Autotrader.com Backs Out of IPO Plans Yet Again

According to Forrester research, with more than $22 billion spent on automotive advertising last year, the segment is among the largest advertising markets in the country. The researcher estimates that the growth in online viewership by consumers is causing dealers and manufacturers to spend more of their advertising dollars on the Internet. In 2008, just 5% of automotive advertising was through the Internet. That number grew to 15% in 2011. The Internet is also playing a bigger role in the decision making surrounding the trade of a car.

Autotrader’s Financials
Autotrader is an online portal that offers buyers and sellers a single platform to trade in used or new cars. The Atlanta-based company was founded in 1997 and launched its digital media platform a year later. They are now the largest digital automotive marketplace and a leading provider of marketing and software solutions to automotive dealers in the country.

They operate two main businesses – Digital Media and Software Solutions. The Digital Media segment focuses on providing a one-stop shop to consumers wanting to trade in used or new cars through the Internet. Through their website, consumers have access to a listing of more than 3.4 million unique car listings and a network of more than 25,000 dealers. Nearly 20,000 of their dealers pay a subscription fee to get additional features such as enhanced car listings on their websites. Their site is visited by an average 28 million monthly unique viewers.

Their Software Solutions segment is another subscription-based service for dealers. It provides tools such as data analytics, inventory management and CRM offerings to help the dealers better manage their operations.

Autotrader has seen strong growth in revenues since inception. Revenues have grown from $1 million in 1998 to $1.02 billion in 2011. They ended 2011 with adjusted EBITDA of $334.6 million and net income of $68.1 million. Digital Media revenues accounted for 89% of the year’s revenues and software solutions brought in the remaining 11%. For the first half of the previous year, revenues grew 15% to $563.1 million, and earnings grew 29% to $41.6 million.

Autotrader.com initially filed their S-1 in June 2012. But given the continued weak economy and the stock market’s wary attitude, they pulled their $300 million IPO back. Earlier this year, Autotrader.com cited “prevailing market conditions” as the reason to abandon their IPO. This is the second time that the company has pulled back from going public. They had earlier filed for a $65 million IPO in 2000.

Analysts believe that Autotrader backed out of their IPO because of increasing competition and margin pressure. Not only do they face severe pressure from similar vertical-focused web 3.0 offerings such as Edmunds.com, but also from the big search engines such as Google that are able to provide the relevant information such as dealer contact details to consumers. Autotrader is focusing on diversifying into software solutions to help them better compete with these players. During the first quarter of the previous year, revenue contribution from software solutions increased to 14%, compared with 11% reported for the year ago. They are also expanding market leadership through acquisitions. In October 2012, they bought car pricing service Kelley Blue Book, popularly known as KBB, for more than $500 million. Autotrader plans to leverage KBB’s automobile advertising market and their analytics tool as growth engines for their own offering.