The impending initial public offering of
-- hot on the of heels of the expected IPO of its creator,
-- proves that the death of the Internet IPO has been greatly exaggerated.
CarsDirect.com is the Culver City, Calif.-based company that takes orders for cars online and will arrange to purchase an automobile directly for a customer -- and even have it delivered. In the 18 months since its inception, the company has lost $116 million and now aims to raise as much as $172.5 million in an IPO. Business incubator idealab!
filed several weeks ago for an IPO that could raise as much as $300 million.
CarsDirect.com joins an already crowded field, one that hardly has covered itself in Internet stock market glory so far.
, a CarsDirect.com partner, is a long way from profitability and is trying to emphasize its auto-related information over its referral business, still 70% of total revenue.
has relationships with 5,000 auto dealers and says it gets a cut from the sale of 40,000 to 50,000 cars per month.
Lately things have gotten more complicated.
, Wayne Huizenga's auto superstore chain, has jumped into the action. And Wednesday
announced that it would use Autoweb to hawk cars online. Shares of Autobytel and Autoweb trade far below their respective IPO prices.
CarsDirect.com has been particularly aggressive in its bid to lead the category. Like other consumer-oriented online wannabes, it has tried to build market share by selling cars to customers at prices below what they pay dealers to deliver them. Not surprisingly, car buyers find this attractive: According to the company's just-filed registration statement with the
Securities and Exchange Commission
, CarsDirect.com sold nearly as many cars in the first three months of 2000 -- 6,244 -- as the 6,622 it sold for all of 1999.
That's the good news. The bad news is that in 1999 CarsDirect.com paid $2.3 million more to obtain cars than it recorded in revenue for them. Also in the bad-news column: The average vehicle price declined from just under $25,000 in 1999 to $22,185 in the first quarter of this year. In the first quarter, it eked out a gross profit (humorously dubbed "excess of revenues over cost," normally the definition of gross profit) of $206,000 on revenue of $98.6 million.
What's noteworthy is that the idealab! and CarsDirect.com offerings will be virtually simultaneous, seeing as they're partially selling the same thing. CarsDirect.com accounts for 72% of the $21 million reported revenues for idealab! for the year ended Jan. 31, 2000, under the complex accounting rules that allow the incubator to count as revenues only the sales at companies in which it owns a controlling stake. As noted in a previous
column, CarsDirect.com strenuously defends its definition of "revenues," noting that it takes control of its cars after procuring them for customers and before delivering them. It's a good thing too. If Cars.Direct.com didn't record each transaction as a sale, its revenues would be nil -- or close to it.
"CarsDirect.com knows this is a market-share game," says Dean DeBiase, CEO of Autoweb.com. "They know they've got to double down and go for share." Of course, DeBiase owes a small debt of gratitude to CarsDirect.com, which purchased 750,000 shares of Autoweb stock in March for $10 5/8 each. Shares of Autoweb closed Wednesday up 28% -- at 4 9/16 -- on the strength of its new deal with AOL. Autoweb also is a shareholder of CarsDirect.com. This Internet-stock investment stuff clearly is a tricky business.
As for CarsDirect.com, idealab! or various units of the Pasadena, Calif., Internet incubator own a majority of the shares at various prices. Groups affiliated with famed race car driver and businessman Roger Penske bought more shares at $15 3/4, giving CarsDirect.com a pre-IPO valuation of close to $1 billion.
In its federal filing, CarsDirect.com explains how it hopes to make money one day. "We expect to be able to increase the profitability of our business model by, among other things, pre-negotiating prices for configured vehicles through preferred dealer arrangements and expanding our offerings of vehicle-related products and services." One example is an auto-loan arrangement with
under which CarsDirect.com will supply loans as part of the package.
Autobytel CEO Mark Lorimer scoffs at the CarsDirect plan, saying that his company's ability to work with numerous dealers and offer a wide variety of loan options will win out. "I don't care how big your IPO is, you cannot
the car space," he grouses.
Lise Buyer, an analyst with
Credit Suisse First Boston
who follows Autoweb, notes that each Internet player faces intense competition, but that CarsDirect.com has shown intelligence by planning to rely in part on Autoweb to supply its customers with information. "I'm impressed with any company that will consider consolidation so soon," says Buyer, who rates Autoweb a buy and whose firm underwrote Autoweb's March 1999 IPO at 14.
Give idealab! and CarsDirect.com credit for keeping things interesting. One just wonders how long half-baked companies will continue to ask the public to fund their late-stage financing.
Buyer to become a buyer
Speaking of Lise (pronounced "Liz") Buyer, let it be noted that this unusually friendly, intelligent and straight-talking sell-side analyst is making a career shift. As of July 15, Buyer will be joining
, a Palo Alto, Calif., venture capital firm.
If this lead-in sounds too mushy to be true, tough. Buyer once worked as a buy-side analyst at
T. Rowe Price
and has always seemed just a wee bit uncomfortable hawking IPOs, because of her ability to see things as they are. She's also got a deserved reputation for being gracious to scribes who are trying to figure out the Net.
But Lise, isn't this a lousy time to become a venture capitalist?
"It's reasonable to assume the returns will not be as good over the next few years as they have been," she says. "But now is the time companies need more than money. They actually need help. I'm joining a firm that is not a quantity firm; it's a quality firm," she says, noting that Technology Partners partners do an average of two to three deals per year. "Fundamentals will come back into play in the VC world as well."
Good luck Lise.
Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at