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Car Seller Wheels Out IPO

It filed to go public 10 days after rival, but on Tuesday became the first online car-sales referral service to make its U.S. stock market debut.

The Santa Clara, Calif., company priced the 5 million shares in its initial offering at $14 each, above the initial $10 to $12 range listed in an earlier IPO registration statement.

The stock opened for trading at 21 5/8 - the first price at which most investors could buy the stock - and fell slightly in early trading before gathering speed. By the close of the session, the stock had surged to 40, a premium of 186 percent above the offering price.

With more than 21 million shares changing hands, was the third most active stock on Nasdaq. CS First Boston is the lead underwriter. (AWEB) and (ABTL), which on Tuesday also bumped up the expected price of its 4.5 million share offering, compete in the burgeoning online car-sales market. now expects its IPO to price Tuesday evening at $20 to $22 a share, up from the original $16 to $18 range.

The companies' basic business models are about the same. When a consumer decides to buy an automobile through one of the Web sites, the nearest dealer in the company's network is notified. The dealer then agrees to call the prospective consumer with a haggle-free, competitive offer.

The two companies approach the business a bit differently, though. Autoweb charges members of its dealer network a fee for every referral, while Autobytel dealers pay a set monthly fee.

Autoweb changed over to the per-referral fee system last year. "To be a 'megabrand,' we had to switch the model," Autoweb Chief Executive Dean DeBiase told

Renaissance Capital analyst Ken Fleming said Autoweb's model has led to faster revenue growth for the company - though its $13.1 million in sales for last year still trailed Autobytel by more than $10 million -but has also brought some heavy turnover in its dealer network.

According to Autoweb's prospectus, the company had about 3,900 network car dealers at the end of 1998 but lost about 60 percent of the dealers it had at the beginning of the year.

Turnover had stabilized by the end of 1998, DeBiase said.

Only 70 percent of the company's revenue last year came from dealer fees. Other revenue streams include traditional advertising and a classified service, which allows a customer to post an ad for a used vehicle on the site for $20. The company, with 400,000 registered users, is also getting ready to launch a service center in the second quarter that, according to DeBiase, will help car owners find the best deals for maintenance work.

Fleming said Autoweb hasn't been as aggressive in marketing its brand name as Autobytel has. Autobytel's advertising strategy, under which it spent more than a million dollars a pop for commercial spots in both the 1997 and 1998 Super Bowls, has cost the company dearly. In 199, Autobytel lost $19.4 million vs. $11.5 million in losses for Autoweb.

The initial valuations of the two companies are likely to be similar. Autoweb's $14 offering price puts its market cap at about $328 million, not including outstanding options or debt, while Autobytel's estimated $21 offering price would give that company an initial worth of about $375 million.

At the $40 closing price, Autoweb enjoys a market cap of $937 million, or about 71.5 times its 1998 sales.

According to Web rating firm Media Metrix, Autoweb was the second-most-visited car-referral site in February with 790,000 unique visitors. Autobytel was fourth with 653,000 visitors. Microsoft's (MSFT) CarPoint held the top spot with almost a million unique visitors. Other competitors include Cendant's (CD) AutoVantage and Republic Industries' AutoNation.

The automobile market is a gigantic one. U.S. consumers spent more than $670 billion in 1997 on new and used cars, according to CNW Marketing Research. Throw in sales of automobile insurance and other related products, including replacement parts, and the market stood at about $1 trillion, according to's IPO filing.

"This is not a two- or three-car race," said DeBiase. "It's a very vibrant market." And more and more people are scouring the Web for pricing or performance information before they buy a car. Some 16 percent did so in 1997, and that number should rise to 50 percent by 2002, according to J.D. Power & Associates.

Fleming said the referral model is attractive because the sites don't have to worry about inventory. "This can be a very high-margin business," he said, adding that it will be tough for new competitors to break in once the established sites have formed their dealer networks.

Dealers and car manufacturers have begun to use the Internet to reach customers directly, but DeBiase said the third-party nature of a referral service will always appeal to consumers: "We're a trusted intermediary."

Written By Darren Chervitz, CBS MarketWatch

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