Can These IPOs Drive Investors To Buy? - Weak IPOs may give KKR second thoughts - BloggingBuyouts - polala.com

One started down this road more than two years ago, only to slam on the brakes before reaching its destination. The other is shiny and new, fresh from the IPO factory. Neither has a warranty.

They are Autobytel.com and Autoweb.com, two companies that run Web sites offering car buyers a fighting chance against fast-talking auto salesman. Both plan to go public in the next month - Autobytel the week after next, and Autoweb in early April.

Today we'll look at each model's features and accessories, as well as what prospective investors can expect in terms of performance. Your mileage may vary.

Back from the shop

In January 1997, when Autobytel.com initially filed a $55.2 million IPO, driving conditions for new public offerings seemed ideal. But only three months later the Web-based automobile marketing service was in the breakdown lane with a canceled IPO, as board members voted to bail out in the face of a sudden market downturn.

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Now the Irvine, Calif.-based start-up is back with a new offering of 4.5 million shares that company officials and underwriters Alex. Brown, Lehman Brothers and PaineWebber hope will raise $82.8 million. The Nasdaq ticker symbol will be ABTL.

Autobytel.com makes its money by signing car dealerships to subscriptions in return for referrals from customers shopping on the company's Web site. The goal is a no-hassle, no-haggle transaction: Shoppers fill out online purchase request forms describing the vehicle they want, and these forms are sent to the appropriate dealership nearest the customer's home. Autobytel.com promises customers a "competitive" dealer quote within a day.

Buyers also have the opportunity to research specific models, determine a car's actual cost to dealers, finance the purchase and get insurance -- all without ever leaving their desktops. Autobytel.com claims to have generated 2.5 million purchase referrals to dealers since its May 1995, when the service began, including 1.3 million last year alone. Many of last year's referrals came from repeat customers (including this one) who enjoyed their previous experience with Autobytel.com

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Unfortunately, the same can't be said for the car dealers. Churn is high - Autobytel.com lost 556 dealers last year alone, though it added another 1,323. This turnover has to be reduced for Autobytel.com to grow. Its current total of more than 2,700 dealers sounds impressive until you realize there are some 50,000 car dealerships in the United States.

Dealers drop out of Autobytel.com either because they don't get enough leads to make their subscription and monthly fees worth it, or because they don't want to bother with wised-up customers who have educated themselves and aren't about to be gouged.

Autobytel.com's strategy is to build the dealership network by driving traffic to its site, and it has steered itself into a nice hole doing so. Last year the company spent $30 million on sales and marketing alone, against revenues of $23.8 million. Meanwhile, accumulated debt nearly doubled last year, reaching $43.3 million, compared to $23.9 million through '97. A little bit of a money guzzler.

And on this side of the lot...

If that's a turnoff to you, perhaps you'd be interested in Autoweb.com, which hopes to raise $57.5 million in an IPO slated for April 7. Lead underwriter is Credit Suisse First Boston. Autoweb's Nasdaq symbol will be AWEB.

The basic concept is almost identical to Autobytel.com's: Give consumers information so they can submit a purchase request for a specific vehicle at a price they desire. Then the dealers in Autoweb.com's network have to respond in 24 hours with their best offers.

Autoweb.com, founded in 1994 and based in Santa Clara, Calif., boasts a larger number of dealers than Autobytel.com, about 4,000 in the U.S. and Canada. But turnover was 60% last year, and Autoweb.com has changed its pricing model from a fixed fee to a per-referral basis in an effort to reduce churn.

Revenues and losses also are lower -- $13 million and $11.5 million respectively in 1998, with an accumulated deficit of $17.6 million through the year.

The auto industry is huge. A Wall Street Journal study estimates the market for new and used vehicles tops $670 billion. Throw in insurance and credit dollars, as well as the market for parts, repairs and accessories, and vehicle-related spending in the U.S. tops $1 trillion.

Still, the vast majority of auto dealers are not keen on using the Web for leads. Many don't understand or trust it. That will change, but the process probably will be slow and incremental.

Until then, sites such as Autobytel.com and Autoweb.com are great for consumers. Investors, however, may want to wait to see if the value of these models improves over time.

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