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CarsDirect.com Files for IPO to Raise $172.5 Million

E-commerce: Analysts are skeptical because other online auto dealer stocks are far below their IPO prices.

May 17, 2000|KAREN KAPLAN and DEBORA VRANA | TIMES STAFF WRITERS

CarsDirect.com, the online auto retailer backed by Idealab, said Tuesday that it plans to raise as much as $172.5 million in an initial public offering. But analysts said the Culver City firm is likely to hit some red lights, given the sharp drop in stocks of other money-losing Internet car dealers.

Although CarsDirect.com has sold nearly 13,000 vehicles online at an average price of $22,800 to $26,500, the venture has lost $115.6 million since it was founded in October 1998, according to its filing with the Securities and Exchange Commission.

CarsDirect.com, an offspring of Bill Gross' deep-pocketed Pasadena incubator Idealab, also warns that it expects to lose money "for the foreseeable future and may never become profitable."

Scores of electronic commerce firms are in similar unprofitable straits, but selling cars online is a much riskier proposition than selling everyday items such as toys, books and compact discs, analysts said.

Complicating matters for CarsDirect.com is a tangle of laws in each of the 50 states governing auto brokers and dealers. The company has been forced to suspend business in Texas, Oklahoma and Montana because of regulatory concerns, according to its filing. In addition, CarsDirect.com offers auto financing and insurance, activities that are also highly regulated.

These are some of the reasons stocks of other online car sellers are way off their IPO prices, said David Menlow, president of IPO Financial Network Corp., a New Jersey firm that tracks initial public offerings.

Since CarsDirect.com competitor Autoweb.com went public in March 1999 at $14 a share, the Santa Clara, Calif., firm's stock price has plummeted about 75%. Autoweb.com shares closed at $3.56, up 50 cents, in Nasdaq trading Tuesday.

Autobytel.com Inc. went public at $23 a share a few days after Autoweb.com's IPO. Now the Irvine firm's stock is off 71% from its IPO price, closing Tuesday at $6.63, up 19 cents, in Nasdaq trading.

"Companies like Autobytel and Autoweb have poisoned the well for any other auto concepts," Menlow said. CarsDirect.com is "going to have to have some very unique concepts to turn the tide of investor skepticism for any auto-related IPOs."

In the first three months of the year, CarsDirect.com had a net loss of $43.1 million on revenue of $98.6 million. For all of 1999, it lost $72.3 million on revenue of $15.2 million.

CarsDirect.com and a few Internet-only competitors hope growing interest in online car shopping will turn their losses into profits.

But bricks-and-mortar car dealerships are starting to sell cars via the Web, adding to the competition.

The number of customers willing to buy things online is forecast to grow from 48 million last year to more than 180 million in 2003, and the value of the goods they buy will rise from $111.4 billion to $1.3 trillion during the same period, according to market researcher International Data Corp.

Last year U.S. auto dealers sold 17 million new vehicles, generating $348.2 billion in revenue, according to CarsDirect.com's filing. But only 17,000, or one-tenth of 1%, of those were sold online, according to Rob Leathern, an analyst with New York-based Jupiter Communications.

CarsDirect.com said it sold 6,622 cars online last year, or nearly 40% of the 17,000 sold online. And in the first three months of 2000, it sold 6,255 cars, according to its filing.

By 2004, Leathern expects about 8% of all new-car sales--1.3 million vehicles--will occur online. "CarsDirect.com is definitely one of the first movers here," Leathern said. "But it's too early to say whether they are the leader."

Visitors to CarsDirect.com's Web site can click through a series of pages to comparison-shop or select the specific vehicle they'd like to lease or purchase. About 2,600 makes, models and styles are available, and there is no haggling over prices.

Once a customer orders a car, CarsDirect.com buys it from its network of 2,500 dealers. Then the car is resold to the CarsDirect.com customer and can be delivered right to his or her doorstep.

Last year the company established a joint venture with Bank One to provide financing and leasing services. On Tuesday, CarsDirect.com announced strategic alliances with United Auto Group, the country's second-largest auto dealer.

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