AutoWeb.com: In the Driver’s Seat?

Nothing seems to work for e-tailing stocks. Yesterday, AutoWeb.com (AWEB)
announced that Lycos agreed to buy 10 percent of the company. In the old
days (i.e., late last year), such news would have catapulted the stock.
Instead, AutoWeb.com was actually down 3/32 to 3-7/8.

But is AutoWeb.com a buy? Is the market missing the boat? Well, there is no
doubt that the online auto market is huge. According to J.D. Power and
Associates, more than 55 percent of new car buyers currently use the Net to
shop for cars. This is expected to soar to 80 percent by 2003.

The Lycos deal is critical. It covers four years, in which both companies
will jointly manage a new online auto channel (Lycos has about 33 million
users). Interestingly enough, the agreement calls for both firms to develop
wireless auto services.

Lycos will purchase 10 percent of AutoWeb.com, which will provide much needed
capital to the auto e-tailer (the estimated investment is $10 million). Of
course, there is a price tag; although, it is vague: “yearly
multi-million-dollar payments” to Lycos.

To me, it sounds like AutoWeb.com was negotiating from the vantage point of
weakness. The company needs cash. At the end of 1999, AutoWeb.com had $32
million of cash on its balance.

As for Lycos, they have a low-risk position. They are guaranteed
multi-million-dollar payments for the next four years. What’s more, a $10
million investment in AutoWeb.com is not very material for Lycos.

Finally, AutoWeb.com must face tremendous competition, such as from
Autobytel.com, Greenlight.com (which Amazon.com is a backer) and even
priceline.com.

The big question is: If a deal with Lycos cannot lift the share price, what
can?

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