NVDC getting press!!! See Business Week report..
Off to the Races with Net Car-Buying Stocks?
They're the latest must-have IPOs. But it's way too early to think any one in particular belongs in the winner's circle
Automotive Web sites blasted up Wall Street this week like a supercharged Mustang. Shares of online car-shopping service Autoweb.com (AWEB), offered initially at $14, nearly tripled the first day of trading on Mar. 23. The stock then rose as high as $50 the morning of Mar. 24 before falling back to close at $33 11/16. Rival Autobytel.com (ABTL) was expected to start trading its new shares on Mar. 25 after having raised its offering price from a range of $16 to $18 before the Autoweb IPO, to $20 to $22 after Autoweb took off on Mar. 23.
Then there's Navidec (NVDC), which operates several auto-buying and -leasing information sites along with a Web design business. The stock lit up the charts -- and the stock message boards -- on Mar. 22, when it hit a high of 19 1/4, up from only 8, the week before on about five times its average volume. The company recently announced plans to spin off its automotive division, which includes USWheels.com, CarWizard.com, and LeaseSource.com, into an IPO.
The excitement over these stocks likely has a lot more to do with the general market for Internet IPOs than the potential for online auto sales in particular. For short-term investors, Internet IPOs have turned into a kind of slam dunk where those who get in at the initial pricing can almost assume their shares will double or triple the next day. "You could call a stock cowchip.com and guarantee at minimum a doubling of its stock price that first day of trading," says David Sowerby, a portfolio manager at Loomis, Sayles & Co., with just a trace of hyperbole.
"They are probably not stocks I would be holding onto long term," says Mark Basham, IPO analyst at Standard & Poor's equity research. Many hot Internet stocks eventually fall to earth (or at least the troposphere) after the traders forsake them for the next new hot stock. On Mar. 24, remember, Autoweb did decline 16%, and Navidec closed at 13 3/4, down nearly 30% in just two days. IPOs often gain so much on the first day that it acts as a disincentive for more investors to buy even good companies, says Basham. He expects most Internet IPOs to have lower prices in six months than they had on their first day of trading.
BARGAINING CHIP. Still, automotive Internet sites have some advantages. For one, their total market is estimated at $1 trillion, with about two-thirds of that coming from sales of new and used cars and the rest from related products, such as parts, accessories, and insurance. The sites give consumers a real leg up over the days when they had only local dealers to choose from. Now, a potential buyer can gather product and pricing information and comparison shop (at least initially) without the pressure of haggling with a dealer. J.D. Power & Associates estimated last September that 25% of all new-car buyers used the Internet during the shopping process. Ultimately, consumers should be able to use the information they find there to obtain a better price. "If you think how appealing it is for consumers to buy a $35 book for $30 online, think how much more appealing it is to buy a $25,000 car for $24,000," says Sowerby.
Of course, one big drawback of the sites is that they don't really let consumers buy cars online. Autobytel and Autoweb are essentially referral services. Auto dealers pay them for leads, then call shoppers up, and invite them to come on in. (Navidec, however, says its LeaseSource site does offer some vehicles ordered direct from the factory.) "Right now, auto buying on the Web is not eliminating dealer contact, which is what the consumer would clearly prefer," says Ryan Jacob, manager of the Internet Fund. "There is still some negotiation involved at the end of the day." So far, he says he's "not terribly impressed" with the business models of the IPOs.
"I basically view them as front ends for dealers," says Trent Nevills, a technology analyst at Federated Investors, "not true E-commerce sites." He found when using one of the sites that once a dealer called him on the phone, it was "just the same old game" rather than the hassle-free experience he hoped for. "They aren't cutting out the middleman," he says, although the sites do allow dealers to acquire customers cheaply. "They are making the middleman more efficient."
STILL TIRE-KICKING. The real game for auto sales on the Net will come when they can cut out the dealer, allowing buyers to go straight to the manufacturer the way Dell sells PCs. That will happen eventually, but probably not soon, since dealers are too powerful now, believes Nevills. But some analysts argue that consumers will always want to kick the tires and test drive a car before plunking down $20,000 or more.
For now, the real risk for the publicly traded sites is competition. There are few barriers to entry, and competition can come from new Internet players, the manufacturers themselves (General Motors recently launched GMBuyPower.com, and Ford also recently revamped its Web site), and networks of dealers. For instance, Republic Industries (RII) recently launched AutoNation.com. Among the top automotive sites in February tracked by Media Metrix, Microsoft's CarPoint had the most unique visitors with 994,000, followed by Autoweb with 790,000, Cars.com (automotive listings and consumer information provided mainly by newspapers) with 674,000, and Autobytel's group of sites with 653,000.
"There is not a lot to be said as far as one having any competitive advantage over another," says Basham. "They are all fighting tooth and nail to become the first name people think of in the marketplace." He thinks the winner will be the one with the best service, including features that can smooth out the buying process by handling vehicle registration, for example. But with such a huge market, there's room for more than one successful auto site.
As usual for Internet stocks, earnings, revenues, and stock market valuations are of little use when comparing the stocks. Autoweb lost less money last year than Autobytel but also spent less on marketing and had fewer visitors last month. In 1998, Autobytel lost $19.4 million on $24 million in sales, while Autoweb lost $11.5 million on sales of $13 million. It's also too early to really differentiate between the auto sites' business models. So even investors who are daring enough to make a play in online auto sales might prove wiser to hang out in the back seat -- if they missed that first-day surge -- until IPO fever cools off.
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