Dealer software giant CDK Global Inc. is a markedly different company than it was a year ago.
CEO Brian Krzanich, now at CDK's helm for eight months, is shedding the company's digital marketing business, a decision that follows a move this year to remake customer service and simplify the billing practices that had bedeviled dealership clients. CDK also has reshuffled its executive ranks under Krzanich.
The changes position CDK to focus more fully on growing its core dealership software business. And that's drawing the praise of analysts who track the company.
"All of the analysts were telling them to get out of" digital marketing, said Gary Prestopino of Barrington Research.
CDK in late June announced it would divest that digital marketing business, including all assets of its North America advertising segment and portions of its North America retail solutions segment related to mobile advertising and website services. The digital marketing business represented about 19 percent, or $332 million, of revenue and 13 percent, or $50 million, of pretax earnings in the nine months ended March 31, the company said. CDK's annual revenue in its last fiscal year totaled $2.3 billion.
The reasons for divesting only grew after General Motors announced in January it would add website vendors its Buick, Chevrolet and GMC dealers could use. CDK had been GM's exclusive preferred provider and manager of websites.
The company's website and digital marketing business had always been cyclical, while the core software business is consistent, Prestopino said. After the GM decision, "you'd be fighting an uphill battle for a number of years to regain any growth in that business," he said.
Ian Zaffino of Oppenheimer & Co. said the move "significantly simplifies the story" for CDK while removing costs, enhancing growth and improving margins. "A deal will allow management to divest a low-margin business with challenging growth prospects," Zaffino wrote in a research note.
Zaffino, citing CDK management, said in the note that potential buyers of the digital marketing business could include "strategics in the space" or private equity, or even one of CDK's peers with a platform, such as Cox Automotive or Cars.com — itself the subject of sale speculation.
Zaffino expects the divestiture to happen within six months. CDK has said it plans to get rid of the business within 12 months.
The focus on software is also part of a broader shift for the Hoffman Estates, Ill., company. Krzanich, a onetime chief of Intel, in November replaced former CEO Brian MacDonald. Krzanich declined to talk to Automotive News for this story.