AutoTrader.com IPO Could Be a Wreck

Be wary of the first Internet filing since Facebook's IPO

   

As memories of the Facebook (NASDAQ:FB) IPO fade away — which has been helped by a nice recent rally in the stock — investors might just start warming up to Internet offerings again, right?

To this end, car buying research site AutoTrader.com filed to go public this week, with  Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) taking the underwriting lead.

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But after being scorched by Facebook, should investors open up their trust a little and take a ride on the deal?

Well, AutoTrader.com is a solid company. Since 1997, the site has become a thriving marketplace to purchase cars, and it has developed sophisticated marketing software for auto dealers. Plus, AutoTrader.com owns the ubiquitous Kelley Blue Book brand after buying it for $500 million in 2010.

In the first quarter, AutoTrader.com got 29 million monthly unique visitors, reaching about 60% of the online in-market car shoppers in the U.S. More than 25,000 auto dealers list their cars on AutoTrader.com.

And as far as financials are concerned: In 2011, the company posted more than $1.1 billion in revenues and EBITDA of $334.6 million.

Still, despite all those positives, there’s still a few problems.

Within the past couple months, AutoTrader.com’s insiders borrowed $400 million and paid themselves a dividend. While it is reasonable to get liquidity — especially since the company has been around for a while — the transaction looks excessive. And, of course, it weighs on the balance sheet; AutoTrader.com now carries about $1.3 billion in long-term debt.

Granted, AutoTrader does generate lots of cash flows, which are more than sufficient to pay the debt. But the cash-out certainly isn’t a sign of confidence. After all, the first-quarter growth rate in revenues was only about 13% on a year-over-year basis.

So despite its dot-com status and some attractive aspects to the company, AutoTrader.com might not have enough sizzle to get investors interested in the deal.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO.  Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/autotrader-com-ipo-could-be-a-wreck/.

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