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Karooooo Ltd.'s Q4 2025 Earnings Call: A Turning Point for Sustained Growth?

Rhys NorthwoodThursday, May 15, 2025 3:37 pm ET

16min read

Karooooo Ltd. (NASDAQ: KARO) has delivered a set of results that signal a potential inflection point for the IoT and SaaS giant. With revenue surging 16% year-over-year (YoY) to ZAR1.086 billion and adjusted EPS jumping 39% to ZAR9.48, the Q4 2025 earnings call offers a compelling narrative of resilience and strategic execution. But does this performance validate Karooooo as a buy amid sector-wide volatility? Let’s dissect the numbers and management’s roadmap to find out.

Revenue Resilience Amid Macroeconomic Headwinds

Karooooo’s top-line growth defied expectations, driven by its core Cartrack division and emerging markets. Subscription revenue for Cartrack rose 16% YoY to ZAR1.084 billion, with net subscriber additions hitting 79,009 in Q4—up 25% from the same period in 2024. Notably, Southeast Asia’s constant-currency subscription revenue surged 31% YoY, outpacing all other regions. This underscores the company’s ability to capitalize on underpenetrated markets, a key differentiator in an increasingly crowded IoT space.

The logistics division also shone, with revenue jumping 19% YoY to ZAR110 million, reflecting demand for its last-mile delivery solutions. Combined with Cartrack’s dominance in fleet management, this paints a picture of a business expanding its addressable market while maintaining pricing power.

Margin Expansion: Efficiency or Cost-Cutting?

While the term “cost-cutting” wasn’t explicitly mentioned, Karooooo’s operating profit soared 30% YoY to ZAR385 million, with Cartrack’s operating margin hitting 34% in Q4—a full 400 basis points above its Q4 2024 margin. This margin improvement suggests the company is leveraging economies of scale and operational efficiencies rather than slashing expenses. The rollout of the Cartrack-Tag, a low-cost GPS device targeting SMEs, likely contributed by expanding the customer base without proportionate increases in overhead.

Forward Guidance: A Play on Geopolitical and Tech Trends

CEO Zak Calisto emphasized two critical growth levers: Southeast Asia and AI-driven innovation. With Southeast Asia’s Q4 revenue growth at 31%, Karooooo is primed to capitalize on the region’s digital transformation. Meanwhile, its AI Video capabilities—processing 180 billion data points monthly—are positioning the firm as a leader in real-time fleet analytics.

The company’s FY2026 guidance targets 16%–21% revenue growth for Cartrack, with EPS expected between ZAR32.50 and ZAR35.50. While margin compression is anticipated due to reinvestment in sales and marketing, the long-term payoff in market share and customer retention could justify the near-term trade-off.

Why Buy Now? Catalysts for Revaluation

Undervalued Relative to Peers:
Karooooo’s stock has underperformed the S&P 500 YTD, declining 1.3% versus the index’s 0.1% gain. This disconnect presents a buying opportunity, especially as it outperforms earnings expectations for the fourth straight quarter.
Strong Balance Sheet:
With ZAR838 million in net cash and a disciplined capital allocation strategy, Karooooo is well-positioned to fund expansion without diluting shareholders.
Sector Tailwinds:
The IoT and SaaS sectors are beneficiaries of enterprise digital transformation, and Karooooo’s vertical focus on physical operations (fleet, logistics, field services) aligns with a $46 billion market opportunity.

Risks to Consider

Execution in New Markets: Scaling in Southeast Asia requires navigating regulatory and cultural nuances.
Competition: Rival SaaS players could replicate Karooooo’s AI capabilities, though its installed base and data moat provide a barrier.

The Bottom Line: A Buy With a Catalyst-Driven Horizon

Karooooo’s Q4 results and guidance suggest it’s transitioning from a “high-growth, high-investment” phase to a “sustainable margin expansion” phase. While the Zacks Rank #3 (Hold) reflects near-term caution, the stock’s undervaluation, fortress balance sheet, and secular tailwinds make it a compelling long-term play. Investors should act now: the next 12–18 months could see Karooooo’s valuation re-rate as Southeast Asia’s growth materializes and AI-driven solutions solidify its leadership.

Investment Call: Buy Karooooo Ltd. (KARO) for strategic exposure to IoT-driven operational efficiency. Set a 12-month price target of $30+, with a focus on FY2026’s margin trajectory and subscriber milestones.

The earnings call didn’t just report results—it laid the groundwork for a decade of growth. This is a turning point. Don’t miss it.

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