Autoweb Off to Races on First Day of Trading
On a day when the overall stock market plummeted, Santa Clara, Calif.-based Autoweb.com Inc. on Tuesday had a stunning market debut, with its shares nearly tripling in price--an encouraging sign for Irvine-based Autobytel.com, a competitor that plans to go public today.
Autoweb, an online car-selling service that charges dealers for leads on car buyers and also makes money through advertising on its Web site, hopes to capture the burgeoning market for online automotive information, from sales to financing to insurance. The company priced its stock at $14; it opened at $21.63 and rose as high as $41 before closing at $40.
At the end of the day, the stock market valued the company, which last year lost $11.5 million on $13 million in sales, at $912 million, more than Volkswagen paid last year for the venerable Rolls-Royce Motor Cars.
The company has more than 80 employees. Even relative to other Internet commerce players, Autoweb’s offering was a hit: Its stock-price-to-sales ratio outstrips those of electronic commerce stalwarts such as Amazon.com Inc. and E-Trade Group Inc.
“When I woke up this morning, I saw the market down big and I thought, ‘Oh, boy, we picked a good day,’ ” said Dean DeBiase, president and chief executive of Autoweb. “But clearly we are extremely satisfied.”
The success of Autoweb’s offering prompted Autobytel to boost its offering price. Previously, Autobytel said it would sell shares for between $16 and $18 each, but Tuesday the lead underwriter, BT Alex Brown Inc., said the initial price will be between $20 and $22.
Last year, more than 2 million people turned to the Web to help make car-purchasing decisions, according to a survey by Forrester Research in Cambridge, Mass. By the end of 2003, that number will rise to 8 million, and 470,000 cars will actually be purchased entirely online, Forrester said.
Although industry experts agree that people will increasingly turn to the Internet for information to buy, care for and sell their vehicles, it’s unclear that sites like Autobytel and Autoweb are where they are going to get it.
Just as other Internet companies do, Autobytel and Autoweb spend an enormous amount of money marketing their Web sites to win customers. But whereas a customer might purchase a book or CD online several times a month, giving the online retailer the chance to develop a lasting relationship with that person, people generally buy cars only once every several years, forcing an online car company to spend heavily to keep their brands in front of people, Forrester said.
The car sites have tried to position themselves as helping people through the “car ownership experience,” guiding them through the selection, purchase and financing of the car, reminding them of regular maintenance tasks, notifying them of recalls and, eventually, helping them sell the car and start the cycle over again.
Much of their future revenue could come not from car sales but from advertising and marketing deals with auto-repair companies and parts retailers.
But whether people will want to use a third-party Web site to do that is unclear, said James McQuivey, an electronic commerce analyst with Forrester. Currently, Web portal sites such as Yahoo, MSN.com and AOL.com attract visitors by offering news, weather, sports, electronic mail, stock quotes and other services in one location.
“The car experience should be folded right into there as well, so that among the 40 things I have to do on a daily basis, taking care of my car is one of them,” McQuivey said. He foresees at least one of the car sites being acquired by a portal.
Autoweb and Autobytel also face formidable competition in Microsoft Corp.’s Carpoint and Cars.com, a venture owned by a consortium of newspaper companies. While Autoweb and Autobytel both spent more on sales and marketing than they garnered in revenue last year, Cars.com and Carpoint can reduce their marketing expenses by using the resources of their parent companies.
Also, car dealers, such as Republic Industries Inc., and vehicle manufacturers themselves have opened Web sites, and other car-selling business models have emerged online, such as Priceline.com Inc., which invites people to name a price for a car, and then surveys dealers who would sell at that price.
“There’s huge potential” for selling cars over the Web, said Cheryl Boraster, an analyst with GSG Securities Inc. in Denver. “The question is, who is going to end up being the true leader in Web-based automobile sales?”
* CAMRY DETHRONED: The best family sedan, says Consumer Reports, is the Volkswagen Passat. C3
