You've probably heard the line that South Africans don't like subscriptions. Cartrack's whole business is one: it fits a tracker to your vehicle and then charges for the service that comes with it, for as long as you stay. Subscriptions made up 97% of its revenue in the six months to August.
That half was a record for signing people up. Karooooo, the company that owns Cartrack, reported this week that it added 236,988 subscribers, more than half again as many as a year earlier, taking the total to just under 2.9 million across every market it works in.
Most of them are right here
South Africa is where most of those subscribers are. Cartrack ended August with 2,185,798 local subscribers, roughly three in every four it has, and 18% more than a year before. That is in an economy Karooooo itself describes as under some macro-economic stress.
It has company on the road, too: names you'll know, like Tracker, Altron's Netstar and Mix Telematics, now part of PowerFleet. Even so, local subscription revenue grew 25% in the second quarter, up from 24% in the first, and by the earnings-call summary's count that makes seven quarters in a row of faster growth. Group chief executive Zak Calisto called it another quarter of acceleration.
So to those who say South Africans don't like subscriptions: clearly they don't know Cartrack.
What the growth is costing
Of course, all this growth comes at a cost. A subscription business pays to win a customer today and earns that money back over the years the customer stays. Cartrack spent R482 million on sales and marketing in the half, 24% more than a year earlier, and says each customer is still worth more than nine times what it cost to sign.
The bigger knock was to cash. Karooooo's free cash flow, the money left once running costs and investment are covered, fell to R100 million from R358 million. Much of the reason is sitting on a shelf: the tracking devices it holds for future use almost doubled in value, to R694 million, as it bought ahead of longer lead times and rising memory chip prices.
Calisto says that impact should be temporary, and the company expects Cartrack's subscription revenue to grow by between 18% and 24% for the full year. The devices are already bought. The subscribers to put them in are the part still to come.
