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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Cazoo listing

Cazoo, an online used-car retailer, is set to go public via a special purpose acquisition company (SPAC) merger. Explore how you can gain exposure to Cazoo before and after its estimated $7 billion listing.

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Visit help and support for more information.

Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.

Visit help and support for more information.

Call 0800 409 6789 or email helpdesk.uk@ig.com if you have any questions about trading or investing. We're available 24/7 between 8am Saturday and 10pm Friday.

Contact us 0800 409 6789

Call 0800 195 3100 or email newaccounts.uk@ig.com to talk about opening an account.

Contact us 0800 195 3100

Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.

Visit help and support for more information.

Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.

Visit help and support for more information.

Call 0800 409 6789 or email helpdesk.uk@ig.com if you have any questions about trading or investing. We're available 24/7 between 8am Saturday and 10pm Friday.

Contact us 0800 409 6789

What's on this page?

What's on this page?

  1. Why trade the Cazoo listing with us?
  2. How to buy or trade Cazoo shares
  3. Cazoo listing: what you need to know
  4. Our analysis on the Cazoo listing
  5. What could the Cazoo share price be?
  6. What is Cazoo's business model?
  7. Cazoo SPAC deal vs IPO: what's the difference?

Why trade Cazoo's listing with us?

We’re the only UK provider that enables you to speculate before companies list with our exclusive grey markets, participate in the listing on the primary market, and buy and sell stock once companies are fully listed on the secondary market.1

Trade or invest in the Cazoo SPAC before the listing

You can take a position on AJAX I - the SPAC Cazoo is merging with, prior to Cazoo's listing

Trade Cazoo shares with derivatives

Deal once Cazoo shares are in the open stock market – you can buy, sell or short

Buy physical Cazoo stock

Invest in Cazoo stock and become a company shareholder

How to buy or trade Cazoo shares

Pre-listing

Trade or invest in AJAX I - the SPAC Cazoo has announced plans to merge with - before Cazoo's listing.

Once the merger has happened, your AJAX I shares will be converted into Cazoo shares automatically.

Post-listing

Take a position on Cazoo shares from the day of the merger. You can:

Trading vs investing in Cazoo shares

Trading and investing are different in many ways. When trading Cazoo shares with us, you’ll use spread bets or CFDs to speculate on share price movements. These derivatives let you take a position without owning the underlying shares, plus, you could receive various tax benefits.2 With spread bets and CFDs, you can speculate on shares that are rising (known as going long) or falling (known as going short) in value. If your prediction is correct, you’ll make a profit, but if you’re wrong about the market movement, you’d take a loss.

Spread bets and CFDs are leveraged products, which means that you only need to commit a deposit upfront – called margin – to receive full market exposure. But, bear in mind that while margin can increase your profits, it can also increase your losses – so it’s important to take steps to manage your risk.

Learn more about the impact of leverage on your trades

When investing in Cazoo shares with us, you’ll buy and own physical shares using a share dealing account. Leverage isn’t available when you’re share dealing – so you’ll need to commit the full value of your position upfront. This increases your initial outlay compared to trading, but it also caps your risk at the price you paid for your shares (excluding additional fees).

Investing in shares will make you a shareholder – eligible to receive dividends and voting rights if the company grants them. You’ll profit if the share price increases above the price at which you opened your position. If you decide to sell your shares for less than you paid to buy them, you’ll take a loss.

Cazoo listing: what you need to know

Cazoo is set to list on the New York Stock Exchange through a merger with the SPAC AJAX I Acquisition Corporation – a deal that estimates Cazoo’s valuation at $7 billion. The listing is expected to happen later this year.

AJAX I is led by billionaire investor Dan Och, who is said to be planning on joining Cazoo’s board. The SPAC deal is expected to raise around $1.6 billion.

Our analysis on the Cazoo listing

By Sam Dickens, portfolio manager

5 May 2021

Cazoo is an e-commerce company looking to disrupt the UK and European second-hand car industry through its digital-first proposition. Founded in 2018 by serial entrepreneur Alex Chesterman, OBE, Cazoo buys used cars then sells them to consumers through its online marketplace.

In a recent investor presentation, the firm identified a £500 billion market opportunity across the UK and Europe.3 Sales growth since its website launched in December 2019 has been remarkable. Cazoo generated around £37.5 million in revenue in February 2021, which translates to an annual run-rate of £450 million - an impressive feat after just 15 months in business.

Cazoo believes that they can capitalise on the rise of e-commerce and consumers becoming increasingly likely to make big-ticket purchases online. Since February 2019, online sales as a percent of total UK retail sales have risen from 19.2% to 34.6%, largely driven by consumers forced to go the online route during the pandemic.4 What’s more, according to a report from CarGurus, 64% of UK consumers say they would now buy a used car online compared to 36% pre-Covid.5 At present, just 2% of used-car sales are thought to be made online compared to 52% for consumer electronics.6

Gaining trust among consumers will be key to winning business from traditional car dealerships. The used-car industry is often considered a marketplace with high asymmetric information: where sellers have more information than buyers. Cazoo’s 95% 'great' or 'good' rating on Trustpilot suggests they are doing a respectable job so far. Another stand-out statistic from Cazoo’s investor presentation was the average car ownership period of just 3.5 years. If accurate, it implies an opportunity for repeat sales among loyal customers.7

However, competition is strong and there are several companies operating a similar business model in the UK and Europe. Start-up firm Cinch also buys cars to sell directly to consumers online, while the well-known, UK-listed Auto Trader connects buyers with car dealers through its website.

Central to Cazoo’s pitch to investors is its technology, which it says will help deliver industry-beating profit margins in the future. This includes its demand-led purchasing algorithm, which ensures that it’s buying the right vehicles to meet current demand and its digital marketing capabilities that target potential customers.

As of April 2021, Cazoo is still heavily loss-making, as its costs of sales currently matches its revenue. It has also spent big on marketing to boost brand recognition among consumers, including the sponsorship of Premier League football teams Aston Villa and Everton. Revenue was expected to be £162 million for 2020, instead the company incurred an operating loss of £88 million. Management expects its EBITDA margin to gradually improve before turning positive in 2024.

The combination of high revenue growth, large operating losses and that it is a technology-oriented business has led to the decision to go public in the United States instead of on the London Stock Exchange (LSE). With respect to the success of high-growth companies listing on the LSE, Chesterman has previously stated that 'US investors understand better businesses investing in the short term for future growth.'8

The IPO is priced to give Cazoo a market cap of around $7 billion, which seems eye-watering considering the company last raised capital in October 2020 at a valuation of $2.5 billion. Cazoo says this valuation is justified given their latest forecast for revenue-growth rates and improving operating margins.

The table below compares Cazoo to two other used car e-commerce companies that are also listed in the US.*

Company Cazoo Carvana Vroom
Code CZOO CVNA VRM
2020 Sales $162 million $5.5 billion $1.3 billion
2021 Sales $966 million $8.8 billion $2.5 billion
2023 Sales $2.8 billion $11.9 billion $4 billion
Implied annualised sales-growth rate (2021 – 23) 421% 146% 173%
Market cap $7 billion $47.5 billion $6.4 billion
Forward price-to-sales (2021) 7.2x 5.4x 2.5x
Forward price-to-growth 1.7x 3.7x 1.5x

Source: Cazoo, IG

*Cazoo’s 2020 sales figure is an estimate from the company. CVNA and VRM 2020 sales figures are actuals. Cazoo 2021 and 2022 sales figures are estimates from the company’s investor presentation.

Cazoo is predicting that they can grow 2020 sales by close to 18 times by 2022. This is a much faster rate than Carvana (a similar proposition in the US that went public in 2017) have been able to achieve.

But since its IPO, Carvana’s share price has soared over 2250% giving it a current market cap of $48 billion. Investors will be hoping that Cazoo can replicate this share price performance after going public.

If Cazoo can achieve its ambitious growth targets and its price-to-sales ratio converges to a level between that of Carvana and Vroom’s current price-to-sales multiple (8.5x and 4.7x, respectively); a market cap in the region of $19 billion could be achieved. This would suggest a possible 170% upside on its expected IPO price if all goes perfectly to plan.

That said, ambitious growth forecasts that are made by companies going public via a SPAC are coming under increased scrutiny. The US securities regulator is said to be considering new guidance for growth projections that are made by blank-check companies.9 Investors should scrutinise any growth assumptions that are made by these type of companies before investing. However, they will need to believe that management can deliver on their revenue forecasts and expectations of becoming profitable within the next three years.

What could the Cazoo share price be?

The Cazoo share price will depend on the price movements of AJAX I shares. Like many SPACs, AJAX I had a share price of $10 upon going public. After the merger, Cazoo’s share price will fluctuate as buyers enter and exit the market.

What is Cazoo’s business model?

Cazoo’s business model is based on the company selling used cars online to customers in the UK and Europe. The company buys cars from dealerships and directly from owners. Cazoo reconditions the cars and makes use of its ‘300-point inspection’ to ensure safety and quality – cars that don’t pass the inspection are not sold.

Cars that pass the inspection are listed for sale on Cazoo’s website. Once a sale is completed, the customer can either collect the car or have it delivered in the UK by Cazoo. The company has sold over 20,000 cars since its December 2019 launch.

In addition to selling used cars, Cazoo also has a subscription model, which enables customer to pay a monthly fee for the use of a car. With over 6000 subscribers, the company is a market leader in Europe for car subscriptions.

Cazoo SPAC deal vs IPO: what’s the difference?

A SPAC deal, also known as a reverse takeover or merger, differs from a traditional IPO in a number of ways. For one, SPACs raise money from the public market before acquiring a private company.

Below are some of the key differences between a SPAC deal and an IPO.

Special purpose acquisition company (SPAC) deal

  • ​The private company goes public by merging with a SPAC, which is already publicly listed
  • The process of listing is quicker for the private company as fulfilling regulatory requirements, raising funds and other aspects of going public are already covered by the SPAC
  • The deal is signed with the SPAC sponsor at a fixed price that has been negotiated before the announcement of going public
  • ​The private company makes a deal with one party only, the SPAC

Initial public offering (IPO)

  • The private company goes public on its own through the traditional IPO process
  • Raising money, organising the IPO and paying for it can be costly and time consuming
  • Negotiations on the size and target share price of the listing happen after the announcement has been made
  • The private company raises capital through deals with several parties, and employs a bank to oversee the listing

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With more than 47 years of experience, we’re proud to offer a truly market-leading service

Open a share trading account in minutes

Open a share trading account in minutes

Fast execution on a huge range of markets

Enjoy flexible access to 17,000+ global markets, with reliable execution

Deal seamlessly, wherever you are

Trade on the move with our natively designed, award-winning trading app

Feel secure with a trusted provider

With more than 47 years of experience, we’re proud to offer a truly market-leading service

Start trading now

Log in to your account now to access today’s opportunity in a huge range of markets.

Start trading now

Log in to your account now to access today’s opportunity in a huge range of markets.

How do IPOs work?

IPOs work by having a company list its shares for participants to buy and sell on the open market. Some reasons a company wanting to go public include raising capital for expansion, paying off debts, attracting and retaining talent or improving liquidity.

The company must start by arranging for a third party to conduct a comprehensive audit, which looks at the company’s financials. Thereafter, it needs to get a registration document ready with the relevant exchange commission.

If the commission approves the registration, the company will list a specific number of shares on a stock exchange, at a price determined by an investment bank. The investment bank will also be the company’s underwriter for the IPO. Once the company is publicly listed, shares will be available through the chosen stock exchange.

Get the latest IPO news


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FAQs

What are the risks of trading a SPAC merger?

Some of the key risks involved in trading a SPAC merger include:

  • Missing important company information that could impact share prices, like pending legal cases and intellectual property that isn’t patented
  • Elevated market expectations that might not materialise and low demand following the merger
  • Companies not meeting their target market cap – which could deter future investment

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1 We do not offer grey markets on all listings.
2 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
3, 6, 7 Cazoo, 2021
4 Office for National Statistics
5 CarGurus, 2020
8 Evening Standard, 2021
9 Reuters, 2021