chief data officer – Piers Stobbs
  • General counsel – Ned Staple


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