Turo's S-1 Filing: How the Car Sharing Unicorn Recovered

Turo's Public Filing: A Deep Dive

The peer-to-peer car-sharing platform, Turo, submitted its initial public offering (IPO) paperwork yesterday evening. A preliminary analysis of the S-1 filing is now available via TechCrunch, for those who may have missed the announcement.

The decision by Turo to pursue a public listing was widely anticipated. Having secured approximately $500 million in funding during its private phase, the company possesses substantial capital reserves.

Investor Expectations and Timeline

This significant capital base also creates expectations from institutional investors for an IPO. According to Crunchbase, Turo initially obtained external investment in 2009. Consequently, a number of investors have been awaiting the company’s S-1 filing for an extended period.

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Revenue Rebound and Growth

Positive developments emerged for Turo last year, as the business experienced a notable recovery. Following comparatively weak performance in 2020, the company’s revenues and overall results improved, particularly through the third quarter of the year.

Further details regarding the fourth quarter will be disclosed in subsequent S-1 filings. This analysis will focus on comparing Turo’s financial performance in 2020 and 2021.

This comparison illustrates how certain unicorn companies have benefited significantly from the post-pandemic economic recovery. The Turo income statement, after adjusting for certain non-cash expenses, is particularly noteworthy.

Post-Lockdown Acceleration

Let's examine the acceleration in growth that occurred following the easing of lockdown restrictions.

Turo’s Recovery in Financial Performance

Between 2019 and 2020, Turo experienced modest revenue increases. The company’s revenue rose from $141.7 million to $149.9 million, representing approximately a 6% growth rate. This rate of expansion was notably slow for a venture-backed organization preparing for an initial public offering.

Furthermore, the company’s net losses remained largely unchanged during this timeframe, decreasing only slightly from $98.6 million in negative net income in 2019 to $97.1 million in 2020.

However, a significant shift occurred in 2021. Consider the contrast in outcomes:

A comparison of the first three quarters of 2020 with the corresponding period in 2021 reveals a resurgence in the company’s revenue growth. It transitioned from substantial operating losses to operating profitability. Last year marked a revitalization for Turo, moving beyond sluggish growth to achieve rapid expansion (a 207% increase between 2020 and 2021 for the specified periods) and converting losses into profits on an operating level.

However, one might ask, the company’s net loss actually increased during the first three quarters of 2021 compared to the previous year. Why acknowledge growth while the company incurred significant financial losses?

The explanation lies in the nature of the company’s net losses, which are primarily attributable to accounting adjustments. These are not directly linked to its core operating performance. Specifically, modifications to the “fair value of redeemable convertible preferred stock warrant” liabilities resulted in $175.0 million in accounting expenses being recorded in 2021.

What does this charge entail? According to the company’s filing:

Essentially, the fair value of the company’s redeemable convertible preferred stock increased, consequently raising the value of associated warrants. This increase is recognized as an expense. Therefore, despite positive operating income, Turo reported net losses due to these accounting factors.

Does this necessitate a focus on adjusted metrics? Not necessarily. It simply highlights the importance of a thorough review of income statements before evaluating bottom-line figures. While adjusted EBITDA can address the Turo situation, it’s akin to a drastic solution for a relatively minor issue. Nevertheless, for those interested in non-GAAP metrics, the company first achieved positive adjusted EBITDA in Q3 2020 and maintained it in Q2 2021, subsequently establishing new records for this metric.

What factors contributed to Turo’s renewed growth and the shift from operating losses to profitability?

Increased Revenue and Enhanced Revenue Quality at Turo

Turo experienced a significant recovery driven by two key factors: a substantial increase in revenue and a marked improvement in the quality of that revenue.

Regarding revenue growth, Turo attributes the sharp rise in its total top-line figures as follows (emphasis added):

Understanding Gross Booking Value

GBV, or gross booking value, effectively represents the company’s GMV (Gross Merchandise Volume). Analyzing the statement, Turo benefited from both a greater number of vehicle rentals and an increased average rental rate per vehicle. This combination facilitated a considerable expansion in scale.

Considering the context of the pandemic, 2020 likely saw a greater inclination towards staying home and limiting travel. However, 2021 presented a different scenario. While not directly correlating Turo’s growth with COVID-19 infection rates, increased mobility among people undoubtedly contributed to the company’s success.

Turo not only expanded its overall revenue but also saw a notable enhancement in revenue quality during the past year, as detailed in its S-1 filing (emphasis added):

Improved Customer Profile

This is a straightforward and positive indicator. Typically, as a company grows its overall volume, one might anticipate a dilution of its customer profile, potentially leading to less favorable economic outcomes as it scales.

However, Turo experienced the opposite effect. As total volume (GBV) increased, the quality of its customer base also improved.

This suggests that Turo’s recovery from the challenges of 2020 represents a comprehensive enhancement of its overall corporate health. The results are noteworthy.

While it’s prudent to await the Q4 2021 data for a complete assessment, Turo currently demonstrates that companies beyond Airbnb can rebound from pandemic-related setbacks and achieve substantial success. Further updates will be provided as new data becomes available.