In EasyAssetManagement's latest report on Karooooo, the team explores what's driving earnings growth, accelerating subscriber momentum, and management's outlook for FY27.

Key takeaways

• Full-year revenue grew 20% and adjusted free cash flow grew 90%, but operating profit grew only 8% and earnings per share just 3%. The fourth-quarter print may have landed softer on earnings growth than many investors would have hoped.
• Underneath the optics, management is delivering on a deliberate push to reaccelerate growth. Cartrack subscription revenue accelerated from 15% to 19%, South Africa from 15% to 20%, and Q4 net subscriber additions hit a Q4 record 93,755.
• FY27 guidance points to subscription revenue growth of 18% to 24% and adj. earnings per share growth of around 21% at the midpoint.  

Karooooo runs two businesses. The much larger one is Cartrack, a global software-as-a-service platform that uses IoT devices fitted in customers' vehicles, trucks and other mobile assets to help businesses run their physical operations. The smaller one is Karooooo Logistics, a fast-growing last-mile delivery-as-a-service business that runs alongside Cartrack in South Africa.

On the surface, the headline numbers may have landed a touch softer than some market participants were hoping for. However, beneath the hood, the story is more interesting.

By the Numbers:

On the top line, FY26 was a strong year. Total revenue grew 20% to R5,479 million. Subscription revenue grew 19% to R4,844 million, with Cartrack subscription revenue alone accelerating from 15% growth a year ago to 19% this year. The subscriber base reached approximately 2.7 million, up 16% year on year, including over 2 million in South Africa.

Adjusted free cash flow grew 90% to R809 million, an exceptional outcome that comfortably funded a 20% increase in the dividend to USD 1.50 per share.

Where it got messier was the bottom line. Operating profit grew just 8% to R1,415 million. Adjusted earnings per share grew only 3% to R32.55. The fourth-quarter print was harder still: Q4 EPS came in at R7.18, down 24% year on year.

The strategy underneath the print

For several quarters now, management has been telling shareholders the same thing. The company is hiring sales staff aggressively to bring more customers onto the platform faster, which inflates costs today in return for recurring subscription revenue and free cash flow later. The cost shows up immediately in the income statement. The revenue follows over time.

The early evidence is encouraging. Cartrack subscription revenue growth accelerated from 15% in FY25 to 19% in FY26. South Africa, the most mature market, accelerated from 15% to 20%, with annual recurring revenue exiting the year at 23% year on year. That is the third consecutive year of acceleration in the home market. Group net subscriber additions hit a record 93,755 in the fourth quarter alone, with Asia adding subscribers 82% faster than a year ago in the same quarter.

Annual recurring revenue, which is the cleanest forward-looking measure of subscription momentum, grew 18% in rand and 38% in dollars to USD 325 million. Adjusted free cash flow grew 90%. Commercial Customer ARR Retention Rate is at 95%. Lifetime value to customer acquisition cost is above 9 times. These are healthy subscription-business numbers, and they are moving in the right direction.

Cross-selling, ARPU, and margins

Karooooo’s growth strategy rests on two complementary drivers:

• Subscriber growth: adding new subscribers to the platform.
• Cross-selling: increasing revenue from existing customers by selling additional products to support higher average revenue per user, and both have been showing encouraging traction.

However, managements commentary surrounding the increase in ARPU is also important. Higher ARPU does not necessarily mean higher margins for Karooooo. Asked about it directly on the call, founder and CEO Zak Calisto was unambiguous:

What else hit the fourth-quarter print

“But like I've said many times before, higher ARPU for us because of our business model does not imply higher margins because it's all -- it's more equipment. It's more data costs, more ongoing costs, and that goes back to our pricing model, which still leaves us with very much the same operating profit margins.”
Zak Calisto, Founder and CEO

In other words, Karooooo generates additional revenue alongside additional costs on each new customer and product sale. That keeps operating margins broadly stable, while still growing absolute profit. Cross-selling to existing customers and onboarding new clients both support that absolute profit growth. This is not a flaw in the model; it is how the business is designed to work.

On pricing power more broadly, Calisto added: “The markets we operate in, there isn't this where a raising of ARPU is like you've seen in the North America market. It's very much about giving more to the customer as technology gets better and sort of retaining the same pricing. And we've got a track record that our pricing model is correct, and it gives us the desired operating profit margins that we look at getting.”

What else hit the fourth-quarter print

Beyond the strategic cost build, three specific items dragged Q4 earnings by around R1.60 per share. A stronger rand cost roughly 46 cents. The Tax (dividend) impacted earnings about 49 cents. And a forward-looking provision top-up to align the reserve against the faster-growing device base cost around 65 cents.

On that third item, Calisto was clear it was a discretionary timing choice owing to the rapid acceleration and the associated increase in PPE rather than a sign of trouble:

“we just wanted to make sure we've made cautious provisions, and probably in hindsight, we could have done this in Q2 or Q3, but we didn't really know how acceleration was going to take shape. So we decided to do it in Q4.”
“We've seen no extra churn than we've ever seen in the past, but our PPE is substantially larger than it was, and we just don't want surprises.”

Zak Calisto, Founder and CEO"

Strip those three items out and the underlying Q4 EPS was closer to R8.78. Management called this its “illustrative” figure and gave the investors a clear bridge from Q4 adjusted earnings to the Q4 illustrative earnings figure.

How the business is doing globally

South Africa remains the core of the business. With more than 2 million subscribers, dominant market share and strong growth in annual recurring revenue, it now accounts for 72% of Cartrack subscription revenue.

Southeast Asia, as described during the earnings call “continues to present the most compelling growth opportunity for the group in the medium-to-long term”. Southeast Asia and the Middle East exited FY26 with around 336,000 subscribers, up 23%, and full-year net subscriber additions grew 41%. Q4 net additions in the region were up 82% year on year. Asia is now Karooooo's fastest-growing region by subscriber growth, and management has been clear that incremental investments will not be cut here. Calisto: “We did a lot during the last financial year, and we continue not to slow down, specifically in Southeast Asia. The places where we'll do a lot of slowdown will be predominantly in South Africa.”

Europe posted steady growth. About 228,000 subscribers, up 14%, with constant-currency subscription revenue growth of 19%. OEM partnerships and demand for proprietary compliance technology should support the medium-term picture.

Karooooo Logistics, the smaller Delivery-as-a-Service (DaaS) business, delivered Q4 revenue of R145 million, up 32%, at a 9% operating profit margin. Full-year DaaS revenue grew 29% to R540 million. It is small relative to Cartrack, but it is scaling fast.

Guidance and Outlook

Source: Karooooo Q4 and FY26 Presentation

For FY27, management has guided to Cartrack subscription revenue of R5.7 billion to R6.0 billion, which implies 18% to 24% year-on-year growth. Cartrack gross margin is guided to 70% to 72%, broadly in line with the 72% printed this year. Cartrack operating margin is guided to 27% to 30%, against the 28% printed this year. Karooooo adjusted earnings per share is guided to R38.50 to R40.00. The midpoint of that range implies earnings per share growth of around 21% year on year.

Importantly, the heavy hiring of FY26 is largely done. The plan in FY27 is to slow the pace of new hires and instead drive efficiency from the salesforce already in place. Asked whether reduced hiring puts the growth outlook at risk, Calisto was confident:

“in our outlook we basically saying we expect worst case to continue at this current rate or to increase it. Despite us saying that we're going to slow down the hiring, that doesn't mean we're going to stop hiring. We're still going to continue hiring people. And we certainly believe we got sufficient momentum and sufficient people with a bit of hiring that we can accelerate further than the current growth.”
Zak Calisto, Founder and CEO

Investors will be watching whether Cartrack can sustain or increase its FY26 growth into FY27, while also improving on Q4 margins and restoring productivity to levels seen before the recent growth push. Those factors will be key to whether management delivers on its guidance for subscription revenue growth, earnings growth, and margin.

At EasyAssetManagement, we take a thematic approach to investing, focusing on long-term structural trends reshaping industries and economies. Within that framework, we continue to monitor Karooooo as part of our Tech Advancement theme.

If you are looking for exposure to global equities, AI-themed opportunities, or a balanced investment strategy check out our EasyETFs Global Equity Actively Managed ETF, EasyETFs AI World Actively Managed ETF and EasyETFs Balanced Actively Managed ETF.

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