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.
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.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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