Key Points
Karooooo beat analyst expectations in the second quarter, with its revenue growth accelerating.
The Cartrack subscriber base grew by 15%, and Cartrack subscription revenue surged by 20%.
The company maintained its outlook for the full fiscal year.
Here's our initial take on Karooooo's (NASDAQ: KARO) second-quarter financial report.
Key Metrics
| Metric |
Q2 2025 |
Q2 2026 |
Change |
vs. Expectations |
| Revenue |
ZAR1.11 billion |
ZAR1.34 billion |
+21% |
Beat |
| Earnings per share (adjusted) |
ZAR7.35 |
ZAR8.28 |
+13% |
Beat |
| Cartrack subscribers |
2.14 million |
2.46 million |
+15% |
n/a |
| Gross margin |
70% |
68% |
-2 pp |
n/a |
Subscription Revenue Growth Accelerates
Karooooo's overall revenue rose by 21% year over year in the second quarter, a bit faster than the 18% growth rate the company reported in the first quarter. Subscription revenue from its Cartrack vehicle tracking service increased by 20%, also an acceleration compared to the first quarter. Cartrack subscription revenue accounted for roughly 90% of Karooooo's total revenue.
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The total number of Cartrack subscribers jumped by 15% year over year to 2.46 million. The company added 70,740 net new Cartrack subscribers during the second quarter, a slowdown compared to the 89,168 additions in the same period last year. Outside of Cartrack, the delivery-as-a-service offering from Karooooo Logistics saw revenue soar 38% year over year to ZAR139 million. Karooooo owns 74.8% of Karooooo Logistics, while Cartrack is wholly owned.
Overall gross margin dipped slightly in the second quarter, but the company still grew adjusted earnings per share by 13%. Operating margin was 26%, down from 27% in the prior-year period, although Cartrack's operating margin remained steady at 29%. The company is investing in sales and marketing to acquire new customers, with sales and marketing expenses up 34% in the second quarter. This spending is putting some pressure on the bottom line.
Immediate Market Reaction
Shares of Karooooo were down about 12% by late Wednesday morning. The stock has more than doubled since the start of 2024, so while the company's results were generally positive, valuation could be playing a role in the decline. Karooooo's forward price-to-earnings ratio topped 30 earlier this year, and it sits around 25 following Wednesday morning's slump.
What to Watch
Karooooo maintained its previous guidance for fiscal 2026 after adjusting for the impact of a secondary public offering in June. The company expects Cartrack subscription revenue to grow by 16% to 21% for the full year, while operating margin should come in between 26% and 31%. Karooooo also expects adjusted earnings per share in a range of ZAR32.50 to ZAR35.50.
The lack of a guidance increase or a narrowing of its guidance ranges despite accelerating Cartrack subscription revenue could be one reason why the stock sank on Wednesday. Given the macroeconomic backdrop, caution is likely warranted. Karooooo performed well in the second quarter, but investors may be concerned about how the company's results will hold up during the rest of fiscal 2026.
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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Karooooo. The Motley Fool has a disclosure policy.
