News: Analysis & Commentary: THE INTERNET
THE HOTTEST WEB IPO YOU NEVER SAW
If car broker Auto-By-Tel has to wait, must others as well?
For Peter R. Ellis, the 157-point plunge in the Dow Jones industrial average on Mar. 31 was especially dismaying. Ellis, president and CEO of Auto-By-Tel Corp., was meeting with his advisers on Apr. 1 to price the Internet company's initial public offering. By the end of that day, they had decided to postpone the deal, awaiting more favorable conditions.
As a result, Web entrepreneurs will have to cool their heels a while longer to get a reading on whether it's once again safe to launch Internet IPOs. Auto-By-Tel is considered one of the season's few hot IPO prospects, along with Amazon.com Inc., the online bookseller that filed its prospectus for an offering on Mar. 24. Auto-By-Tel hopes to raise as much as $55 million, while Amazon.com is aiming for $37 million.
WAITING GAME. So far this year, it's been an Internet IPO drought. According to Securities Data Co., only one Internet company has gone public: EarthLink Network Inc., which raised $26 million. Last year by this time, eight deals had raised $275 million. "There are a lot of companies sitting on the sidelines, waiting to go," says Ryan Jacob, director of research for IPO Value Monitor.
If Auto-By-Tel can't make good as an IPO, few companies can. Revenues of the Irvine (Calif.) corporation jumped to $5 million last year, up from just $274,000 the year before. Revenues come mostly from car dealers, who pay monthly fees for names of prospective car buyers funneled to them from Auto-By-Tel's Web site. The company lost $6 million last year, but that's largely because it's on a spending spree to become a national brand. It's running commercials on network TV--even $1.5 million for a 30-second spot on this year's Super Bowl.
The company is the brainchild of Ellis, once one of Southern California's largest car dealers. He was one of the first to try no-haggle selling and came up with the idea of used-car superstores before CarMax. But he lost his new-car dealerships in the California recession of the early '90s, and his used-car business collapsed later. Ellis filed for personal bankruptcy in 1994, bought his first PC, and spent a year cobbling a business plan for selling cars over the Net. He launched Auto-By-Tel on the Prodigy service two years ago and set up the Web site three months later.
Auto-By-Tel has enrolled close to 2,000 dealerships that pay $2,500 a year plus $150 to $1,500 a month, depending on overall sales volume, for subscriptions to the service. Ellis figures that each lead produced by Auto-By-Tel costs the subscribing dealer about $25--far less than the hundreds of dollars it takes to advertise and sell a car the conventional way. That lets a dealer sell the car at a rock-bottom price. "It really works," says John Phillips, general sales manager at Autoland of New Jersey, in Springfield. That dealer's five franchises sell 45 to 55 cars a month to Auto-By-Tel prospects. "It's business that we wouldn't have gotten otherwise," says Phillips.
Auto-By-Tel figures that it was behind 1% of all new-car sales last year, a number that assumes that less than half of its customers ended up buying a vehicle from the dealer who contacted them. Chrysler Corp. estimates that between 1% and 2% of its sales were done through online services last year. And some analysts expect that by 2000, 25% of car buyers will be shopping online. Rivals include AutoVantage, AutobyInternet, and dealer Web sites.
"GREAT FUN." Customers say they love virtual vehicle shopping. "I have always detested buying a new car--the hassle to get the best price," says Edith Fuhn. "But this was great fun. I think this will be the only way to buy a car in the future." In February, she and husband Louis--retirees in Kerrville, Tex.--ran across the Auto-By-Tel site on the Internet and asked for a quote on an Olds Aurora.
If Auto-By-Tel has a potential weakness, it's what the Fuhns did next. The dealer who responded was in San Antonio, 70 miles away. So they bought the car from their local Oldsmobile dealer, who matched the offer.
A consummate car dealer like Pete Ellis knows that he can't close every deal. With the market for public offerings so weak this year, he's just hoping that his own IPO does not become one of the ones that got away.By Larry Armstrong in Los Angeles, with bureau reportsReturn to top