AUTOBYTEL INC ABTL
May 21, 2013 - 1:51pm EST by
andreas947
2013 2014
Price: 4.30 EPS $0.00 $0.00
Shares Out. (in M): 9 P/E 0.0x 0.0x
Market Cap (in $M): 39 P/FCF 6.0x 5.0x
Net Debt (in $M): -10 EBIT 0 0
TEV ($): 29 TEV/EBIT 0.0x 0.0x

Sign up for free guest access to view investment idea with a 45 days delay.

  • Automobiles
  • Micro Cap
  • online marketing
  • Asset light
  • Highly Cash Generative
  • Management Change
 

Description

Autobytel (ABTL)

 

Summary

 

We focus on smaller companies with Ft. Knox balance sheets and large & sustainable free cash flow yields and we are typically seeking a mid-teens FCF yield or higher on an unleveraged basis.  The objective is for the sustainable FCF to eventually drive up the share price to a more reasonable valuation, through share buybacks, debt reductions, dividends, or accretive acquisitions.  Obviously, it is important we have a management team that cares about shareholder value.  We also focus on small and micro-cap stocks because there is a much better chance to find an attractive investment opportunity which is under-followed or undiscovered.

 

One micro-cap stock we like is Autobytel (ABTL), a small automotive marketing services company in the U.S.  ABTL assists automotive retail dealers and manufacturers in marketing and selling new and used vehicles to consumers through its programs for online lead referrals, dealer marketing products and services, and online advertising programs and data products.

 

ABTL has an attractive asset-light business model with limited capital expenditures and working capital needs and ABTL is generating strong free cash flows as its management team has thus far driven an impressive turnaround in the business from the depths of 2008.  New management took over late in 2008 and in 2008 ABTL generated close to negative $22m of free cash flow (we define as cash from operations less capital expenditures).  In 2012, ABTL generated close to $5m of FCF.  ABTL has about 9m shares outstanding at about $4.30 per share for a market cap of about $37m.  ABTL also has a strong balance sheet with a net cash position of about $10m at Q1 of 2013 for a total enterprise value (EV) of about $27m.  ABTL is currently trading near a 17% unleveraged FCF yield with decent prospects for growth in revenues, adjusted EBITDA, and FCF in 2013-14.  We believe ABTL could generate $6m to $7m in FCF per year in 2013-14 and trade for 10x FCF plus $20m or more of excess cash by year end 2014, or an EV of $90m or $10 per share, or 120% more than current price of $4.30 per share.

 

ABTL internally generates most of its revenues from leads it provides to auto OEMs and dealers and is one of the largest suppliers of auto leads in North America, supplying about 4.2m leads in 2012.  CEO Jeff Coats was on ABTL’s Board and became CEO in late 2008.  Faced with large losses and negative cash flows, Coats and his team aggressively reduced cash operating expenses from $68m in 2008 to $24m in 2012.  They also shifted the business model to focus on lead generation and, specifically, internally generated leads - in 2008, ABTL purchased over 90% of its auto leads from third parties and resold these leads to its OEM and auto dealer customers.  In 2012, ABTL generated about 70% of its auto leads internally and purchased about 30% from third parties.  The result has been a more value-added, proprietary business model and improved gross margins, with gross margins improving from 28% in 2008 to 39% in 2012. 

 

In Q3 of 2010, ABTL completed an important strategic acquisition of Cyber and Autotropolis (two companies purchased together) for approximately $17m.  Cyber and Autotropolis were one of ABTL’s largest suppliers of auto leads and the acquisition dramatically enhanced ABTL’s internal lead generation capabilities.  We think ABTL will continue to seek to enhance its internal lead generation capabilities as these leads are the highest quality and it retains control over its own destiny by generating leads internally.

 

ABTL is the largest supplier of auto leads to several of the major OEMs including Nissan, Toyota, and GM.  For several OEMs management believes ABTL supplies close to 50% of the leads they purchase.  Leads purchased by OEMs are then distributed to their dealer base.  In 2012, leads sold to OEMs represented about 70% of sales and leads sold directly to dealers represented about 30%.  ABTL usually receives $18 to $23 per lead generated with an average of about $20 per lead.  Management estimates that ABTL auto leads represented about 4% to 5% of total auto sales in North America in 2011-2.  Importantly, they believe the OEMs recognize their auto leads as among the highest quality in the industry, or the highest closing rate. 

 

ABTL’s lead generation capability has consistently improved over the past four years under the new management team – in 2009 ABTL supplied 2.7m leads of which 90% were generated externally; in 2010, ABTL generated 2.9m leads of which 46% were generated internally; in 2011, ABTL generated 3.9m leads of which 65% were generated internally; and in 2012, ABTL generated 4.2m leads, of which 70% were generated internally.  The acquisition of Cyber and Autotropolis in Q1 of 2010 clearly established ABTL as the largest generator of auto leads.

 

ABTL has also focused on improving its lead quality, including validating each lead (make sure name, phone number, email address is real, etc.), so that customers are not paying for poor quality leads.  Over the past 18 months, ABTL has worked with R.L. Polk, a research firm, which has developed research showing that ABTL’s leads have a closing rate of about 23% as compared to the industry average lead closing rate of 8%, so almost three times the industry average.  ABTL has recently started taking this data to auto OEM and dealer customers to increase market share and improve pricing.  We believe this process has only recently been started and is not yet fully reflected in ABTL’s results.

 

We believe auto OEMs and auto dealers (as well as many other advertisers) are becoming increasingly surgical about how they are spending the vast of dollars they invest in sales and marketing.  Auto leads that companies like ABTL generate are a much more targeted investment than television, radio, and newspaper ads.  We expect auto advertising dollars to continue to shift towards more focused expenditures like purchasing auto leads.  Furthermore, we think ABTL’s focus on high quality leads and carefully “scrubbing” these leads before selling them to auto OEMs and dealers is a significant value-add process that helps entrench ABTL’s competitive position.  We believe the structure of the decision-making at the dealers and OEMs is such that auto leads must be sold account by account.  We think this is good for ABTL because the value-add to these customers makes it hard for a large player like Google to simply dis-intermediate out ABTL’s position.  In effect, the dealer and OEM relationships of ABTL are a strong barrier to entry.

 

We also believe ABTL is well-positioned to potentially benefit from a continued rebound in the auto industry over the next couple of years as pent up demand continues to drive improving total North American auto sales in 2013-4.

 

Other Segments

 

Auto lead generation is the primary driver of ABTL’s revenues, generating about 95% of total revenues in 2012.  ABTL’s two other revenue sources in addition to its auto lead generation business: financing leads and advertising.  ABTL generates financing leads for subprime borrowers who have credit issues, acting purely in an agency role.  ABTL also generates revenue from advertising on its flagship autobytel.com website.  In 2012, ABTL’s advertising revenues were about $3.5m or about 5% of total revenues, as compared to $3.8m in 2011, or about 6% of total revenues.

 

Financial Results for Q1 of 2013

 

Q1 revenue was $18.3m or up 9% versus $16.7m in prior year, as ABTL realized double digit increases in auto lead volumes, with 15% growth in retail auto lead revenue and 11% growth in wholesale auto lead revenue. 

 

ABTL’s results in Q1 2013 were directly tied to the strategic investments the company is continuing to make, including enhanced customer acquisition and high quality lead generation activities.  The result has been greater market recognition, a growing customer base, and increased revenue.  In Q1 2013, ABTL delivered approximately 1.2m auto leads, which was up 13% over prior year and 12% sequentially.  71% of leads were to wholesale channel and 29% to retail channel.

 

Strong cash generative business model and attractive FCF yield

 

ABTL has a highly cash generative business model which is asset-light with limited capital expenditures and working capital needs and a high ROIC.  Furthermore, ABTL currently trades at an attractive 17% unleveraged FCF yield, with decent prospects for near term growth in FCF in 2013-14.  ABTL has a high ROIC business model (over 100%) based on adjusted EBITDA versus the investments in net working capital and net PPE.  Consequently, with even modest revenue growth, we think ABTL can generate significant incremental FCF from current levels.

 

 

 

 

 

 

 

 

Strong Competitive Position

 

We think ABTL has a strong competitive position in the auto lead generating business.  We believe ABTL is the largest supplier of auto leads to OEMs and dealers in North America.  ABTL internally generates over 70% of its auto leads which gives it an important competitive advantage.  Further, ABTL is laser-focused on high quality leads which are critical to building long-term relationships with OEM and dealer customers.  ABTL has the largest distribution network for leads in the industry.  We believe its long-term relationships with OEM and dealer customers are an important competitive advantage.  AutoUSA, a subsidiary of AutoNation (AN), and Dealix are ABTL’s two largest competitors in the auto lead generating business.  Both companies purchase most of their leads from third parties and this gives ABTL a significant competitive advantage.  Edmunds.com and KBB.com also generate auto leads.

 

Excellent Turnaround by New Management Team Since 2008

 

We believe ABTL’s management team, led by CEO Jeff Coats, has completed an impressive turnaround to date, rebounding from a very difficult situation.  Operating expenses have been reduced from $68m in 2007 to $24m in 2011 and 2012, not an easy feat.  Further, the business model has become much stronger as ABTL generates close to 70% of leads internally today versus under 10% in 2008.  This greater value-added position gives ABTL a much stronger competitive advantage and has resulted in higher gross margins, from 28% in 2008 to 40% in 2012.  Also, ABTL has built a strong distribution network and excellent relationships with auto OEMs and dealers.  Finally, ABTL has focused intently on generating only high quality, more valuable leads, which have much higher close rates than industry averages.  Management completed an important strategic acquisition with Cyber and Autotropolis in 2010.  Lastly, ABTL is continuing to upgrade its flagship Autobytel.com website with proprietary video and written content, such as over 500 YouTube Videos with five-minute video demos of specific autos. 

 

Auto Industry Trends Towards More Focused Advertising Spend

 

We believe the huge advertising and marketing dollars which auto OEMs and dealers spend will include an increasingly large share for more focused investments, like purchasing auto leads from ABTL and others, as a supplement to the television, radio, and newspaper spending these industry players currently make.  We would expect these large advertisers/marketers to become increasingly surgical and more efficient about how they investment their marketing dollars.  There is evidence to support this thesis and we think it will increasingly favor niche focused marketers like ABTL.

 

Recognition of Superior Quality of ABTL’s Auto Leads

 

ABTL’s auto leads are much higher quality than the average industry leads.  We believe the Polk study which indicates a 23% closing rate for ABTL leads as compared to the industry average of 6% to 8% closing rate will help increase ABTL’s market share and improve its pricing as auto OEMs and dealers gradually recognize the greater value inherent in these leads.

 

Potential Benefit from Rebound in the North American Auto Industry

 

The U.S. auto industry is rebounding from the severe downturn in 2008-10, when Retail U.S. Light Vehicle Sales dropped to 8.6m and 9,2n in 2009-10.  J.D. Power’s 2012 Retail U.S. Light Vehicle Sales were 11.7m with estimates for 2013, 2014, and 2015 of 12.2m, 13.3m, and 13.6m, respectively.  ABTL should clearly benefit from this auto industry rebound.

 

Attractive Upside Potential

 

In 2012, ABTL generated approximately $5m of FCF (cash from operations less capital expenditures).  We believe ABTL can grow adjusted EBITDA and FCF in 2013-14 based on increased lead volumes, stronger pricing, and sales growth on a relatively stable based of operating expenses.  ABTL’s gross margin rate was slightly down in Q1 due to investments in the website its traffic as well as enhanced lead sales capabilities.  We believe ABTL’s gross margin can return near towards the 40% level on a stronger base of sales in the second half of 2013.  We also think ABTL can maintain operating expenses fairly stable, resulting in the potential for significant operating leverage and incremental EBITDA and FCF.

 

We believe ABTL can achieve FCF of $6m-$7m in 2013-14 and the balance sheet could see incremental net cash of $10m+ over 2013-14 on top of its current $10m net cash position.  We believe ABTL could trade for $70m or 10x FCF in 2014 plus $20m of excess cash at year end 2014 or $90m or close to $10 per share, more than 120% higher than current price of $4.30 per share.

 

Potential for Share Repurchase or Dividends

 

ABTL currently has a $2m share repurchase program in place.  We believe ABTL’s management is well aware of the current depressed relative valuation of its stock and is taking this into consideration when evaluating potential acquisitions.  We believe that if JRN’s share price remains depressed and management is unable to find attractively priced acquisitions, there could be an acceleration of the share-repurchase program and/or a major dividend program.

 

Solid Balance Sheet and Expected Steady Build-up in Net Cash Position.

 

ABTL has a strong balance sheet with a net cash position of $10m at Q1 of 2013.  We believe management has positioned ABTL to generate $5m to $7m of FCF per year in 2013 and 2014 excluding dividends, share repurchases, or acquisitions.  Therefore, we think ABTL could end 2014 with a net cash position of $20m or more, over 50% of the current EV.  Alternatively, management may use the strong cash position to repurchase shares, pay dividends, or complete accretive acquisitions.  We believe management is considering acquisitions but is likely to be careful in deploying its excess capital.  Management completed a successful strategic acquisition in 2010 which dramatically strengthened the internal lead-generating capabilities of the company.  Further, management teams that have worked so hard to bring down the cost structure - operating expenses from $68m in 2007 to $24m in 2012 - are unlikely to chase non-accretive acquisitions.  We think the potential build up in net cash over 2013-4 will highlight the strong cash generating capabilities of the business model and attract investor attention to the stock.

 

Conclusion and Target Price

 

Based on 10x our FCF estimate of $7m for 2014 plus a projected $20m net cash position at year-end 2014, we believe ABTL could trade for an EV of close to $90m or $10 per share or more versus $4.30 per share today (+130%).  If ABTL continues to execute and its auto leads generating business performs as we expect, we think our target price can be achieved.  Further, ABTL’s auto lead-generating business has a well-established competitive position for online auto information and traffic as well as important relationships with auto dealers and OEM’s and could prove attractive to a strategic or private equity acquirer.

 

 

 

 

Major   Shareholders

 

 

Coghill Capital

1,488

16.6%

Dimensional Fund

     420

    4.7%

Royce & Associates

     349

    3.9%

BlackRock Institution

     343

    3.8%

Vanguard Group

     317

     3.6%

Adirondack Res

    262

    2.9%

Lynn Street Cap

    238

  2.7%

Jeff Coats. CEO

   

%

 

 

 

Avg   Daily Volume

Price per share

$4.30

   

22,000

 

Shares outstanding

9

 

 

Market value

$39

 

 

 

52 week range

$3.37

$4.65

 

             
 

Income statements

           

3mos

3mos

FYE 12/31

2007

2008

2009

2010

2011

2012

2012

2013

Sales

$84

$71

$53

$52

$64

$67

$17

$18

Gross profit

$32

$20

$19

$20

$26

$26

$7

$7

Adjusted EBITDA (1)

$

$

$

($7)

$3

$4

$1

$1

Adjusted EBIT (1)

($31)

($36)

($8)

($11)

$0

$2

$0

$0

Net income

($35)

($80)

($2)

($12)

$0

$1

$0

$0

Cash EPS – cont. ops

$

$

$

$

$0.37

$0.48

$0.11

$0.12

Gross margin %

38%

28%

36%

38%

41%

39%

41%

36%

Cash   flow statements

   

 

FYE 12/31

2007

2008

2009

2010

2011

2012

2012

2013

Net income

($5)

($80)

($2)

($9)

$0

$1

$0

$0

Dep & amort

$4

$5

$2

$1

$2

$2

$1

$1

Non cash adjust

($5)

$59

$1

$2

$2

$1

$0

$0

Working capital chgs

($1)

($4)

($3)

$1

($2)

$1

$0

($1)

Cash fr operations

($7)

($20)

($4)

($5)

$3

$6

$1

$0

Capital expenditures

($8)

($2)

($0)

($2)

($1)

($1)

($0)

($0)

Dividends

$0

$0

$0

$0

$0

$0

$0

($0)

Share repurchases

$1

$0

$0

$0

$0

($1)

($0)

($0)

Acquisitions

$14

$21

$2

($10)

$0

$0

$0

$0

Est. free cash flow

($15)

($22)

($4)

($7)

$2

$5

$1

$0

Balance sheets

 

 

FYE 12/31

2007

2008

2009

2010

2011

2012

3/31/13

 

Cash

$28

$27

$25

$9

$12

$15

$15

 

Total assets

$122

$42

$35

$38

$39

$41

$42

 

Total debt

$0

$0

$0

$5

$5

$5

$5

 

Shareholder equity

$106

$30

$28

$23

$25

$26

$26

 
                 

Net debt / (cash)

($28)

($27)

($25)

($4)

($7)

($10)

($10)

 
 

 

Shares outstanding

9.0

9.0

9.0

9.1

9.1

8.9

8.9

 
                         
 

 

 

Valuation & Valuation Ratios

 

Market value

$39

EV / Adjusted EBITDA

7.0

Net cash

($10)

Enterprise Value / Free Cash Flow

5.8

Preferred

$0

Enterprise Value / Cash from Ops

5.8

Enterprise value

$29

Enterprise Value / Revenues

42%

 

 

Price per share

$4.30

 

Shares outstanding

9

 

Market value

$39

Avg Daily Volume

 

   

22,000

 

52 week range

$3.37

$4.65

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

                   
 

 

 

 

                   

 

 

 

 

 

                   

 

                                               

 

 

Detailed Income Statements**

 

 

2006

2007

2008

2009

2010

2011

2012

3mos 2012

3mos 2013

Lead Fee Revenue

$68

$67

$63

$46

$48

$60

$63

$16

$18

Advertising Revenue

$18

$17

$8

$7

$4

$4

$4

$1

$1

Other Revenue

$0

$0

$0

$0

$0

$0

$0

$0

$0

       

 

 

 

 

 

 

Total Revenue

$85

$84

$71

$53

$52

$64

$67

$17

$18

       

 

 

 

 

 

 

Cost of revenues

$48

$53

$51

$34

$32

$38

$41

$10

$12

Gross profit

$38

$32

$20

$19

$20

$26

$26

$7

$7

Gross margin

45%

38%

28%

36%

38%

41%

39%

41%

36%

       

 

 

 

 

 

 

Sales and marketing exp.

$20

$22

$17

$10

$12

$9

$9

$2

$2

Technology support exp.

$18

$18

$16

$4

$7

$7

$7

$2

$2

General & admin. exp.

$40

$28

$23

$12

$12

$8

$8

$2

$2

Dep. & Amort.

 

 

 

$1

$1

$2

$2

$0

$1

Patent Litigation Settlement

 

($12)

($3)

($3)

($3)

($1)

$0

 

 

Goodwill impairment

 

 

$52

 

 

 

 

 

 

Total cash operating exp*

 $78

$68

$56

$26

$31

$24

$24

$6

$6

Operating income

($39)

($23)

($84)

($5)

($9)

$1

$2

$0

$0

Interest Income

$2

$6

$1

$1

$1

$0

$0

$0

$0

Taxes

$0

$0

$0

($1)

$0

$0

$0

$0

$0

Net income

($32)

($5)

($80)

($4)

($9)

$0

$1

$0

$0

 

 

 

 

 

 

 

 

 

 

       

 

 

 

 

 

 

*Excludes D&A expense.

** Reflects acquisition of Cyber   and Autotropolis in Sept 2010,

 

 

 

 

 

         

 

 

 

 

       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

       

 

 

 

 

 

 

 

 

 

Detailed Quarterly Income Statements

 

 

9/10

12/10

3/11

6/11

9/11

12/11

3/12

6/12

9/12

12/12

3/13

Lead Fee Revenue

$12

$14

$15

$14

$16

$15

$16

$17

$17

$16

$18

Advertising Revenue

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

Other Revenue

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

 

 

 

     

 

 

 

 

 

 

Total Revenue

$13

$15

$16

$15

$16

$16

$17

$18

$18

$17

$18

 

 

 

     

 

 

 

 

 

 

Cost of revenues

$8

$9

$10

$9

$10

$9

$10

$11

$11

$10

$12

Gross profit

$5

$6

$6

$6

$7

$7

$7

$7

$7

$7

$7

Gross margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

Sales and marketing exp.

$3

$3

$2

$2

$2

$2

$2

$

$2

$2

$2

Technology support exp.

$2

$2

$2

$2

$2

$2

$2

$2

$2

$2

$2

General & admin. exp.

$3

$3

$2

$2

$2

$2

$2

$2

$2

$2

$2

Dep. & Amort.

$0

$1

 

 $1

 $0

$0

$0

$0

$1

$0

$1

Total cash operating exp*

$8

$8

 $6

$6

$6

$6

$6

$5

$6

$6

$6

 

 

 

     

 

 

 

 

 

 

*Excludes D&A expense.

 

 

 

 

 

 

 

         

 

 

 

 

 

 

 

 

 

Detailed Quarterly Balance Sheets

 

 

6/10

9/10

12/10

3/11

6/11

9/11

12/11

3/12

6/12

9/12

12/12

3/13

Cash and equivalents

$24

     $10

$9

$8

$9

$9

$11

$12

$12

$14

$15

$15

A/R

$7

     $9

$9

$10

$10

$11

$11

$11

$10

$11

 $10

$12

Prepaids and other

$1

       $1

$1

$1

$1

$1

$1

$0

$1

$1

$1

$1

 

 

                 

 

 

 

 

Total current

$32

     $21

$19

$18

$20

$21

$22

$23

$23

$25

$26

$27

 

 

                 

 

 

 

 

PPE, net

$1

      $1

$2

$2

$2

$2

$2

$2

$2

$2

$2

$2

Other asset

$0

       $17

$17

$16

$17

$14

$14

$3

$14

$13

$13

$13

Total assets

$33

$39

$38

$37

$38

$38

$38

$39

$39

$41

$41

$42

 

 

                 

 

 

 

 

A/P

$3

     $3

$4

$4

$5

$4

$3

$4

$5

$5

$4

$5

Accrued expenses

$3

 $4

$5

$4

$4

$4

$5

$4

$4

$5

$5

$4

CPLTD

$0

     $0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Def revenue

$1

 $1

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

 

 

                 

 

 

 

 

Total current

$7

 $8

$9

$8

$9

$8

$8

$8

$9

$10

$9

$10

 

 

                 

 

 

 

 

LTD

$0

    $5

$5

$5

$5

$5

$5

$5

$5

$5

$5

$5

Other liabilities

$0

$0

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

 

 

                 

 

 

Shareholder equity

$27

$26

$23

$23

$24

$24

$25

$25

$24

$25

$26

$26

 

 

 

 

 

 

 

 

 

 

 

 

 

Net   debt

($24)

($5)

($4)

($3)

($4)

($4)

($6)

($7)

($7)

($9)

($10)

($10)

 

 

                 

 

 

 

 

                 

 

 

 

 

 

 

                 

 

 

 

 

 

 

                 

 

 

 

 

                                                 

 

 

                         

Catalysts

  1. Low valuation (20%+ unleveraged FCF yield and 0.5x LTM revs).
  2. Steady build-up of cash on balance sheet, from $10m net cash position at 3/31/13 to $20m+ net cash position at 12/31/14.
  3. Projected FY2014 FCF of $7m.
  4. Enhanced appreciation for the value of ABTL’s auto leads by dealers and OEMs
  5. Share repurchases and dividends from excess cash and FCF generation.
  6. Possible acquisition of ABTL by a strategic or financial purchaser.
  7. Increased analyst coverage and recognition of ABTL.

Risks

 

  1. The U.S. economy declines, including the auto industry, which is cyclical.
  2. We are defining FCF as cash from operations less capital expenditures and including non-cash stock comp and some other add-backs which some investors would not want to include.
  3. ABTL is unable to improve its gross margins or grow its revenues as we expected.
  4. New technologies (Google, etc.) impact or dis-intermediate ABTL’s search process or lead generation.
  5. Misallocation of capital into a poor acquisition. 

 

 

 

Disclaimer

 

Disclaimer:  We own shares of ABTL.  We may buy or sell these shares at any time without notice.  The information in the write-up is believed to be correct as of the date written but VIC members should do their own verification of this information and analysis of this potential investment.  We undertake no obligation to update this write-up if new information arises at a future date.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst

see above
    sort by   Expand   New

    Description

    Autobytel (ABTL)

     

    Summary

     

    We focus on smaller companies with Ft. Knox balance sheets and large & sustainable free cash flow yields and we are typically seeking a mid-teens FCF yield or higher on an unleveraged basis.  The objective is for the sustainable FCF to eventually drive up the share price to a more reasonable valuation, through share buybacks, debt reductions, dividends, or accretive acquisitions.  Obviously, it is important we have a management team that cares about shareholder value.  We also focus on small and micro-cap stocks because there is a much better chance to find an attractive investment opportunity which is under-followed or undiscovered.

     

    One micro-cap stock we like is Autobytel (ABTL), a small automotive marketing services company in the U.S.  ABTL assists automotive retail dealers and manufacturers in marketing and selling new and used vehicles to consumers through its programs for online lead referrals, dealer marketing products and services, and online advertising programs and data products.

     

    ABTL has an attractive asset-light business model with limited capital expenditures and working capital needs and ABTL is generating strong free cash flows as its management team has thus far driven an impressive turnaround in the business from the depths of 2008.  New management took over late in 2008 and in 2008 ABTL generated close to negative $22m of free cash flow (we define as cash from operations less capital expenditures).  In 2012, ABTL generated close to $5m of FCF.  ABTL has about 9m shares outstanding at about $4.30 per share for a market cap of about $37m.  ABTL also has a strong balance sheet with a net cash position of about $10m at Q1 of 2013 for a total enterprise value (EV) of about $27m.  ABTL is currently trading near a 17% unleveraged FCF yield with decent prospects for growth in revenues, adjusted EBITDA, and FCF in 2013-14.  We believe ABTL could generate $6m to $7m in FCF per year in 2013-14 and trade for 10x FCF plus $20m or more of excess cash by year end 2014, or an EV of $90m or $10 per share, or 120% more than current price of $4.30 per share.

     

    ABTL internally generates most of its revenues from leads it provides to auto OEMs and dealers and is one of the largest suppliers of auto leads in North America, supplying about 4.2m leads in 2012.  CEO Jeff Coats was on ABTL’s Board and became CEO in late 2008.  Faced with large losses and negative cash flows, Coats and his team aggressively reduced cash operating expenses from $68m in 2008 to $24m in 2012.  They also shifted the business model to focus on lead generation and, specifically, internally generated leads - in 2008, ABTL purchased over 90% of its auto leads from third parties and resold these leads to its OEM and auto dealer customers.  In 2012, ABTL generated about 70% of its auto leads internally and purchased about 30% from third parties.  The result has been a more value-added, proprietary business model and improved gross margins, with gross margins improving from 28% in 2008 to 39% in 2012. 

     

    In Q3 of 2010, ABTL completed an important strategic acquisition of Cyber and Autotropolis (two companies purchased together) for approximately $17m.  Cyber and Autotropolis were one of ABTL’s largest suppliers of auto leads and the acquisition dramatically enhanced ABTL’s internal lead generation capabilities.  We think ABTL will continue to seek to enhance its internal lead generation capabilities as these leads are the highest quality and it retains control over its own destiny by generating leads internally.

     

    ABTL is the largest supplier of auto leads to several of the major OEMs including Nissan, Toyota, and GM.  For several OEMs management believes ABTL supplies close to 50% of the leads they purchase.  Leads purchased by OEMs are then distributed to their dealer base.  In 2012, leads sold to OEMs represented about 70% of sales and leads sold directly to dealers represented about 30%.  ABTL usually receives $18 to $23 per lead generated with an average of about $20 per lead.  Management estimates that ABTL auto leads represented about 4% to 5% of total auto sales in North America in 2011-2.  Importantly, they believe the OEMs recognize their auto leads as among the highest quality in the industry, or the highest closing rate. 

     

    ABTL’s lead generation capability has consistently improved over the past four years under the new management team – in 2009 ABTL supplied 2.7m leads of which 90% were generated externally; in 2010, ABTL generated 2.9m leads of which 46% were generated internally; in 2011, ABTL generated 3.9m leads of which 65% were generated internally; and in 2012, ABTL generated 4.2m leads, of which 70% were generated internally.  The acquisition of Cyber and Autotropolis in Q1 of 2010 clearly established ABTL as the largest generator of auto leads.

     

    ABTL has also focused on improving its lead quality, including validating each lead (make sure name, phone number, email address is real, etc.), so that customers are not paying for poor quality leads.  Over the past 18 months, ABTL has worked with R.L. Polk, a research firm, which has developed research showing that ABTL’s leads have a closing rate of about 23% as compared to the industry average lead closing rate of 8%, so almost three times the industry average.  ABTL has recently started taking this data to auto OEM and dealer customers to increase market share and improve pricing.  We believe this process has only recently been started and is not yet fully reflected in ABTL’s results.

     

    We believe auto OEMs and auto dealers (as well as many other advertisers) are becoming increasingly surgical about how they are spending the vast of dollars they invest in sales and marketing.  Auto leads that companies like ABTL generate are a much more targeted investment than television, radio, and newspaper ads.  We expect auto advertising dollars to continue to shift towards more focused expenditures like purchasing auto leads.  Furthermore, we think ABTL’s focus on high quality leads and carefully “scrubbing” these leads before selling them to auto OEMs and dealers is a significant value-add process that helps entrench ABTL’s competitive position.  We believe the structure of the decision-making at the dealers and OEMs is such that auto leads must be sold account by account.  We think this is good for ABTL because the value-add to these customers makes it hard for a large player like Google to simply dis-intermediate out ABTL’s position.  In effect, the dealer and OEM relationships of ABTL are a strong barrier to entry.

     

    We also believe ABTL is well-positioned to potentially benefit from a continued rebound in the auto industry over the next couple of years as pent up demand continues to drive improving total North American auto sales in 2013-4.

     

    Other Segments

     

    Auto lead generation is the primary driver of ABTL’s revenues, generating about 95% of total revenues in 2012.  ABTL’s two other revenue sources in addition to its auto lead generation business: financing leads and advertising.  ABTL generates financing leads for subprime borrowers who have credit issues, acting purely in an agency role.  ABTL also generates revenue from advertising on its flagship autobytel.com website.  In 2012, ABTL’s advertising revenues were about $3.5m or about 5% of total revenues, as compared to $3.8m in 2011, or about 6% of total revenues.

     

    Financial Results for Q1 of 2013

     

    Q1 revenue was $18.3m or up 9% versus $16.7m in prior year, as ABTL realized double digit increases in auto lead volumes, with 15% growth in retail auto lead revenue and 11% growth in wholesale auto lead revenue. 

     

    ABTL’s results in Q1 2013 were directly tied to the strategic investments the company is continuing to make, including enhanced customer acquisition and high quality lead generation activities.  The result has been greater market recognition, a growing customer base, and increased revenue.  In Q1 2013, ABTL delivered approximately 1.2m auto leads, which was up 13% over prior year and 12% sequentially.  71% of leads were to wholesale channel and 29% to retail channel.

     

    Strong cash generative business model and attractive FCF yield

     

    ABTL has a highly cash generative business model which is asset-light with limited capital expenditures and working capital needs and a high ROIC.  Furthermore, ABTL currently trades at an attractive 17% unleveraged FCF yield, with decent prospects for near term growth in FCF in 2013-14.  ABTL has a high ROIC business model (over 100%) based on adjusted EBITDA versus the investments in net working capital and net PPE.  Consequently, with even modest revenue growth, we think ABTL can generate significant incremental FCF from current levels.

     

     

     

     

     

     

     

     

    Strong Competitive Position

     

    We think ABTL has a strong competitive position in the auto lead generating business.  We believe ABTL is the largest supplier of auto leads to OEMs and dealers in North America.  ABTL internally generates over 70% of its auto leads which gives it an important competitive advantage.  Further, ABTL is laser-focused on high quality leads which are critical to building long-term relationships with OEM and dealer customers.  ABTL has the largest distribution network for leads in the industry.  We believe its long-term relationships with OEM and dealer customers are an important competitive advantage.  AutoUSA, a subsidiary of AutoNation (AN), and Dealix are ABTL’s two largest competitors in the auto lead generating business.  Both companies purchase most of their leads from third parties and this gives ABTL a significant competitive advantage.  Edmunds.com and KBB.com also generate auto leads.

     

    Excellent Turnaround by New Management Team Since 2008

     

    We believe ABTL’s management team, led by CEO Jeff Coats, has completed an impressive turnaround to date, rebounding from a very difficult situation.  Operating expenses have been reduced from $68m in 2007 to $24m in 2011 and 2012, not an easy feat.  Further, the business model has become much stronger as ABTL generates close to 70% of leads internally today versus under 10% in 2008.  This greater value-added position gives ABTL a much stronger competitive advantage and has resulted in higher gross margins, from 28% in 2008 to 40% in 2012.  Also, ABTL has built a strong distribution network and excellent relationships with auto OEMs and dealers.  Finally, ABTL has focused intently on generating only high quality, more valuable leads, which have much higher close rates than industry averages.  Management completed an important strategic acquisition with Cyber and Autotropolis in 2010.  Lastly, ABTL is continuing to upgrade its flagship Autobytel.com website with proprietary video and written content, such as over 500 YouTube Videos with five-minute video demos of specific autos. 

     

    Auto Industry Trends Towards More Focused Advertising Spend

     

    We believe the huge advertising and marketing dollars which auto OEMs and dealers spend will include an increasingly large share for more focused investments, like purchasing auto leads from ABTL and others, as a supplement to the television, radio, and newspaper spending these industry players currently make.  We would expect these large advertisers/marketers to become increasingly surgical and more efficient about how they investment their marketing dollars.  There is evidence to support this thesis and we think it will increasingly favor niche focused marketers like ABTL.

     

    Recognition of Superior Quality of ABTL’s Auto Leads

     

    ABTL’s auto leads are much higher quality than the average industry leads.  We believe the Polk study which indicates a 23% closing rate for ABTL leads as compared to the industry average of 6% to 8% closing rate will help increase ABTL’s market share and improve its pricing as auto OEMs and dealers gradually recognize the greater value inherent in these leads.

     

    Potential Benefit from Rebound in the North American Auto Industry

     

    The U.S. auto industry is rebounding from the severe downturn in 2008-10, when Retail U.S. Light Vehicle Sales dropped to 8.6m and 9,2n in 2009-10.  J.D. Power’s 2012 Retail U.S. Light Vehicle Sales were 11.7m with estimates for 2013, 2014, and 2015 of 12.2m, 13.3m, and 13.6m, respectively.  ABTL should clearly benefit from this auto industry rebound.

     

    Attractive Upside Potential

     

    In 2012, ABTL generated approximately $5m of FCF (cash from operations less capital expenditures).  We believe ABTL can grow adjusted EBITDA and FCF in 2013-14 based on increased lead volumes, stronger pricing, and sales growth on a relatively stable based of operating expenses.  ABTL’s gross margin rate was slightly down in Q1 due to investments in the website its traffic as well as enhanced lead sales capabilities.  We believe ABTL’s gross margin can return near towards the 40% level on a stronger base of sales in the second half of 2013.  We also think ABTL can maintain operating expenses fairly stable, resulting in the potential for significant operating leverage and incremental EBITDA and FCF.

     

    We believe ABTL can achieve FCF of $6m-$7m in 2013-14 and the balance sheet could see incremental net cash of $10m+ over 2013-14 on top of its current $10m net cash position.  We believe ABTL could trade for $70m or 10x FCF in 2014 plus $20m of excess cash at year end 2014 or $90m or close to $10 per share, more than 120% higher than current price of $4.30 per share.

     

    Potential for Share Repurchase or Dividends

     

    ABTL currently has a $2m share repurchase program in place.  We believe ABTL’s management is well aware of the current depressed relative valuation of its stock and is taking this into consideration when evaluating potential acquisitions.  We believe that if JRN’s share price remains depressed and management is unable to find attractively priced acquisitions, there could be an acceleration of the share-repurchase program and/or a major dividend program.

     

    Solid Balance Sheet and Expected Steady Build-up in Net Cash Position.

     

    ABTL has a strong balance sheet with a net cash position of $10m at Q1 of 2013.  We believe management has positioned ABTL to generate $5m to $7m of FCF per year in 2013 and 2014 excluding dividends, share repurchases, or acquisitions.  Therefore, we think ABTL could end 2014 with a net cash position of $20m or more, over 50% of the current EV.  Alternatively, management may use the strong cash position to repurchase shares, pay dividends, or complete accretive acquisitions.  We believe management is considering acquisitions but is likely to be careful in deploying its excess capital.  Management completed a successful strategic acquisition in 2010 which dramatically strengthened the internal lead-generating capabilities of the company.  Further, management teams that have worked so hard to bring down the cost structure - operating expenses from $68m in 2007 to $24m in 2012 - are unlikely to chase non-accretive acquisitions.  We think the potential build up in net cash over 2013-4 will highlight the strong cash generating capabilities of the business model and attract investor attention to the stock.

     

    Conclusion and Target Price

     

    Based on 10x our FCF estimate of $7m for 2014 plus a projected $20m net cash position at year-end 2014, we believe ABTL could trade for an EV of close to $90m or $10 per share or more versus $4.30 per share today (+130%).  If ABTL continues to execute and its auto leads generating business performs as we expect, we think our target price can be achieved.  Further, ABTL’s auto lead-generating business has a well-established competitive position for online auto information and traffic as well as important relationships with auto dealers and OEM’s and could prove attractive to a strategic or private equity acquirer.

     

     

     

     

    Major   Shareholders

     

     

    Coghill Capital

    1,488

    16.6%

    Dimensional Fund

         420

        4.7%

    Royce & Associates

         349

        3.9%

    BlackRock Institution

         343

        3.8%

    Vanguard Group

         317

         3.6%

    Adirondack Res

        262

        2.9%

    Lynn Street Cap

        238

      2.7%

    Jeff Coats. CEO

       

    %

     

     

     

    Avg   Daily Volume

    Price per share

    $4.30

       

    22,000

     

    Shares outstanding

    9

     

     

    Market value

    $39

     

     

     

    52 week range

    $3.37

    $4.65

     

                 
     

    Income statements

               

    3mos

    3mos

    FYE 12/31

    2007

    2008

    2009

    2010

    2011

    2012

    2012

    2013

    Sales

    $84

    $71

    $53

    $52

    $64

    $67

    $17

    $18

    Gross profit

    $32

    $20

    $19

    $20

    $26

    $26

    $7

    $7

    Adjusted EBITDA (1)

    $

    $

    $

    ($7)

    $3

    $4

    $1

    $1

    Adjusted EBIT (1)

    ($31)

    ($36)

    ($8)

    ($11)

    $0

    $2

    $0

    $0

    Net income

    ($35)

    ($80)

    ($2)

    ($12)

    $0

    $1

    $0

    $0

    Cash EPS – cont. ops

    $

    $

    $

    $

    $0.37

    $0.48

    $0.11

    $0.12

    Gross margin %

    38%

    28%

    36%

    38%

    41%

    39%

    41%

    36%

    Cash   flow statements

       

     

    FYE 12/31

    2007

    2008

    2009

    2010

    2011

    2012

    2012

    2013

    Net income

    ($5)

    ($80)

    ($2)

    ($9)

    $0

    $1

    $0

    $0

    Dep & amort

    $4

    $5

    $2

    $1

    $2

    $2

    $1

    $1

    Non cash adjust

    ($5)

    $59

    $1

    $2

    $2

    $1

    $0

    $0

    Working capital chgs

    ($1)

    ($4)

    ($3)

    $1

    ($2)

    $1

    $0

    ($1)

    Cash fr operations

    ($7)

    ($20)

    ($4)

    ($5)

    $3

    $6

    $1

    $0

    Capital expenditures

    ($8)

    ($2)

    ($0)

    ($2)

    ($1)

    ($1)

    ($0)

    ($0)

    Dividends

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    ($0)

    Share repurchases

    $1

    $0

    $0

    $0

    $0

    ($1)

    ($0)

    ($0)

    Acquisitions

    $14

    $21

    $2

    ($10)

    $0

    $0

    $0

    $0

    Est. free cash flow

    ($15)

    ($22)

    ($4)

    ($7)

    $2

    $5

    $1

    $0

    Balance sheets

     

     

    FYE 12/31

    2007

    2008

    2009

    2010

    2011

    2012

    3/31/13

     

    Cash

    $28

    $27

    $25

    $9

    $12

    $15

    $15

     

    Total assets

    $122

    $42

    $35

    $38

    $39

    $41

    $42

     

    Total debt

    $0

    $0

    $0

    $5

    $5

    $5

    $5

     

    Shareholder equity

    $106

    $30

    $28

    $23

    $25

    $26

    $26

     
                     

    Net debt / (cash)

    ($28)

    ($27)

    ($25)

    ($4)

    ($7)

    ($10)

    ($10)

     
     

     

    Shares outstanding

    9.0

    9.0

    9.0

    9.1

    9.1

    8.9

    8.9

     
                             
     

     

     

    Valuation & Valuation Ratios

     

    Market value

    $39

    EV / Adjusted EBITDA

    7.0

    Net cash

    ($10)

    Enterprise Value / Free Cash Flow

    5.8

    Preferred

    $0

    Enterprise Value / Cash from Ops

    5.8

    Enterprise value

    $29

    Enterprise Value / Revenues

    42%

     

     

    Price per share

    $4.30

     

    Shares outstanding

    9

     

    Market value

    $39

    Avg Daily Volume

     

       

    22,000

     

    52 week range

    $3.37

    $4.65

     

     

     

                     

     

     

     

     

     

     

     

     

     

     

     

                       
     

     

     

     

                       

     

     

     

     

     

                       

     

                                                   

     

     

    Detailed Income Statements**

     

     

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    3mos 2012

    3mos 2013

    Lead Fee Revenue

    $68

    $67

    $63

    $46

    $48

    $60

    $63

    $16

    $18

    Advertising Revenue

    $18

    $17

    $8

    $7

    $4

    $4

    $4

    $1

    $1

    Other Revenue

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

           

     

     

     

     

     

     

    Total Revenue

    $85

    $84

    $71

    $53

    $52

    $64

    $67

    $17

    $18

           

     

     

     

     

     

     

    Cost of revenues

    $48

    $53

    $51

    $34

    $32

    $38

    $41

    $10

    $12

    Gross profit

    $38

    $32

    $20

    $19

    $20

    $26

    $26

    $7

    $7

    Gross margin

    45%

    38%

    28%

    36%

    38%

    41%

    39%

    41%

    36%

           

     

     

     

     

     

     

    Sales and marketing exp.

    $20

    $22

    $17

    $10

    $12

    $9

    $9

    $2

    $2

    Technology support exp.

    $18

    $18

    $16

    $4

    $7

    $7

    $7

    $2

    $2

    General & admin. exp.

    $40

    $28

    $23

    $12

    $12

    $8

    $8

    $2

    $2

    Dep. & Amort.

     

     

     

    $1

    $1

    $2

    $2

    $0

    $1

    Patent Litigation Settlement

     

    ($12)

    ($3)

    ($3)

    ($3)

    ($1)

    $0

     

     

    Goodwill impairment

     

     

    $52

     

     

     

     

     

     

    Total cash operating exp*

     $78

    $68

    $56

    $26

    $31

    $24

    $24

    $6

    $6

    Operating income

    ($39)

    ($23)

    ($84)

    ($5)

    ($9)

    $1

    $2

    $0

    $0

    Interest Income

    $2

    $6

    $1

    $1

    $1

    $0

    $0

    $0

    $0

    Taxes

    $0

    $0

    $0

    ($1)

    $0

    $0

    $0

    $0

    $0

    Net income

    ($32)

    ($5)

    ($80)

    ($4)

    ($9)

    $0

    $1

    $0

    $0

     

     

     

     

     

     

     

     

     

     

           

     

     

     

     

     

     

    *Excludes D&A expense.

    ** Reflects acquisition of Cyber   and Autotropolis in Sept 2010,

     

     

     

     

     

             

     

     

     

     

           

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

         

     

     

     

     

     

     

           

     

     

     

     

     

     

     

     

     

    Detailed Quarterly Income Statements

     

     

    9/10

    12/10

    3/11

    6/11

    9/11

    12/11

    3/12

    6/12

    9/12

    12/12

    3/13

    Lead Fee Revenue

    $12

    $14

    $15

    $14

    $16

    $15

    $16

    $17

    $17

    $16

    $18

    Advertising Revenue

    $1

    $1

    $1

    $1

    $1

    $1

    $1

    $1

    $1

    $1

    $1

    Other Revenue

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

     

     

     

         

     

     

     

     

     

     

    Total Revenue

    $13

    $15

    $16

    $15

    $16

    $16

    $17

    $18

    $18

    $17

    $18

     

     

     

         

     

     

     

     

     

     

    Cost of revenues

    $8

    $9

    $10

    $9

    $10

    $9

    $10

    $11

    $11

    $10

    $12

    Gross profit

    $5

    $6

    $6

    $6

    $7

    $7

    $7

    $7

    $7

    $7

    $7

    Gross margin

     

     

     

     

     

     

     

     

     

     

     

     

     

     

         

     

     

     

     

     

     

    Sales and marketing exp.

    $3

    $3

    $2

    $2

    $2

    $2

    $2

    $

    $2

    $2

    $2

    Technology support exp.

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    General & admin. exp.

    $3

    $3

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    Dep. & Amort.

    $0

    $1

     

     $1

     $0

    $0

    $0

    $0

    $1

    $0

    $1

    Total cash operating exp*

    $8

    $8

     $6

    $6

    $6

    $6

    $6

    $5

    $6

    $6

    $6

     

     

     

         

     

     

     

     

     

     

    *Excludes D&A expense.

     

     

     

     

     

     

     

             

     

     

     

     

     

     

     

     

     

    Detailed Quarterly Balance Sheets

     

     

    6/10

    9/10

    12/10

    3/11

    6/11

    9/11

    12/11

    3/12

    6/12

    9/12

    12/12

    3/13

    Cash and equivalents

    $24

         $10

    $9

    $8

    $9

    $9

    $11

    $12

    $12

    $14

    $15

    $15

    A/R

    $7

         $9

    $9

    $10

    $10

    $11

    $11

    $11

    $10

    $11

     $10

    $12

    Prepaids and other

    $1

           $1

    $1

    $1

    $1

    $1

    $1

    $0

    $1

    $1

    $1

    $1

     

     

                     

     

     

     

     

    Total current

    $32

         $21

    $19

    $18

    $20

    $21

    $22

    $23

    $23

    $25

    $26

    $27

     

     

                     

     

     

     

     

    PPE, net

    $1

          $1

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    $2

    Other asset

    $0

           $17

    $17

    $16

    $17

    $14

    $14

    $3

    $14

    $13

    $13

    $13

    Total assets

    $33

    $39

    $38

    $37

    $38

    $38

    $38

    $39

    $39

    $41

    $41

    $42

     

     

                     

     

     

     

     

    A/P

    $3

         $3

    $4

    $4

    $5

    $4

    $3

    $4

    $5

    $5

    $4

    $5

    Accrued expenses

    $3

     $4

    $5

    $4

    $4

    $4

    $5

    $4

    $4

    $5

    $5

    $4

    CPLTD

    $0

         $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    Def revenue

    $1

     $1

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

    $0

     

     

                     

     

     

     

     

    Total current

    $7

     $8

    $9

    $8

    $9

    $8

    $8

    $8

    $9

    $10

    $9

    $10

     

     

                     

     

     

     

     

    LTD

    $0

        $5

    $5

    $5

    $5

    $5

    $5

    $5

    $5

    $5

    $5

    $5

    Other liabilities

    $0

    $0

    $1

    $1

    $1

    $1

    $1

    $1

    $1

    $1

    $1

    $1

     

     

                     

     

     

    Shareholder equity

    $27

    $26

    $23

    $23

    $24

    $24

    $25

    $25

    $24

    $25

    $26

    $26

     

     

     

     

     

     

     

     

     

     

     

     

     

    Net   debt

    ($24)

    ($5)

    ($4)

    ($3)

    ($4)

    ($4)

    ($6)

    ($7)

    ($7)

    ($9)

    ($10)

    ($10)

     

     

                     

     

     

     

     

                     

     

     

     

     

     

     

                     

     

     

     

     

     

     

                     

     

     

     

     

                                                     

     

     

                             

    Catalysts

    1. Low valuation (20%+ unleveraged FCF yield and 0.5x LTM revs).
    2. Steady build-up of cash on balance sheet, from $10m net cash position at 3/31/13 to $20m+ net cash position at 12/31/14.
    3. Projected FY2014 FCF of $7m.
    4. Enhanced appreciation for the value of ABTL’s auto leads by dealers and OEMs
    5. Share repurchases and dividends from excess cash and FCF generation.
    6. Possible acquisition of ABTL by a strategic or financial purchaser.
    7. Increased analyst coverage and recognition of ABTL.

    Risks

     

    1. The U.S. economy declines, including the auto industry, which is cyclical.
    2. We are defining FCF as cash from operations less capital expenditures and including non-cash stock comp and some other add-backs which some investors would not want to include.
    3. ABTL is unable to improve its gross margins or grow its revenues as we expected.
    4. New technologies (Google, etc.) impact or dis-intermediate ABTL’s search process or lead generation.
    5. Misallocation of capital into a poor acquisition. 

     

     

     

    Disclaimer

     

    Disclaimer:  We own shares of ABTL.  We may buy or sell these shares at any time without notice.  The information in the write-up is believed to be correct as of the date written but VIC members should do their own verification of this information and analysis of this potential investment.  We undertake no obligation to update this write-up if new information arises at a future date.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    I do not hold a position of employment, directorship, or consultancy with the issuer.
    Neither I nor others I advise hold a material investment in the issuer's securities.

    Catalyst

    see above

    Messages


    SubjectCash Usage
    Entry05/23/2013 10:49 PM
    Membermip14
    On the recent call Coats stated:

    "Well, I didn't say I planned to spend the $15 million, but I do think there are investment opportunities for us to accelerate our growth and reinforce what we're doing, which would be for the benefit of everybody at the end of the day."

    How confidend are you in proper capital usage? I agree that they have cut costs recently but isn't there a chance they are feeling a high due to past accretive acquisitions that could in fact lead to wasted capital? I am especially worried as they did not buy back any shares in 1Q13 unlike 2012.

    Also, they are squeezing a lot of money from Net Income to OCF. In 2012 from NI of 1387 to OCF of 5806. In 2011 from NI of 416 to OCF of 2204. Can this keep happening to meet your 6-7 million FCF goals in 2013 and 2014? I do understand much of this occuring do to differences in capex and depre (which I can see is sustainable if they are in a new normal in terms of capex).

    Finally any projections of lead projections in years 2013-2015?

     


    SubjectRE: RE: Easily worth $10+ IMO
    Entry07/26/2013 11:42 PM
    Memberandreas947
    Gocanucks,
     
    i am out of office but will take a shot at your questions without notes and let Cuyler supplement.
     
    i think there is significant value in the tampa group, which are large source of leads generated by ABTL.  i do not think what they are doing is easily replicated and they have been doing it for a long time, and were a major leads supplier prior to their acquisition by the company in 2010.  Note the press release from a couple days ago regarding their work with Google, which I thought was a positive.
     
    To my thinking, yes, someone could try to replicate the lead generation out of Tampa - probably not easy to do or someone would have done it by now - but the more proprietary part of the company's franchise might be its relationships with OEMs and dealers and scrubbing of the leads for these end customers - no one does this like the company and it seems true value-add for end users that they should pay for.
     
    on the close rates, i think the highest close rates are leads generated from the company's website, but the close rates from other company generated leads are also far above industry averages.  I think there is a break down in the B. Riley presentation.  i think the average close rate on all company leads is still far above industry averages and they are focused on getting paid for this.
     
    i thought CEO said others have tried to grow leads and maintain quality but have been unable to do this.  the company is more highly focused on lead quality and scrubbing leads than others and is concurrently improving its websites and working with Tampa to increase lead generation while maintaining quality.
     
    i am not sure about the new big OEM.  i think they have most of the large OEMs already.
     
    I agree with Cuyler that, if this works, it could work big and that is one thing i like about the idea.  Also, there is a lot of good commentary in the B. Riley presentation, which Cuyler has highlighted.
     
    Hope this helps.
     
    Best, Andreas

    Subjectsell side too high for 2014 EPS?
    Entry07/28/2013 06:09 PM
    MemberMason
    interesting idea and I realize that this question may not really be very relevant given the valuation and limited sell side coverage but the one negative from the B Riley presentation was that the CEO flat out said during Q&A that the B Riley analyst was being "too optimistic" for 2014.  while his commentary about revenue growth seems higher than consensus expectations, it also seems like the sell side EPS growth expectation of 121% for 2014 may be incorporating too much operating leverage.  Moreover, the CEO also stated that the company would be doing more offline advertising this year.  Any view on this?  Moreover, while the stock has done relatively well since the CEO has come on board, I notice that it has gone down (in a range of 4% to 10%) on the day immediately following the quarterly earnings report in 5 of the last 6 quarters.  Does the CEO have a history of being promotional like he sounded at B. Riley?  that is the only presentation I have listened to.  Again, I realize all this may not matter given the valuation, but stock is also up over 25% since he made that presentation a couple of months ago.  

    SubjectRE: RE: sell side too high for 2014 EPS?
    Entry07/29/2013 10:25 AM
    MemberMason
    I don't know the company but when someone asked him about the B Riley estimate for operating margins doubling next year, he said, "I don't think I said our operating margins was going to double.... That is Sameet's numbers.  Sameet is an optimistic guy...  I don't know if I would say that our operating margins will double in 2014... "  What do you think a reasonable range for EPS is next year?  

    SubjectMargins/valuation
    Entry07/29/2013 11:01 AM
    Membercuyler1903
    I don't try to predict basis point swings in operating margin when I make investments.  I look at underlying free cash flows, assets and private market values.  
     
    ABTL is likely run-rating close to $6mm of FCF right now, and that could easily rise to $8-9mm in the near term as volumes and pricing rise.
     
    Take out $5mm of the $7.9mm of corporate overhead, as a strategic buyer likely would do, and you can add every dollar of that to a pro forma cash flow number.
     
    As such, I believe ABTL could be looking at $13-14mm of pro forma cash flow (pre excess o/h) in the next year or so.  I have the current TEV at about $35mm (there are 1.6mm options at $6.12).
     
    As such, I think ABTL is an easy double from here when the company is sold, which in my view is most certainly the endgame here.  The value of these leads to OEMs and dealers is far in excess of what they pay for them - the value proposition is strong in a highly competitive automotive market.
     
    As a final point, I don't find the CEO promotional in the least.  Optimistic and bullish on the company's prospects - yes.  He is very matter of fact in his tone and his statements.  He backs up his belief that the stock is "grossly undervalued" by digging into his own pocket to buy shares.  I like that.
     
    Cuyler

    SubjectRE: RE: Margins/valuation
    Entry07/29/2013 11:36 AM
    Membercuyler1903
    Coghill Capital owns 82% of the company.  This hedge fund is run by smart guys who are most certainly driving the bus to create value here.  https://coghillcapital.investorbridge.com/pages/536
     
    Cuyler

    SubjectRE: Margins/valuation
    Entry07/30/2013 12:43 PM
    MemberMason
    thanks for the comments.  after doing some work, I generally agree in the thesis.  just trying to figure out sizing going into earnings.  any idea why it tends to almost always decline the day following earnings?  i guess its just a function of being micro cap.    

    SubjectRE: RE: Margins/valuation
    Entry07/30/2013 01:35 PM
    Membercuyler1903
    Mason:  I think Autobytel is very similar to Bankrate (RATE), insofar as they are both lead generation businesses, except that I think ABTL is a much better business as it is far less interest rate sensitive (e.g. RATE is driven in large part by the refi market).  
     
    RATE trades at almost 5x revenues.
     
    At RATE's valuation multiple, ABTL would be something like an 8-10 bagger.  Of course I am not predicting this, but I do think that $10 is a layup if they continue to execute and as the market continues to re-rate this misunderstood company.
     
    Cuyler

    SubjectRE: Margins/valuation
    Entry08/13/2013 10:03 AM
    MemberSpocksBrainX
    I wanted to revisit your $6m in FCF comment - can I ask again on where you are getting that?  I see 2.2m in d/a , maybe 1m in CapEx, but no sign otherwise to get to your numbers.  Help?

    Subjectnice initiation by lake street today
    Entry10/16/2013 11:39 AM
    MemberMason
    "We also do not believe it would be a stretch to see the shares more than double over the next 12 months."

    Subjectgreat call
    Entry11/08/2013 09:43 AM
    Memberdanconia17
    congrats.  awesome call.
     

    SubjectRE: great call
    Entry11/08/2013 10:27 AM
    MemberMason
    ditto.  would be curious on your updated thoughts.  i don't see any reason to sell other than it being up a lot.  still trades at a very reasonable valuation for the growth and guidance seems conservative.  

    Subjectback involved after recent weakness
    Entry03/26/2014 09:46 AM
    MemberMason
    this was a great trade.  after recently talking to management, I decided to get back involved.  ABTL recently bought one of its closest competitors - AutoUSA for about $12.  the street seems to be significantly underestimating the accretion from this deal.  I can conservatively see how it should add at least $5m of ebit to next year which can yield close to $1 of fully taxed EPS.  the present value of the NOL is worth at least $2 per share so you have an internet company growing revenue organically 20% y/y in a fragmented industry and a mgmt team good at doing accretive acquisitions trading at around 10x 2015 earnings on operating margins that arguably have a lot of room for expansion.  true car (going public soon), cars.com (likely getting sold soon) and autotrader valuations are all at 4-6x of revenue while this company is at 1x.  i think the recent weakness likely due to high retail and quant fund ownership (quant funds made up 3 of the top 10 shareholders as of dec and 2 of the top 4).  they likely sold because:
    1) street changed to fully tax earnings which optically looks like fwd earnings expectations went down.
    2) weakness in the stock because of (1) caused stop losses to be triggered.  

    Subjectmath on accretion and ABTL vs Truecar
    Entry03/26/2014 04:49 PM
    MemberMason
    a little more color on why the Auto USA deal is so accretive.  AutoUSA had 30m of sales last year.  if we conservatively assume that this goes down to $20m because of dealer overlap and use the 40% gross margins that ABTL believes that Auto USA gross margins can get to, we get $8m of incremental gross profit. The gross margin improvement basically involves moving AutoUSA's leads towards 70% internally generated leads.  Auto USA had virtually no internally generated leads.  ABTL did sell Auto USA about 20%  of its leads so you should see an immediate improvement to gross margins because of this and the remaining improvement will take a year according to the CEO at a recent conference.  The CEO also said at a recent conference that the company should be able to take out at "least 50%" of AutoUSA's opex of $6m.  this is up from the company's statement of "at least 30%" on the q4 conference call so they seem more confident about synergies already.  $8m GP less at most $3m of opex yields at least $5m of ebit - not bad for a deal that costed the company about $12m.  
     
    also, I recently talked to a dealer that is familiar with both true car and ABTL.  He confirmed that the leads ABTL generate are superior and close about 25% of the time.  ABTL charges about $25 per lead so if he spends $100, he is likely to close a sale with gross profit of about $1300.  its a nobrainer investmentment for him.  True car has a different model.  instead of charging per lead, true car charges on the final sale.   it charges over $300 per sale which is still an attractive return but not as good as ABTL.  most dealers are likely not as sophisticated as this specific dealer in measuring ROI but ABTL is making it easier for them by showing the polk data.  truecar and ABTL will likely both continue to show good organic growth but ABTL should have more pricing power over the long term.    

    Subjectpositive PR just issued by ABTL
    Entry03/31/2014 02:43 PM
    MemberMason
    http://investor.autobytel.com/releasedetail.cfm?ReleaseID=836607
     
    "Through its Google AdWords campaign, for the first two months of 2014, Autobytel generated a 60% increase in converting consumer click-throughs to automotive leads that can then be delivered to auto manufacturer and dealers, compared with the same period in 2013."

    "We are very pleased with the results we're generating through using Google AdWords," said Billy Ferriolo, Senior Vice President of Consumer Acquisition at Autobytel.

    this reminds me of the case study they issued with respect to their relationship with GOOG in the summer of last year - just before they beat q3 estimates signficantly.  
     
     

    Subjectpositive Preannouncement!
    Entry04/01/2014 05:21 PM
    MemberMason
    ABTL is now seeing revenue up 47-47% y/y in q1 vs street which is at 34%.  beat is coming from both better organic growth and better numbers for AutoUSA.  
     
    I think the stock can easily double from here just with multiple expansion.  then on top of that you have double digit organic revenue growth which should lead to 20%+ organic earnings growth plus a management team good at doing accretive acquisitions in a fragmented industry.  
     
    maybe now that numbers are optically going back up, the quant funds who were likely selling go back to buying.  

    SubjectRE: positive Preannouncement!
    Entry04/01/2014 05:21 PM
    MemberMason
    typo:  new range is 45-47% y/y growth for q1

    Subjectadded this morning
    Entry04/02/2014 12:54 PM
    MemberMason
    the other positive to point out is that they said in the preannouncement that they have no plans for raising additional capital.  this is significant because I believe one of the other reasons the stock fell so much post last quarter's earnings call was because of statements regarding filing a shelf registration.  they did this just for financial flexibility in case another attractive acquisition comes around.  
     
    I think stock has an easy move back to at least $18

    SubjectRE: google cars
    Entry04/28/2014 05:10 PM
    MemberMason
    its my understanding that ABTL and GOOG are working as closely as ever - as evidenced by the 2 case studies they published over the last 9 months.  GOOG has not issued any case studies with any of ABTL's competitors.  GOOG experimented with its own car site in San Fran which was a failure.  like with PCLN and other lead gen businesses, GOOG is always a risk for ABTL, but i think you probably also have optionality that GOOG eventually just buys ABTL one day.  GOOG recently made an acquisition in the travel space and they bought Zagat for restaurants/local businesses.  Before making these acquisitions, they tried and failed going into these markets on the their own also.  for example, https://www.google.com/flights/ has been around for a while and has not gained much traction in the market.  Finally, don't forget that ABTL's CEO has a private equity background.  I believe he understands that unless ABTL can get to enough scale, the best way to monetize the value will be through a sale of the company one day.    
     
    with respect to earnings, i never really have a great view on how a stock will do short term.  the company already preannounced upside for q1 and while they said that they expect EPS in line with the street's 3c, it should be noted that this includes some 1 time acquisition related expenses as well as stock comp.  I am not expecting the company to guide higher for q2 revenue vs the street, but the sell side is not modeling the accretion from the deal correctly so i guess the stock will move based on how much more color they decide to give on the call regarding this.  details regarding accretion were very limited on the q4 call because the company didn't yet know how much revenue would be lost due to customer overlapp.  as the quarter went on, they seemed to have gotten more confident.  for example, on the q4 call, they said it would take "several quarters" for autoUSA's gross margins to get to 40%.  at the stifle conference, mgmt implied it would get there by the end of the year.  on the q4 call, mgmt said that they would be able to take out "at least 1/3" of AutoUSA's opex.  at the stifle conference, they said, "at least 50%." From my conversations with mgmt, they are very frustrated with the stock's recent performance.  I recommended them to give more color on accretion and help people to try to frame longer term earnings power vs just talking about next quarter.  I also recommended them to highlight the strong FCF generation (vs GAAP EPS which uses a 40% tax rate) since the company has a very large NOL balance.  who knows if they follow my advice.  in any case, mgmt will be going to another investor conference in may and I heard is also planning to do a non-deal roadshow with lakestreet in early june so I think over time other people will figure out longer term FCF power on their own.  

    SubjectRE: RE: google cars
    Entry04/28/2014 05:15 PM
    MemberMason
    correction, i believe the statements, i referred to in the previous message were made at the roth conference not stifle.  

    SubjectRE: RE: RE: google cars
    Entry05/02/2014 07:43 AM
    MemberMason
    another higher level way to think about the strategic value here is that ABTL's leads in 2013 led to sales of 4% of all the new cars in the US (roughly 500k).  this number will go up this year because of organic growth and AutoUSA.  not sure what that should be worth but I think it is much more than the current enterprise value.  it also shows the pricing power they have.  total lead revenue in 2013 divided by 500k yields something like $150 per car sold.  dealers and OEMs are clearly getting a great deal here.  Like the hotels, they will try to generate their own web traffic but they will also not be able to compete against 3rd parties with key word bidding simply because they don't have enough conversion of the traffic.  PCLN and EXPE are always be able to convert traffic to their sites better than marriot, because of higher inventory and better focus on algorithms.  the same is true for ABTL.  AN recently made a statement that 7% of its sales come from lead gen sources.  others are likely much lower.  most hotels get well over 30% of their sales from OTA's.  that is where the auto industry is going.  

    Subjectsell side EPS still too low
    Entry05/02/2014 08:29 AM
    MemberMason
    I just looked at a couple of notes that came out and even though the company gave more color about accretion, the sell side is still too low for EPS next year.  for example, lake street is modeling gross margins of 37% in 2015 - LOWER than what the company just reported in q1 even though the AutoUSA gross margins are going from the mid to high 20s to close to 40%.  he is also modeling no growth in advertising revenue this year which is 100% gross margin even though it is a clear focus of the company.  finally, don't forget that the company is raising pricing.  this may not be the deep value stock that andreas pitched last year but it is certainly growth at a very reasonable price especially when you look at EV/sales and the fact that the CEO has made publlic statements at conferences about potentially selling the company one day if they don't get enough scale.    

    SubjectRE: RE: RE: RE: RE: RE: RE: Silly cheap
    Entry05/09/2014 02:13 PM
    MemberMason
    the tampa team is a source of competitive advantage which from my understanding has become more institutionalized vs just with a couple of key people.  moreover, i think another competitive advantage is the fact that abtl has the most scale for new cars.  they have more dealers and as far as i can tell, are the only ones to have a relationship with every OEM.  the higher "inventory" naturally leads to superior conversion in the same way that PCLN can always convert traffic better than OTAs or than specific hotels.  this creates a virtuous cycle - ABTL can afford to bid more for keywords and other ways to get traffic, because it has the best conversion.  the higher traffic gives ABTL better data to develop the best algorithms.  like with PCLN, the network effect will improve with scale.  it should also be pointed out that the tampa guys' lockups have expired and none have sold stock or left.  in fact, one of them even bought more stock last year.  The CEO and CFO bought stock at much lower prices last year as well and have yet to sell any.  

    SubjectRE: Silly cheap
    Entry05/09/2014 05:28 PM
    MemberMason
    by the way, because the NOL is so big, i back out the PV of the NOL from my EV.  therefore, i think it trades at a little over 5x 2015 ebitda on my numbers.  

    SubjectRE: RE: Silly cheap
    Entry05/12/2014 12:46 PM
    Membercuyler1903
    Mason - great point on the NOLs.  Looking at it another way, I think the stock is currently trading at a 10%+ FCF yield on 2014 results and 15%+ FCF yield on 2015 results.
     
    This should be a very good one, expecting to measure our return as a MOIC not IRR here.
     
    Cuyler

    SubjectRE: RE: Silly Cheap
    Entry05/13/2014 11:41 AM
    Membercuyler1903
    Here's another article on the Cars.com sale process, which hadn't even formally begun at the time of this article yet indicated two interested parties in the 5-6x TEV/revenue range.
     
    http://www.bloomberg.com/news/2014-03-11/autotrader-owners-cox-apax-said-to-be-interested-in-cars-com.html 
     
    Further, Apartments.com was sold a few weeks ago to CoStar for $585 million, which represented 6.8x TEV/Revenue and 21x TEV/EBITDA.
     
    http://articles.chicagotribune.com/2014-03-03/classified/chi-costar-apartments-com-20140303_1_classified-ventures-tribune-co-moelis-company-llc 
     
    I think it is fair to say that at a 15% FCF yield and <1x revenue, ABTL is quite a bargain.
     
    Cuyler

    SubjectSome interesting stuff from the TrueCar S1
    Entry05/14/2014 09:40 AM
    Memberncs590
    Haven't read through all of this yet, but probably a lot relevant to ABTL:
     
    http://www.sec.gov/Archives/edgar/data/1327318/000104746914004566/a2219764zs-1a.htm
     
    "Under our pay-for-performance business model, we generally earn a fee only when a consumer purchases a car, providing dealers with an accountable marketing channel. We typically charge TrueCar Certified Dealers $299 upon the sale of a new car to a TrueCar user. In 2013, the overall industry average advertising expense per new car across all forms of media was $616, according to NADA. By helping dealers better target their acquisition efforts to in-market consumers using our platform, we believe that dealers can improve their close rates, which results in other operating cost efficiencies such as savings on selling expenses and inventory carrying costs."



    SubjectRE: Some interesting stuff from the TrueCar S1
    Entry05/14/2014 09:57 AM
    Membercuyler1903
    Thanks.  Here is some absolutely incredible data re Autobytel.  The importance of ABTL leads to these dealers is extremely high.  Notice both the strong growth in both new and used cars in table 1.  The absolute percentages in table 2 are just stunning in my opinion.
     
     
     
     
     

    SubjectRE: RE: Some interesting stuff from the TrueCar S1
    Entry05/14/2014 10:12 AM
    MemberMason
    also if you divide ABTL's total lead revenue by the number of cars sold through their leads, you get a value proposition for dealers and OEMs that is signficantly better than TrueCar.  

    SubjectRE: RE: Some interesting stuff from the TrueCar S1
    Entry05/14/2014 10:24 AM
    Membercuyler1903
    Mason - exactly.  For 2013, ABTL lead fees per Total ABTL New + Used Car Sales = $75.82.
     
    That number is a tiny sliver of the profit generated by the dealer per car (particularly on a variable margin basis).
     
    Cuyler

    Subjectmight be a dumb question but...
    Entry05/17/2014 06:13 PM
    MemberMJS27
    so... how are leads actually generated?
     
    a 2 minute google search of "how are auto leads generated?" turns up all sorts of advice on how to do this yourself if you own a dealership... basically trolling facing book, twitter, etc etc etc.
     
    if dealerships are paying $20 per lead, why aren't they just paying someone $20/hour to troll facebook etc so they can come up with 10 or 15 or however many leads an hour?
     
    its likely a different story on the OEM level, but i don't understand why the 30% of revenues that come from dealers exists? 

    SubjectRE: might be a dumb question but...
    Entry05/18/2014 09:26 AM
    Membercuyler1903
    MJS - The 10-K is a good source for learning about the business:
     
    Products and Services
    Leads are internally-generated from our Company Websites ("Internally-Generated Leads") or acquired from third parties ("Non-Internally-Generated Leads") that generate Leads from their websites ("Non-Company Websites"). We sell Internally-Generated Leads and Non-Internally-Generated Leads directly to Dealers and indirectly to Dealers through a wholesale market consisting of Manufacturers and other third parties in the automotive Lead distribution industry.  In conjunction with our Lead programs, we also offer Dealers and Manufacturers other products and services, including our iControl by Autobytel®, WebLeads+, Email Marketing Manager, and Lead Call products and services, to assist them in capturing online, in-market customers and selling more vehicles by improving conversion of Leads to sale transactions.
     
    Vehicle Lead Programs
    We provide Dealers and Manufacturers with opportunities to market their vehicles efficiently to potential customers.  Dealers participate in our Vehicle Lead programs, and Manufacturers participate in our Vehicle Lead programs, our display advertising programs, and our direct marketing programs, reaching consumers that are in the market to acquire a vehicle.  For consumers, we provide, at no cost to the consumer, an easy way to obtain valuable information to assist them in their vehicle shopping process. Leads may be submitted by consumers through our Company Websites or through Non-Company Websites. For consumers using our Company Websites, we provide research information, including vehicle specification data, safety data, pricing data, photos, videos, regional rebate and incentive data, and additional tools, such as the compare and configuration tools, to assist them in this process.  We also provide additional content on our Company Websites, including our database of articles, such as consumer and professional reviews, and other analyses.  Additional automotive information is also available on our Company Websites to assist consumers with specific vehicle research, such as the trade-in value of their current vehicle.

    New Vehicle Lead Program. Our Vehicle Lead program for new vehicles allows consumers to submit requests for pricing and availability of specific makes and models.  A new Vehicle Lead provides information regarding the make and model of a vehicle, and may also include additional data regarding the consumer's needs, including any vehicle trade-in, whether the consumer wishes to lease or buy, and other options that are important to the vehicle acquisition decision. A Lead will usually also include the consumer's name, phone number, and email address and may include a home address.
     
    Our Leads are subject to a quality verification that is designed to maintain the high quality of our Leads and increase the Lead closing rates for our Lead customers.  Quality verification includes the validation of name, phone number, email address, and postal address.  Our quality verification also involves proprietary systems as well as partnerships with vendors specializing in customer validation.  After a Lead has been subjected to quality verification, if we have placement coverage for the Lead within our own Dealer network, we send the Lead to Dealers that sell the type of vehicle requested in the consumer's geographic area. We also send an email message to the consumer with the Dealer's name and phone number and if the Dealer has a dedicated internet manager, the name of that manager. Dealers contact the consumer, generally within 24 hours of receiving the Lead, with a price quote and availability information for the requested vehicle. In addition to sales of Leads direct to Dealers in our network, we also sell Leads wholesale to Manufacturers for delivery to their Dealers and to third parties that have placement coverage for the Lead with their own customers.
     
    Dealers participate in our retail new Vehicle Lead program by entering into contracts directly with us or through major Dealer groups. Generally, our Dealer contracts may be terminated by either party on 30 days' notice and are non-exclusive. The majority of our retail new Vehicle Lead revenues consists of either a monthly subscription or a per Lead fee paid by Dealers in our network; however, under our recently introduced Pay-per-Sale program, we offer a limited number of Dealers in states where we are permitted to charge on a per transaction basis the opportunity to pay a flat per transaction fee for a Lead that results in a vehicle sale. We reserve the right to adjust our fees to retail Dealers upon 30 days' prior notice at any time during the term of the contract. Manufacturers (directly or through their marketing agencies) and other third parties participate in our wholesale new Vehicle Lead programs generally by entering into agreements where either party has the right to terminate upon prior notice, with the length of the time for notice varying by contract. Revenues from retail new Vehicle Leads accounted for 28% and 31% of total revenues in 2013 and 2012, respectively. Revenues from wholesale Leads accounted for 51% and 47% of total revenues in 2013 and 2012, respectively. We measure lead quality by the conversion of Leads to actual vehicle sales.  We rely on detailed feedback from Manufacturer and wholesale customers to confirm the performance of our Leads.  In addition, in 2011 we started using R.L. Polk & Co. to evaluate the performance quality of both our Internally-Generated Leads as well as Non-Internally-Generated Leads.  Our Manufacturers, wholesale customers and R.L. Polk & Co. each match the Leads we deliver to our customers against vehicle sales data to provide us with closing rates for the Leads we deliver to our customers and information that allows us to compare these closing rates to the closing rates of the Leads we acquire from third party suppliers.  Based on the most current Polk data, automotive Leads from consumers shopping on Autobytel.com have a conversion rate of over 25% within 90 days of Lead submission.
    In addition, we report a number of key metrics to our customers, allowing them to gain a better understanding of the revenue opportunities that they may realize from acquiring Leads from us.  We can now optimize the mix of Leads we deliver to our Dealers based on multiple sources of quality measurements. Also, by reporting the buying behavior of potential customers, the findings also can help shape improvements to online Lead management; online advertising and dealership sales process training.  By providing actionable data, we are now placing useful information in the hands of our customers.
     
    Also during 2013, we continued to focus our Dealer acquisition and retention strategies on dealerships to which we could deliver a higher percentage of our Internally-Generated Leads and that are more cost effective for us to support.  We believe this will result in increased vehicle sales for our Dealers and ultimately stronger relationships with us because, based on our evaluation of  the third party performance data discussed above, we believe our Internally-Generated Leads are of  high quality.  We believe that this strategy should allow us to have more profitable relationships with our Dealers both in terms of cost to supply Leads and to support the Dealers.  For 2013, we increased the number of our Dealers and ended the year with 2% more Dealers compared to the number of Dealers at year-end 2012.  Dealer count is the sum of the number of Dealer franchises subscribing to our new vehicle Purchase Request programs and the number of Dealer franchises and independent Dealers subscribing to our used vehicle Purchase Request program, with Dealers participating in more than one of these programs counted by the number of programs in which they participate.
     
    Used Vehicle Lead Program. Our used Vehicle Lead program allows consumers to search for used vehicles according to specific search parameters, such as the price, make, model, mileage, year and location of the vehicle. The consumer is able to locate and display the description, price, and, if available, digital images of vehicles that satisfy the consumer's search parameters.  The consumer can then submit a Lead for additional information regarding a specific vehicle that we then deliver to the Dealer offering the vehicle. In addition to sending Leads directly to Dealers through our Lead delivery system, consumers may choose to contact the Dealer using a toll free number posted next to the vehicle search results. We charge each Dealer that participates in the used Vehicle Lead program a monthly subscription or per Lead fee.  Revenues from used Vehicle Leads accounted for 8% and 7% of total revenues in 2013 and 2012, respectively.
     
    Finance Lead Program
    Our Finance Lead program is designed to provide consumers who may not be able to secure loans through conventional lending sources the opportunity to obtain vehicle financing and other services from Dealers or finance institutions offering vehicle financing to these consumers. Consumers can submit a request for vehicle financing or submit a credit questionnaire for a credit report or other credit services that are provided by third party providers.  Finance Leads are forwarded to the nearest participating Dealer that offers financing or, if a Dealer is not available, to an automotive finance institution. We charge each Dealer and finance institution that participates in the Finance Lead program a monthly subscription or per Lead fee. Revenues from Finance Leads accounted for 8% and 9% of total revenues in 2013 and 2012, respectively.  We have a call center program that consists of telephone surveys of Finance Lead consumers.  The purpose of this program is to evaluate consumer experience with our Dealers and other financing customers and our Finance Lead program and to determine whether or not the consumers purchased a vehicle.  In addition, we inquire about the consumer's interest in obtaining information or quotes for relevant products and services, including credit report repair and vehicle loan refinancing, offered by third parties.  If the consumer expresses an interest, we refer the consumer to the third party and obtain a referral fee. 
     
    Other Dealer Products and Services
    In conjunction with our automotive Vehicle Lead programs, we also offer products and services that assist Dealers in connecting with in-market consumers and closing vehicle sales.

    iControl by Autobytel ®  iControl by Autobytel ® is our proprietary technology that allows Dealers many options to filter and control their Vehicle Leads. iControl by Autobytel ® can be controlled at the dealership or at the Dealer group level from a web-based, easy-to-use console that makes it quick and simple for dealerships to change their Lead acquisition strategy; to adjust for inventory conditions at their stores, and broader industry patterns (such as increases in gas prices or changes in consumer demand). From the console, dealerships can easily contract or expand territories and increase, restrict or block specific model and Lead web sources, making it much easier to target inventory challenges and focus marketing resources more efficiently. We currently have approximately one-half of our new vehicle Dealers participating in our iControl by Autobytel ® product.

    WebLeads+. Designed to work in connection with a Dealer's participation in our traditional Lead programs, WebLeads+ offers a Dealer multiple coupon options that display relevant marketing messages to consumers visiting the Dealer's website.  When a Dealer uses WebLeads+, consumers visiting the Dealer's website are encouraged to take action in two ways.  First, while interacting with the Dealer website, a consumer is presented with a customized special offer formatted for easy Lead submission. If a vehicle quote is requested, the Lead goes directly into the dealership management tool so a salesperson can promptly address the customer's questions.  Second, if the consumer leaves the Dealer's website but remains online, Autobytel's WebLeads+ product keeps the coupon active under the consumer's browser windows, providing the Dealer a repeat branding opportunity and giving the consumer an easy way to re-engage with the Dealer's website through submission of a Lead.  The additional Leads generated by the coupons are seamlessly integrated into our Extranet tool.

    Email Manager and Lead Call. Email Manager provides, on behalf of the Dealers, timely and relevant follow up emails to consumers who have submitted Leads on scheduled intervals following a consumer's
     
    Lead submission.  After submission of a Lead, Lead Call provides a live phone call to the Dealer to ensure that the Dealer contacts the consumer in a timely manner.

    Mobile Products and Services.  Our mobile technologies facilitate communication between Dealers and car buyers on smart phones and tablets at the time, place and in a manner preferred by consumers.   This advanced platform will be the core of a wide array of mobile services Autobytel will offer to its Dealer and Manufacturer customers, and will also be available to consumers through our websites.  At the center of this platform is Autobytel's unique TextShield product that offers Dealers the ability to connect with consumers using text communication via a secure platform that protects the consumer's privacy.  In addition, we will offer dealers tactical mobile websites designed to drive consumer engagement with dealers as well as mobile apps, text message marketing and the ability for a consumer to send information to their mobile devices using our "send to phone" product.

    SaleMove Products and Services.  Our exclusive arrangement with SaleMove allows Autobytel to provide the automotive industry with innovative technology for enhancing communications with consumers.  SaleMove's patent-pending technology allows auto dealers and manufacturers to enhance the online shopping experience by interacting with consumer in real time using the method most comfortable to them including live video, audio and text based chat or by phone.
     
    Advertising Programs
    Our Company Websites attract an audience of prospective automotive buyers that advertisers can target through display advertising. A primary way advertisers use our Company Websites to reach consumers is through vehicle content targeting. This allows automotive marketers to reach consumers while they are researching one of our comprehensive automotive segments such as mini-vans or SUVs and offer Manufacturers sponsorship opportunities to assist in their efforts both in terms of customer retention and conquest strategies. Our Company Websites also offer Manufacturers the opportunity to feature their makes and models within highly contextual content.  Through their advertising placements, Manufacturers can direct consumers to their respective websites for further information.  We believe this transfer of consumers from our Company Websites to Manufacturer sites is the most significant action measured by Manufacturers in evaluating our performance and value as a marketing partner.  In September 2013, we entered into an agreement with Jumpstart Automotive Group ("Jumpstart") whereby Jumpstart sells our fixed placement advertising across our Company Websites to automotive advertisers. Jumpstart currently reaches 26.0 million unique visitors per month and works with every major automotive Manufacturer across its portfolio of digital publishers. We also have a direct marketing platform that enables Manufacturers to selectively target in-market consumers during the often-extended vehicle shopping process. Designed to keep a specific automotive brand in consideration, our direct marketing programs allow automotive marketers to deliver specific communication through either email or direct mail formats to in-market consumers during their purchase cycle.  Advertising revenues including direct marketing accounted for 4% and 5% of total revenues in 2013 and 2012, respectively.
     
    Data Licensing
    We have developed, internally or in partnership with others, data and market analytics products utilizing information from users of our Company Websites.  These products provide marketing insights to advertisers and agencies demanding better performance from their advertising dollars across online and offline sources. We license the use of our aggregated Lead data to third parties for the purposes of advertising targeting and optimization. We also license our audience (i.e., website cookie) data to various advertising targeters to add to their existing cookie pools that they offer to advertisers. We sell our data direct to advertisers and other users of our data without the use of third party advertising targeters.
     
     
     
     

    SubjectRE: RE: RE: might be a dumb question but...
    Entry05/18/2014 11:25 AM
    MemberMason
    we had an intern reach out to about a hundred dealers and marketing people at OEMs.  out of these, he probably only had about a dozen useful conversations so the sample size is somewhat limited, but the general conclusion from these interviews was very positive for ABTL.  some of the dealers were not sophisticated in analyzing the ROI of their marketing spend but the ones that did the math are very happy with their relationship with ABTL and were even amenable to paying ABTL more.  The OEMs all do the math and are already agreeing to modest price increases.
     
    the fact is that there is not yet a dominant go-to site for doing car research.  most people rely on search engines and ABTL will always be able to outbid local dealers and other car websites for the best keywords simply because it has the best conversion rates.  it has the best conversion because it is the only company with relationships with all the OEMs and has relationships with a lot of dealers and because it has the best data because its site leads to the most number of new car sales.  ABTL's higher close rate is more a function of it being better at bidding for traffic that has the highest intent to purchase a car.  a competitor will not be able to close to the gap by simply verifying leads.  given this dynamic, one obvious risk for ABTL is that a competitor becomes irrational with bidding for keywords.  this is a risk that needs to be monitored but if it hasn't happened yet with Truecar already going public and Cars.com trying to get sold, it is probably not going to happen.   another obvious risk is that GOOG just becomes a competitor.  GOOG has already tried and failed once and while it may try again one day, i think there is also a chance that GOOG just buys ABTL instead.  The 2 companies have a very close working relationship.      
     
    with respect to your second question - I think the Priceline parallel is useful.  It would obviously be more economical for a B&B or a hotel to directly book consumers, but most still get over 30% of their bookings from PCLN, EXPE, OWW and other travel bookings sites.  They pay 20% of the room rate to these OTAs which is much higher than what ABTL effectively charges of the gross profit of a new car.  hotels have tried to troll sites like twitter and facebook but in the end, the quality of those leads is much lower than a lead that has actually spent significant time researching a specific destination.  finally, if trolling the internet actually ever generates good leads, don't you think PCLN and EXPE would be able to do that better than a local B&B?       
     
    the avg consumer doing car research spends several hours on the internet these days on sites like Autobytel.com.  the intent to purchase a car after going through this process is significantly higher than intent shown from just a tweet.  up until very recently, ABTL has only been able to monetize the final intent.  This is changing as the company is now also generating advertising revenue.  The company is very bullish about this high margin revenue stream and the street is modeling almost no growth for it.   
     
     
     

    SubjectRE: RE: RE: might be a dumb question but...
    Entry05/18/2014 11:44 AM
    MemberMason
    the reason why someone would want to buy ABTL is because of its dealer and OEM relationships and because of its superior algorithms and expertise in determining intent to purchase cars.  these algorithms are difficult to replicate without the data that ABTL generates as being the biggest site for new car sales.
     
    another risk for ABTL is that a competitor spends significant money in offline advertising to become the go-to site for consumers doing auto research.  this is somewhat similar to my scenario of a competitor becoming irrational with keyword bidding.  my view is that since this has not happened already it is unlikely to happen.  this would also be a very expensive thing to do since people only are in the market to buy a new car every several years.  it is much more difficult to build a go-to destination site in an industry that involves a consumer doing a transaction once every several years.  it is much easier for people to just type in something into a search bar than for people to remember the site they did their auto research on 7 years ago.  most people do their research on several sites - not just Autobytel.com.  the competitive advantage that ABTL has is that it is able to capture the consumers that show the most intent and those that are closest towards the end of their research.  this is not a trivial thing to do.    

    SubjectRE: RE: RE: RE: might be a dumb question but...
    Entry05/18/2014 12:18 PM
    MemberMJS27
    Mason - thanks very much for the thoughtful responses.  Great food for further thought.

    SubjectRE: RE: RE: might be a dumb question but...
    Entry05/18/2014 04:37 PM
    MemberMason
    the avg person actually spends a fair amount of time researching a new car purchase.  i have heard numbers around 7-8 hours of research.  
     
    i think the PCLN parallel still works.  lets say i am a local dealer and i just sell Hondas.  I may be able to target potential customers looking for cars, but I will probably have a tough time targeting exactly people looking for Hondas.  Lets say I pay $1 for a click through for someone in my neighborhood looking for a car. There is a very high chance that I just wasted $1 since that person only has a small chance of wanting the cars i have in inventory.  If ABTL pays $1 for that same customer, it is much more likely that ABTL will be able to generate revenue from that customer because ABTL will be able to show that customer inventory from not only my lot but also from all of my competitors in the neighborhood and also from nearby neighborhoods.  Moreover, even if I can somehow target people exactly looking for Hondas, these people may change their minds and may still prefer to go to a site that shows other brands as well.  

    SubjectRE: RE: RE: RE: might be a dumb question but...
    Entry05/18/2014 08:57 PM
    Membercuyler1903
    And don't forget that while consumers are usually purchasing from local dealers, in many cases the dealers themselves have to go outside their region to find the exact spec car that the customer wants.
     
    Further, with the cost to ship a car only a few hundred bucks, consumers can easily search for cars at dealers within a 1000 mile radius to get the best price and exact specs.
     
    Cuyler

    SubjectRE: RE: RE: might be a dumb question but...
    Entry05/19/2014 10:50 AM
    MemberMason
    first of all - yes.  the market is very underpenetrated and there is plenty of room for growth with all players.  2nd, cars.com is mainly focused on the used car market.  3rd, true car has a strategy of offline advertising vs keyword bidding.  as i said before, this is an expensive strategy.  the risk we are talking about needs to be monitored but it is a risk for any internet company dependent on search.  PCLN had the same risk and was a 100 bagger over the last decade.  

    SubjectPresenting at B. Riley tomorrow
    Entry05/19/2014 11:10 AM
    Membercuyler1903
    2:00 EDT -- looks like it will be webcast http://investor.autobytel.com/events.cfm 

    SubjectRE: Here's what you're missing...
    Entry05/19/2014 11:30 AM
    MemberMJS27
    su Cuyler by your logic the one or two things that will cause this investment to work is whether or not they get bought out, NOT whether or not competition with fresh capital is able to slow your aggressive growth rates and dent your aggressive margin expansion assumptions?
     
    i realize the cuyler playbook is to identify an idea (and i give you full credit for your ideas and the amount of work you do on them) and then to talk about why PE will pay a top tick multiple for the stock, and then promote it and promote it some more, and i appreciate any and all feedback from you and others, but it is not at all clear whether it is me or you who is focusing on the trees rather than the forest.
     
    you seem to think that the forest is a take out situation and unhindered growth.  it very well may happen, but seems speculative to count on that outcome.

    SubjectRE: RE: Here's what you're missing...
    Entry05/19/2014 11:41 AM
    Membercuyler1903
    The stock has a double digit forward free cash flow yield, huge NOLs and a motivated CEO.  Primary diligence has been very positive.  I have all I need here to make an investment.  We are in the business of evaluating risk/reward.
     
    There is no need for a buyer to act irrationally for this idea to work (ABTL would be sold to a strategic, not a p.e. buyer).  It can easily work on a standalone basis, which is my base case.  If the company is sold we will do exceedingly well.  
     
    Cuyler
     
     

    SubjectRE: RE: RE: Here's what you're missing...
    Entry05/19/2014 05:24 PM
    MemberMJS27
    first, i realize i am becoming a nuisance and i apologize.  
     
    I spent more time with the business today and my comfort level has grown.
     
    Cuyler, could you walk me through your FCF calculation?
     
    you earlier correctly pointed out that interest and capex are <$2M, but I am curious how you are thinking about working capital growth.  there is no inventory here, but receivable days are substantially longer than payable days...
     
    back of envelope i am looking at FY'14 as
    revs 116,404
    EBIT 9,201
    EBT 8,812
    NI 5,728
    +tax 3,084
    +D&A 2,001
    +share based comp 1,080
    -net working cap -4,442
    -capex -1,080
    FCF 6,371
     
     
     
     
    but those numbers are admittedly rough.  you had originally said 10x '14 FCF and i'm wondering what I am missing

    SubjectRE: RE: RE: RE: Here's what you're missing...
    Entry05/19/2014 06:58 PM
    MemberMason
    they will not pay any cash taxes until around 2020 given the NOL.  i have ebitda of 12.5m in 2014 and 17.4m in 2015 excluding options expense.  

    SubjectRE: RE: RE: Here's what you're missing...
    Entry05/20/2014 07:53 AM
    Membercuyler1903
    agree with mason.  pf cash interest (ex converts, as I'm using fully diluted, fully converted shares) is only 400k, capex is only 800k.  fcf for 2014 is 11.3mm and for 2015 is 16.3mm.  using my math from post 38, the fully diluted tev is 117mm, however if you adjust tev for the nol value (as mason pointed out is the proper way to look at it) the adjusted tev is ~25mm lower, so call it 92mm.
     
    adj tev/2014 ebitda = 7.3x
    adj tev/2015 ebitda = 5.2x
     
    adj tev/2015 ebitda-capex = 5.5x
     
    adjusted tev/2014 sales = 0.77x
    adjusted tev/2015 sales = 0.68x
     
    i think we've officially beaten this horse to a pulp.
     
    Cuyler

    SubjectRE: RE: RE: RE: Here's what you're missing...
    Entry05/20/2014 09:04 AM
    MemberMJS27
    thanks for you patience, and i agree, this horse is hamburger.
     
    I agree with the EBITDA number, and i guess we're just pretending that there isn't a receivables/payables drag when thinking about FCF.
     

    SubjectB. Riley presentation today
    Entry05/20/2014 02:39 PM
    Membercuyler1903
    Presentation just finished.  Most notably, CEO Jeff Coats said two things:
     
    1)  Cost savings from AutoUSA acquisition are more than what they had previously stated, and those savings are largely realized as of April.  [street is way too low on earnings]
     
    2)  Need to find exact words, but said something like extremely confident we'll grow far in excess of the industry for the foreseeable future.
     
    The webcast cut off after the first question, but regardless there were a couple incremental nuggets of information that I was very happy to hear.  
     
    Cuyler

    SubjectRE: B. Riley presentation today
    Entry05/20/2014 04:49 PM
    MemberMason
    yes.  The autoUSA integration continues to go well.  on the q1 eps call, they said they would cut the autoUSA opex by 55% by the end of the q2.  they just said it is already there and has more room to go down further.  They also sounded confident about advertising revenue which is very high margin and something the street is also not factoring in estimates.    

    Subjectautoweb ownership underappreciated
    Entry06/20/2014 05:02 PM
    MemberMason
    ABTL owns 16% of Autoweb and has an option to buy another 10% for just $2.5m.  Autoweb is attacking a very large market and ABTL's stake in this company has the potential to be worth a significant amount of ABTL's market cap.  I recently met with the CEO who said that Autoweb could be his Alibaba.  Autoweb allows lead gen companies like ABTL to make money on abandonment traffic with at virtually no incremental cost.  a very small single digit percent of consumers who start a lead gen form actually finish.  therefore, the lead gen companies only are able to monetize a small % of their traffic.  autoweb works behind the scenes when customers fill out lead gen forms.  For example, if you just put in your zip code and that you are a looking at a honda before closing the lead gen pop up, autoweb will put up relevant advertisements for you such as for honda dealerships in your zip code.  if you then click on any of these advertisements, both autoweb and the respective lead gen company share in the advertising revenue.  after initially working with ABTL, autoweb has signed up many of the big lead gen companies and is growing very fast.  we have talked to VC's who say that autoweb could easily raise money at around $100m valuation today, which implies a valuation for ABTL's stake at over $2 per share already.  

    Subjectsurprising guidance but valuation rediculous now
    Entry08/01/2014 09:55 AM
    MemberMason
    integration with auto USA went well on the cost side but not as smoothly as expected with respect to revenue.  this is the main reason for the revenue guidance shortfall.  definitely a surprise but should point out that the valuation at this price is around 5x run-rate ebitda ex value of NOL and autoweb for a business that is still growing the top line high teens organically off of tougher compares and will likely get acquired one day.  that being said, i do have to admit that i have lost some confidence in mgmt given the revenue guidance.  

    Subjectsurprising guidance but valuation rediculous now
    Entry08/01/2014 12:20 PM
    Memberstraw1023
    Mason,
     
    I am going back over notes here and had a few questions.
     
    I assume the forward rev guidance is about $4 mm short for Q3. Correct?
     
    I am struggling with how this can be solely due to AutoUSA shortfalls given that the expectations were about $20mm of additional revenue for the entire year, and the $20mm number was confirmed by mgmt. I understand that Q3 is seasonally strong and so cannot just multiply by 4x, but it still seems outsized as I would think that AutoUSA expected Q3 revenue was $6-6.5mm so did they lose $4mm of this? 
     
    I am further confused because mgmt said that impact of the bad-leads lost revenue was going to be lower in Q3 than just-reported Q2 (which did not come in terribly weak overall) . . . which suggests that OEM-lead-shortfall in Q3 (and ongoing) is almost all of the shortfall. It also suggests that OEM-lead revenue is dropping dramatically (i.e. 75+%) on a unilateral move by counterparty.
     
    Am I making an error in here somewhere? If I am not making an error, then either AutoUSA is more of a disaster than mgmt is letting on (i.e. $20mm of incremental revenue just became <$8 mm of revenue even after they fix the bad leads source) or they are also guiding down for the rest of the business.
     
    Can you help?
     
    Thanks 
     
     
     
     

    SubjectRE: surprising guidance but valuationrediculousnow
    Entry08/01/2014 01:00 PM
    MemberWeighingMachine
    I've been following this (a bit) but haven't pulled the trigger.  Mason - what EBITDA are you using for 2014 & 2015?  Thanks 

    SubjectRe: surprising guidance but val rediculous now
    Entry08/02/2014 04:01 PM
    MemberMason
    Straw, first let me say that having to defend a stock where I feel like I just lost some confidence I mgmt is one of the things I dislike most in this business. they never gave guidance for q3 before. I had actually been expecting slight rev downside for revenue vs the street in q3 but didnt mind this because I had been expecting a big beat for ebitda and because of the valuation. While revenue guidance in q3 came in much lower than the street, ebitda guidance was actually about in line.  compared to my numbers, most of the miss in q3 was from autoUSA. you are right that compared to the street, about half of the miss in q3 is the core abtl business. The street was a little too aggressive with respect to organic growth compared to tougher compares since they started ramping a new big OEM (Honda) in q3 2013.   Note that the organic business is still growing revenue in the double digits despite these tougher compares. 
     
    Weighing machine, I am redoing my model to be much more conservative given less confidence in mgmt, but I think unless new car sales are down a lot next year, ebitda should be higher in 2015 vs the current run rate which is about 10.5m based on what they just did and the  guidance. 
     
    2 of the reasons I think this is cheap is because people give no credit to the large NOL and the value of autoweb.  I have heard from VC's that auto web is worth at least 100m  which means abtl's stake is worth over $2 per share. It is growing revenue very rapidly and is already fcf positive. Abtl only  effectively owns 26% of autoweb so feels like they are limited  in what they can say about it. I spoke to abtl mgmt yday and they are going to ask permission from autoweb to speak more about it Publicly.   Who knows  what they will be able to say. 
     
    abtl mgmt also seems to understand that they have lost credibility with investors. I wouldnt be surprised if they do something to address this such as a buyback but they would need board approval. 

    SubjectCars.com worth $2.5B
    Entry08/05/2014 12:45 PM
    Memberdionis589
    The compare vs. Cars.com was made in previous threads, but now that the asset has traded hands at $2.5B...the valuation disparity is huge. Cars.com valuation was 25x EBITDA and 5.5x sales which would imply value for ABTL at anywhere between 2-5x current levels not accounting for the NOL. While I understand the winner take all nature of the classifieds market and nuances around used vs. new cars, the current price is discounting a lot whether its market share losses, lack of mgmt credibility, etc. Any thoughts?

    SubjectRE: Cars.com worth $2.5B
    Entry08/05/2014 01:03 PM
    Memberstraw1023
    Clearly, this is about loss of mgmt credibility. Even if the entire $12mm AutoUSA is worthless, it is less than $1 per share of damage on an after tax basis.
     
    My question (#83) was trying to get at how much organic growth is also falling short of expectations in Q3 . . . and while it does seem to be a bit less than expected, I do not think this is reason for dramatic fall. Mason seems to agree.
     
    So the lion's share of the drop is mgmt credibility.
     
    The reason is that mgmt seems not to have done basic due diligence on an acquisition -- sustainability of existing contracts is a pretty standard DD checkbox. The poor-quality leads seems like it might not be a huge DD problem. But the OEM unilateral re-write oversight is pure incompetence or some pretty solid fraud on the part of the seller.
     
    So if you think mgmt is chastened and will do better, probably a good buy.
     
     

    SubjectRE: Cars.com worth $2.5B
    Entry08/05/2014 02:48 PM
    MemberWeighingMachine
    As we've seen w/ Z/TRLA vs. MOVE, these disparities can exist for quite some time

    SubjectActivist Involved (Ancora)
    Entry10/21/2014 01:46 PM
    Memberstraw1023
    http://www.sec.gov/Archives/edgar/data/1023364/000116204414001279/ancorasc13d201410.htm
     
    Interesting that they filed a 13d before reaching the 5% threshold.

    SubjectHeld Nose and Bought Back
    Entry11/21/2014 08:41 AM
    Membercuyler1903

    I held my nose and bought a decent amount of stock back yesterday in light of the activist involvement and recent insider buying by CEO and another director.

    Was very happy to see after the close a report that a second Director Mike Carpenter bought 5000 shares in the open market.  He previously ran Citigroup's Alternatives division, so he should understand valuation and market dynamics.

    My hope is that Ancora is successful and the company capitulates and goes up for sale.  Downside should be fairly limited here given the situation.

    Cuyler


    SubjectCrickets?
    Entry03/02/2015 12:52 PM
    Memberstraw1023

    I am surprised no comments.

    They put together a strong quarter and the guidance (10% top line but closer to 15% if you take out the AutoUSA H1 revenue that ceased) was solid (I would not say 'great'). Clearly, expectations were low for this management team and business in light of their screw ups.

    Still trades at a conservative multiple . . . and if you think takeout is possible, lots of upside from here . . .

    We held our position after disaster an

    Thoughts from here?

      Back to top