Couch Potato #6: Turo's Tryst with an IPO

Hello Couch Potatoes,

This past week Instacart and Klaviyo stocks finally hit the public markets and after a modest pop seemed to stabilize right around their IPO price. It seems that public markets are increasingly skeptical of private valuations and we likely still have a chasm between valuations offered by late stage IPO candidates and the public’s appetite for them. There is one company that seems to be stuck in this chasm - Turo. After filing an S-1 in 2022, the company has been regularly publishing public updates through S-1/As, but without a clear IPO window in sight. This week, I analyze Turo’s most recent filing to share my key highlights and prediction on their likely IPO valuation.

Turo Overview

Turo is a peer-to-peer car sharing marketplace with 330k active vehicles on the platform. Analogous to how Airbnb unlocked latent supply of rooms, Turo capitalizes on an underutilized asset - personal cars. Guests can choose to rent a car directly from a host as an alternative to rental car companies like Enterprise and Hertz.

Marketplace success usually comes from a combination of (a) unlocking new supply, (b) improving buyer and seller experience, and (c) reducing the friction of discovery and matching. Fortunately for Turo, their primary substitute, rental car companies, has a history of poor customer experiences. So poor, that the top 14 companies together have a -7 Net Promoter Score (NPS). Limited selection, lack of reliability, overcharging and hidden pricing, fixed limited access points are some underlying factors. In contrast, Turo boasts an 80 NPS through more diverse inventory, flexible access, and transparent pricing (lower than rentals).

1) Net Revenue: $746M of net revenue in 2022 (+59% yoy). Growth slowed down in 2022, after furious growth in 2021 ($469M of net revenue, +213% yoy). Growth has further slowed down last few quarters (-17% QoQ Q4 2022, -1% QoQ Q1 2023). TTM revenue is nearly flat to 2022 revenue.

2) Days: Number of active booked days increased 38% year over year in Q1 2023. This growth is slowing down compared to 75% growth in 2022. Slower net revenue growth than Days implies contraction in on-platform customer spending. 

3) Gross Booking / Day: I think of this metric as a proxy for customer price elasticity. If customers are price insensitive, or a marketplace provides a premium service, expect this to be higher than substitutes and increasing. For Turo, gross booking volume (GBV) per day grew 31% in 2021 to $115, but declined 6% in 2022 and down 10% year-over-year in Q1 2023.

4) Host Retention: Turo’s older host cohorts have been sticky, but newer cohorts have seen wide variance. 2018 and 2019 cohorts have a 19% difference in their second year net revenue retention. However the cohort to watch is the 2021 cohort. Turo had their best growth year in 2021, in the middle of a black swan event. Remote work likely created new inorganic supply - cars sitting in garages as less people were going to work. As a result, the platform likely saw a large influx of hosts in their 2021 cohort. However, this cohort is likely made up of one time hosts that likely churned with the return to office post-COVID. I expect this cohort to have worse retention than pre-COVID cohorts.

Turo’s IPO Valuation Prediction

While Turo has filed their S-1 and updated their financials to the public, their IPO seems to still be in the distance. Likely due to the uncertainty of their likely valuation in the public markets. According to The Information’s reporting, Turo was valued at $2.7B in secondary trading earlier this year.

a) Multiple of Trailing Financials

Turo’s growth has flattened in the last few cohorts, with Q1 2023 only up 30% compared to a year ago. As a result TTM revenue through Q1 2023 is only up 5% compared to FY22 revenue. Applying median multiples for all, and high growing marketplace on trailing financials we arrive at a preliminary range of $1.7B - $2.3B which is a 15-36% discount to last known private valuations.

b) FCF Multiple

Turo was EBITDA (adjusted) positive in 2021 and 2022. However, it posted a loss in Q1 2023 due to rising acquisition costs and lower fees paid by guests. As a result, the business posted 1% FCF margin in 2022 which drives our lowest valuation in our model at $770M which is a 71% discount to their last private valuation.

c) Forward Multiples

The biggest uncertainty underlying Turo’s valuation is forward growth. The business benefited greatly from post-COVID tailwinds. However, since 2021, growth has greatly slowed down. While Q1 2023 was 30% higher than Q1 2022, Turo has contracted quarter-over-quarter in Q4 2022 and Q1 2023. My assumption here is 25% NTM revenue growth which leads to a $2.1B valuation at a more modest 20% discount to their last round.

d) Combined Valuation Methodologies & Sensitivity

I believe Turo is likely to trade at a ~50% discount to their last private valuation aroudn $1.4B-$1.5B range. This explains Turo’s hesitation to start their roadshow in order to improve their growth and FCF numbers before officially starting their process in hopes of reducing any markdowns from their last valuation. It is important to note that this model is sensitive to NTM growth assumptions. In the attached sensitivity analysis shows that the most likely outcome is still a 50% discount to the last round. If growth is higher than expected at 40%, the business is still likely to get valued at a 40% discount.

When (if) Turo goes public in the next 3-6 months, I will revisit this analysis to gauge its accuracy, as I did with Instacart.

Marketplace Multiples 9/21/2023

Vertical Software Multiples 9/21/2023

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