ABTL

Revisiting ABTL: Growing Percentage of Internally-Generated Leads is a Major Positive

December 2nd, 2010 by Yehuda Fruchter   |   2 Comments

I’ve been following and trading in and out of ABTL for years. My latest recommendation to buy the stock was last August at around $0.50. The shares now trade for around $0.80 and again represent an interesting investment opportunity.

Though ABTL’s losses continue unabated, improving auto sales trends and a significant shift toward higher margin internally-generated leads could send the shares much higher in 2011.

What Changed Here?
Over the past few quarters ABTL’s main business of providing auto leads, has been shifting dramatically from third-party sourced leads to internally generated leads. Quite simply, reselling leads from third parties is a very low margin business, when compared to selling your own internally generated leads.

This change in ABTL’s lead mix, is reflected well in the fact that in 2009, 6% of the leads were generated internally, while by the end of the 3rd quarter 2010, internally-generated leads were approximately 39% of total leads. Moreover, the company is projecting 65% internally-generated leads in 2011. This is primarily because in September ABTL acquired Cyber Ventures, Inc. and Autotropolis, Inc. for around $15 million.Cyber Ventures and Autotropolis, Inc., through proprietary content website generate consumer automotive purchase requests, i.e. leads. Cyber Ventures and Autotropolis had 2009 annual revenues of approximately $10 million.

Jeffrey H. Coats, Autobytel’s President and Chief Executive Officer, explained the acquisition thus:

“Given our already large and growing auto dealer and OEM distribution network, the addition of Cyber Ventures and Autotropolis gives Autobytel a significant competitive advantage by providing us with an additional major source of high-quality, ready-to-buy consumer purchase requests coming directly from our network of branded consumer websites. We expect our higher-margin, internally-generated purchase requests to increase by upwards of 150%, and our total purchase request volume to grow by more than 40%.”

What May Happen?
As ABTL’s overall percentage of internally-generated, high-margin leads grows, and revenues expand due to organic and acquisition-fueled growth, financial comparisons should be favorable thoughout 2011. As more investors discover ABTL’s much improved financial profile, the shares should rise. In addition, acquisition activity continues to heat up in the Internet space and with an improving financial situation, it’s possible ABTL will become an acquisition target.

Risk/Reward
With a net cash position, a stable base of around $52 million in revenue ($62 million including the acquisition), an improving auto market, and the continued negative investor sentiment towards ABTL, I don’t see much risk in ABTL’s share price at this level, which is still way beneath five year highs of over $3. At the same time, on the upside, and from a very simplistic analysis (“Occam’s Razor” valuation), it’s interesting to note that ABTL bought Cyberventures for around 1.5X Revenue. At a similar valuation, ABTL would trade at around $2 per share. Interestingly, the owners of Cyberventures took warrants in ABTL at $0.93 per share.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in ABTL. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

Selling Autobytel (ABTL)

March 16th, 2007 by Yehuda Fruchter   |   No Comments

After analyzing ABTL’s latest 10-K and listening to the latest conference call, we decided to sell our shares in the company for a small loss.

Though we didn’t think things could get worse at this consistent underperformer, we were quite amazed to see that the new CEO at Autobytel (ABTL), after nearly 12 months on the job, had actually succeeded in tripling the company’s cash loss in the current fiscal year. And losses should continue for at least the next few quarters, as the company ramps up its new web property at www.myride.com.

Frankly, we see no reason to be bullish on www.myride.com. In fact, the high costs associated with the development and marketing of the new website, seem completely unneccesary. Furthermore, we don’t quite understand why the company even needs to brand a completely new website, given the current traffic figures at www.autobytel.com and its already solid brand within the online auto industry.

It seemed to us that a few changes at www.autobytel.com, should have been enough to kick start revenue growth. This combined with overhead reductions, instead of the increased SG&A management currently forecasts, could have gotten the company back to profitability and positioned it for future growth.

Alas, management has decided on a different strategic plan, which in our view entails more risk for questionable upside. As we have stated in the past, with the Market remaining weak, we’d prefer to allocate cash to companies where the risk/reward is more favorable and where management maintains strong fiscal discipline. These are the types of companies that should reach new highs during the next Bull run. Care for an example of such a situation? Check out our post: Betting on a Flash Future

In addition, in our view the most important aspect of any turnaround is a stabilization of the business and reversal of the cash burn. When management focuses first on growth opportunities at a troubled company, rather than on the above two prior actions, it is generally a signal to sell and move on.

New Stock Pick: Autobytel (ABTL)

October 12th, 2006 by Yehuda Fruchter   |   No Comments

From our perspective, it’s not difficult to see where Autobytel has gone wrong and how a smart management team could easily fix this broken company and in the process greatly enhance shareholder value. Therefore, at current prices levels or lower we would be purchasers of Autobytel’s stock.

We believe that the company’s still solid balance sheet, valuable Internet property assets, and the low valuation of its shares relative to future business prospects, offer investors solid downside protection, as they wait for the company’s current management team to execute on new strategic corporate initiatives.

Specifically, it appears to us that Autobytel has failed to deliver satisfactory financial returns in the past because the company’s previous executive management teams have focused on building an online lead generation business, and other non-core auto businesses, while the real profitable action in the Internet industry was and will continue to be in the high-margin advertising business.

Our investment thesis is that the company, under the new leadership of several proven Internet executives, is finally beginning to allocate more financial and human resources to establishing a high-growth and high-margin online automotive advertising business. This strategy, if successful, would be highly profitable for the company and its shareholders. A quick look at the valuations currently being afforded to other consumer-driven, advertising-supported website properties, by both venture capitalists and public Internet companies, is quite supportive of our investment case for AutoBytel.

In sum, despite the fact that the company could likely face several more quarters of negative operating results, we think that the stock could move significantly higher over a longer-time frame as online advertising becomes a higher percentage of the revenue mix. As such, we think that investors with a multi-year investment horizon would be wise to begin investigating AutoBytel as a potential investment at this time, especially given the current positive investor sentiment towards consumer Internet properties.