Executive Summary / Key Takeaways

• Karooooo Ltd. (NASDAQ:KARO) stands out as a "Rule of 60" SaaS company, demonstrating a rare combination of robust subscription revenue growth and strong profitability, underpinned by disciplined capital allocation.
• The company's core Cartrack platform, enhanced by proprietary AI-powered video solutions and the innovative Cartrack Tag, provides significant technological differentiation, driving operational efficiency and safety for its diverse customer base.
• Strategic geographic expansion, particularly in the high-growth Southeast Asian market and Europe, is accelerating subscriber and revenue growth, supported by substantial investments in sales capacity and OEM partnerships.
• Karooooo maintains a strong, unleveraged balance sheet and consistent free cash flow generation, enabling continued investment in organic growth and product innovation while also returning capital to shareholders through dividends.
• Despite potential short-term fluctuations in ARPU growth and initial sales productivity from new hires, the company's clear FY26 guidance and long-term vision position it for sustained profitable expansion in an underpenetrated global market.

The Foundation of Connected Mobility: Karooooo's Strategic Ascent

Karooooo Ltd. (NASDAQ:KARO), founded in 2001, has established itself as a leading provider of mobility software-as-a-service (SaaS) for connected vehicles and mobile assets. As a founder-led enterprise, the company's enduring strategy centers on driving subscription revenue through continuous customer acquisition, a model it has successfully executed for over two decades. This approach, coupled with a vertically integrated business model, has cultivated an entrepreneurial and customer-centric culture that underpins its operational efficiency and disciplined capital allocation. The company's platform serves a vast, underpenetrated market, with sustained demand fueled by digital transformation, the constant need for operational efficiency, and an increasing focus on safety and compliance across industries such as logistics, mining, agriculture, construction, retail, and the public sector.

Karooooo's operations span South Africa, Southeast Asia, Europe, the Middle East, and the United States, supporting over 2.4 million subscribers across more than 125,000 businesses. South Africa remains a foundational market, contributing a significant portion of the company's total subscription revenue. Recognizing the substantial growth potential in Southeast Asia, Karooooo has strategically intensified its investments there, aiming to boost sales and marketing headcount by 70% in FY26. This region is now the fastest-growing and represents a key long-term opportunity. Europe has also shown consistent growth, bolstered by investments in distribution and strategic partnerships with leading original equipment manufacturers (OEMs) to seamlessly integrate connected vehicle data. A pivotal operational milestone was the completion of a new central office in South Africa in September 2024, designed to enhance operational capacity and facilitate further organic growth in the region.

Technological Edge: Driving Value Through Data and AI

Karooooo's competitive advantage is deeply rooted in its differentiated SaaS platform, which goes far beyond traditional telematics. The platform unifies and contextualizes data from a wide range of sources, including OEM devices, proprietary devices, and open APIs, consolidating business operations into a single centralized hub. This enables customers to overcome complex operational challenges related to safety, compliance, productivity, service delivery, cost control, fuel management, maintenance, routing, resource allocation, and workforce retention. The company's proprietary data asset, generating over 220 billion data points monthly, is a critical engine for delivering impactful insights and value to its customers. Management emphasizes that the continuous accumulation and analysis of this data significantly enhances the platform's capabilities, stating, "The more data we have, the more information we can give our customers. And clearly, what we are offering today is much better than it was 5 years ago and substantially better than 10 years ago."

A cornerstone of Karooooo's innovation is its AI-powered camera solutions. These cameras proactively improve driver behavior and reduce operational risks, leading to safer and more efficient fleet management. A South African customer, for instance, leveraged these AI cameras alongside a digitalized coaching platform and actionable analytics to achieve a remarkable 32% reduction in fatigue-related driving incidents, a 13% drop in mobile phone usage, and improved seatbelt compliance. These are critical factors in preventing road fatalities and enhancing overall safety. The platform also features advanced fraud mitigation capabilities, such as rules-based cargo floating and automated fuel claim validation. A compelling example of this is a customer in Thailand who achieved a fuel theft reduction of over 90% within just three months of adopting Karooooo's platform, resulting in a remarkable 70% return on investment across their entire fleet solely from the reduction in fuel theft.

Further expanding its technological moat, Karooooo launched the Cartrack Tag in Q4 FY25. This next-generation wireless asset tag extends the platform's reach to virtually any mobile asset in South Africa, providing secure, near real-time visibility even in areas with limited or no cellular coverage. Built for demanding commercial environments, the Cartrack Tag helps businesses locate misplaced or stolen assets, reduce operating costs, and simplify asset management. It leverages Karooooo's proprietary RF network and cloud integration for tamper-resistant protection and rapid response, which management describes as "a game changer for us in the marketplace." These technological advancements not only drive tangible ROI for customers but also contribute to Karooooo's exceptional commercial customer ARR retention rate of 95% and an LTV to CAC ratio consistently above 9x.

Financial Strength and Operational Momentum

Karooooo's financial performance reflects its robust SaaS business model and disciplined execution. The company consistently operates as a "Rule of 60" entity, a rare distinction among small-cap SaaS companies, signifying strong combined growth and profitability. In Q1 FY26, Karooooo achieved a "Rule of 60" status by combining its Cartrack subscription revenue growth of 19% with a Cartrack adjusted EBITDA margin of 46%.

Recent financial highlights underscore this momentum:

• Q1 FY26 Performance: Total revenue increased 18% to ZAR 1.277 million, with subscription revenue also rising 18% to ZAR 1.141 million. Cartrack subscription revenue accelerated to 19% (24% on a U.S. dollar basis) to ZAR 1.1 billion, while its operating profit margin remained healthy at 30% despite increased investments in sales capacity. Earnings per share grew 19% to ZAR 8.55. The company added a record number of net subscribers in Q1, bringing the total to approximately 2.4 million, a 17% increase.
• Annual Recurring Revenue (ARR): Q1 FY26 SaaS ARR accelerated to 18% (24% on a U.S. dollar basis), up from 17% (21% on a U.S. dollar basis) in Q4 FY25, signaling strong underlying business momentum.
• Average Revenue Per User (ARPU): ARPU increased 2% in ZAR (6% on a U.S. dollar basis) in Q1 FY26, reflecting early traction from initiatives to increase ARPU in South Africa.
• Karooooo Logistics: This segment, a delivery-as-a-service offering, generated ZAR 121 million in revenue in Q1 FY26, an increase of 20% (26% on a U.S. dollar basis), with an 8% operating profit margin. While a structurally lower-margin business than Cartrack, it is strategically important for driving high Cartrack customer retention and learning about operational challenges.
• FY25 Achievements: For the full fiscal year 2025, Cartrack subscription revenue increased 15% (19% on a U.S. dollar basis) to ZAR 4.1 billion, with an operating profit margin of 31%. Karooooo Logistics' revenue grew 33% (37% on a U.S. dollar basis) to ZAR 420 million. Adjusted EPS for FY25 increased 33% to ZAR 31.67.

• Cash Flow and Balance Sheet: Karooooo maintains a strong, unleveraged balance sheet with net cash and cash equivalents of ZAR 1.103 million at the end of Q1 FY26.

Free cash flow was ZAR 338 million in Q1 FY26, benefiting from disciplined working capital management.

The company paid a cash dividend of $33.4 million ($1.08 per share) in August 2024 and has scheduled a dividend of approximately $38.6 million ($1.25 per share) for August 2025. Debtors collection days remain healthy at 27 days, reflecting efficient financial operations.

Strategic Expansion and Competitive Landscape

Karooooo's growth strategy is deeply intertwined with its regional focus and competitive positioning. In South Africa, the company is strengthening its leadership by cross-selling video solutions and Cartrack Tag to its existing customer base, with subscription revenue growth accelerating to 16% in Q1 FY26. Southeast Asia and the Middle East represent the most compelling growth opportunity over the medium to long term. Subscriber growth in this region accelerated to 22%, and subscription revenue growth to 30% in Q1 FY26. The competitive landscape in Southeast Asia is broadly fragmented, with most players offering basic track and trace solutions. Karooooo's "best-in-class full-stack operations management SaaS platform" provides a significant competitive advantage in this market. In Europe, subscriber growth increased 20% and subscription revenue growth accelerated to 22% in Q1 FY26, supported by OEM partnerships and demand for proprietary compliance technology.

Comparing Karooooo to its publicly traded competitors reveals distinct positioning:

• Verizon Communications (VZ): As a major telecommunications provider, Verizon Connect offers fleet telematics. Verizon benefits from extensive network infrastructure and a broad customer base. However, Karooooo leads in specialized, user-friendly SaaS solutions tailored for smaller businesses and emerging markets, demonstrating more agile market positioning and cost-effective integrated offerings. While Verizon offers network reliability and global scale, its broader service portfolio may lack Karooooo's specialized focus.
• Trimble Inc. (TRMB): Trimble specializes in positioning and workflow solutions, integrating hardware and software. Karooooo differentiates itself with a streamlined, SaaS-centric approach that prioritizes real-time insights and ease of use, particularly for smaller fleets. Karooooo's direct sales model and regional adaptability give it an edge in markets where Trimble's hardware-integrated solutions might require higher upfront investments.
• FleetCor Technologies (FLT): FleetCor focuses on payment and fleet management solutions, primarily fuel cards and transaction processing. Karooooo stands out by offering holistic telematics platforms that extend beyond payments to include comprehensive risk management and business intelligence, providing more integrated operational insights. Karooooo's strength lies in its IoT and analytics for proactive services, whereas FleetCor's core competency is financial transaction capabilities.

Karooooo's competitive advantages, or moats, include its proprietary telematics technology, which enables real-time insights and risk management, fostering strong customer loyalty and efficient operations. Its direct sales model and focused regional presence create unique distribution channels, leading to faster innovation cycles and better capital efficiency. However, vulnerabilities exist in its limited scale in global infrastructure compared to larger players like Verizon, and potential technological gaps in advanced integration when measured against Trimble's specialized geospatial capabilities. The high barriers to entry in the mobility SaaS industry, such as regulatory requirements and the need for established IoT networks, generally favor Karooooo's established regional positioning.

Outlook and Strategic Priorities for FY26

Karooooo has provided a clear and ambitious outlook for fiscal year 2026, building on its strong Q1 FY26 momentum. The company aims to accelerate Cartrack subscription revenue growth by further expanding its distribution footprint in existing markets, driving broader platform adoption, and capitalizing on the growing demand for its AI video solutions.

Specific guidance for FY26 includes:

• Cartrack Subscription Revenue: Projected between ZAR 4,700 million and ZAR 4,900 million, implying a growth rate of 16% to 21%.
• Cartrack Operating Profit Margin: Expected to be between 26% and 31%.
• Karooooo Earnings Per Share (EPS): Forecasted between ZAR 32.5 and ZAR 35.5.

Management anticipates lower EPS growth in FY26 due to planned upfront investments in sales and marketing, particularly in expanding its distribution footprint. The company targets a substantial increase in sales headcount: approximately 70% in Southeast Asia, and about 50% in both South Africa and Europe. This aggressive hiring is expected to drive significant subscriber growth, with an estimated 28% increase in Asia alone. While a temporary dip in sales productivity from new hires is expected in their initial six months, management is confident in improved productivity thereafter.

Karooooo also aims for an approximate 10% increase in ARPU by year-end FY26, primarily driven by the cross-selling of camera solutions and Cartrack Tag. However, management acknowledges that achieving the 10% ARPU growth target in South Africa may take longer than initially expected due to the nuanced dynamics of stand-alone Cartrack tags (which have lower revenue per subscriber) partially offsetting the ARPU uplift from video and bundled tags.

The company's capital allocation framework prioritizes organic growth and product innovation, given its strong unit economics and large market opportunity. While returning surplus capital to shareholders through annual dividends is a key objective, management explicitly prioritizes growth over dividends. Strategic M&A is considered, but with a high bar for clear strategic value.

Risks and Considerations

While Karooooo presents a compelling investment thesis, several factors warrant investor attention. The ambitious ARPU growth target in South Africa may face delays, impacting revenue per user in the short term. The significant increase in sales headcount, while crucial for growth, could lead to a temporary dip in sales productivity as new hires ramp up. Furthermore, while management currently sees no impact, potential geopolitical or economic tariffs, particularly in Southeast Asia, could pose future risks. The competitive landscape, though fragmented, includes larger, well-resourced players, necessitating continuous innovation and strategic agility from Karooooo to maintain its market position.

Conclusion

Karooooo Ltd. embodies a powerful investment narrative centered on profitable growth, technological leadership, and strategic global expansion. Its "Rule of 60" financial profile, robust subscription model, and consistent cash flow generation highlight a business built for sustainable success. The company's commitment to innovation, particularly in AI-powered solutions and the Cartrack Tag, provides a distinct competitive edge, driving tangible ROI for customers and fostering high retention rates. As Karooooo strategically expands its footprint in high-growth regions like Southeast Asia and Europe, supported by significant investments in sales and marketing, it is well-positioned to capitalize on the vast, underpenetrated market for connected vehicle and asset management solutions. While the path to achieving certain targets may encounter minor delays, Karooooo's disciplined capital allocation, strong balance sheet, and clear strategic vision make it a compelling opportunity for long-term investors seeking exposure to a high-quality SaaS growth story with a proven track record.