After losing a key exclusivity agreement with General Motors this year, CDK Global Inc. took a close look at its digital marketing business — and found it lacking.
The dealership software giant announced last week that it will divest that business to focus more on its core automotive software operations. The company, in a regulatory filing, said the potential sale includes all assets of its North American advertising segment and portions of its North American retail solutions segment related to mobile advertising and website services.
Revenue for CDK's North American advertising segment fell 18 percent in its fiscal third quarter ended March 31. CEO Brian Krzanich said in an earnings call that the unit "has continued to be a headwind on total company growth."
CDK plans to complete the move within 12 months. The company is working with Allen & Co. to identify potential buyers and evaluate proposals.
CDK's digital marketing business represented about 19 percent of revenue and 13 percent of pretax earnings in the nine months ended March 31, according to the filing.
During CDK's 2018 fiscal year, its last full fiscal year, the company's retail solutions segment had revenue of $1.6 billion, while its advertising segment had revenue of $305.8 million. Core auto software represented 85 percent of revenue that year.
The company's advertising segment took a hit this year when GM told its Chevrolet, Buick and GMC dealers that they would be able to use approved vendors beyond CDK, which had been its exclusive preferred provider and manager of websites.
Joseph Tautges, the company's CFO, noted the changes in CDK's third-quarter earnings call with analysts.
"Depending on the final construct of the multivendor programs, we expect there will be changes to the services we provide today and the number of GM dealers we serve, with corresponding financial impacts that start in Q4 of this fiscal year and build as we move into fiscal 2020," he said.
Krzanich said last week that the divestiture decision follows a strategic review.
"We believe the digital marketing business is an attractive asset for someone who is better positioned to leverage the technology platform and management team that we have built," he said in a statement. "During this transition period we remain committed to our CDK Digital Marketing customers and will continue to support our comprehensive suite of digital marketing technologies and services."
Starting in the company's fourth quarter, CDK said it will present its digital marketing business as a discontinued operation.
