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Can Autoweb.com Jumpstart Fading Stock?

It's hard to find any Internet stock that isn't trading far below the highs achieved in the spring, but few have fallen as far as Web car-shopping site Autoweb.com.

Shares of (AWEB) were selling Wednesday at $8.88 each, a pitiful 22% of the March 23 closing price of $40, when the Santa Clara, Calif.-based company went public.

In a bid to jumpstart its stock and broaden its revenue base beyond fees paid by auto dealers, insurance and finance companies and advertisers, Autoweb.com Wednesday announced plans to begin selling cars directly through its Web site. The service will be tested in several unspecified states starting Aug. 30.

Until now Autoweb.com merely has provided online car shoppers with information (invoice prices, reviews, insurance quotes, loan rates, etc.) and, once they're ready for some tire-kicking, referrals to dealers in their area.

Under the system, a customer chooses a vehicle from Autoweb.com and then the company contacts the prospective buyer with a price. If acceptable, customers can pay a deposit and get the vehicle from one of 5,000 dealers in the Autoweb.com network.

By getting a piece of the transaction, Autoweb.com hopes to develop an e-commerce revenue stream and better position itself to cash in on the expected boom in Web-based auto sales. Forrester Research earlier this year projected auto sales generated from the Web would go from 15,000 this year to a half-million by 2003.

Autoweb.com last month reported Q2 revenues of $7 million, up 150% from Q2 '98, though only 22% higher than the $5.7 million generated in Q1 '99. In comparison, top online rival Autobytel.com last month reported $9.2 million in Q2 revenues.

Autobytel.com hasn't yet announced plans to sell cars directly, but it will. (Two other sites, CarsDirect.com and AutoNation, already allow people to buy vehicles online.) A Wall Street Journal study estimates the market for new and used vehicles at more than $670 billion. You'd be crazy not to want a piece of that action.

The problem facing Autoweb.com and the other information providers and e-commerce enablers is that the Internet works against middlemen, and that is essentially what they are. If car purchases are primarily price-driven, sites such as Autoweb.com and Autobytel.com will not be able to compete with the manufacturers, all of whom one day will sell cars directly through the Internet at factory prices. One company, Daewoo, announced plans earlier this year to sell vehicles through the 'Net.

The business model bridging the Internet with the auto industry is still evolving. And while Autoweb.com and similar sites were quick to offer value by leading car buyers to dealers in a non-threatening manner, it's doubtful they'll gain sizable long-term revenue by selling cars.Autoweb.com better keep those referrals coming.


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