IPO Report: TrueCar (TRUE)

TrueCar  (TRUE) provides market-based pricing data on new and used cars and is headquartered in Santa Monica, CA.

Five other companies are scheduled for the week of May 12, 2014. The complete IPO calendar is available at IPOpremium.

The manager and joint managers are Goldman Sachs, J.P. Morgan,and RBC Capital Markets. The co-managers: Cowen & Company and JMP Securities.

TRUE scheduled a $102 million IPO with a market capitalization of $924 million at a price range midpoint of $13 for Friday, May 16, 2014 on the Nasdaq.  SEC filings

Overview

TRUE provides market-based pricing data on new and used cars and enables users to connect with TRUE's network of TrueCar Certified Dealers.

TRUE offers no competitive advantage other than affiliate marketing, and the marketplace is filled with competitors. See 'competition' below.

Revenues for Q1 '14 vs Q1 '13 revenues 75% to $44 million, losses increased to -$9.9 million from -$9 million.

However, sequential quarterly top line revenue growth for Q3 and Q4 2013 moderated to 7% and 9% respectively.

For the 12 months ended March '14 revenue was $152 million and losses were -$26 million.

Valuation

Glossary

Conclusion

The rating on TRUE is neutral+. Very good top line revenue increases. Breakeven isn't in sight.

Business

TRUE’s mission is to transform the car-buying experience for consumers and the way that dealers attract customers and sell cars.

TRUE has established an intelligent, data-driven online platform operating on a common technology infrastructure and powered by proprietary data and analytics.

TRUE operates its company-branded platform on its TrueCar.com website.

Affinity group marketing partners

In addition, TRUE customizes and operates its platform for affinity group marketing partners, such as USAA and Consumer Reports, financial institutions, and other large enterprises such as Boeing and Verizon.

TRUE enables users to obtain market-based pricing data on new and used cars and to connect with its network of TrueCar Certified Dealers.

Upfront pricing information

TRUE benefits consumers by providing information related to what others have paid for a make and model of car in their area and, where available, estimated prices for that make and model of car, which TRUE refers to as upfront pricing information, from its network of TrueCar Certified Dealers.

This upfront pricing information generally includes guaranteed savings off MSRP which the consumer may then take to the dealer in the form of a Guaranteed Savings Certificate and apply toward the purchase of the specified make and model of car.

TRUE benefits its network of TrueCar Certified Dealers by enabling them to attract these informed, in-market consumers in a cost-effective, accountable manner, which TRUE believes helps them to sell more cars.

Current focus

TRUE is currently focused primarily on new car transactions.

Seasonality

TRUE's revenue trends are a reflection of consumers' car buying patterns.

Across the automotive industry, consumers tend to purchase a higher volume of cars in the second and third quarters of each year, due in part to the introduction of new vehicle models from manufacturers.

In the past, these seasonal trends have not been pronounced due the overall growth of TRUE's business, but TRUE expects that in the future revenues may be affected by these seasonal trends.

TRUE's business will also be impacted by cyclical trends affecting the overall economy, specifically the retail automobile industry.

Growth Plan

In the future, TRUE intends to introduce additional products and services designed to improve the car-buying and car-ownership experience.

For example, TRUE is developing TrueTrade to provide users with an estimated daily market value for their existing cars and a guaranteed trade-in price.

In addition, TRUE is developing TrueLoan and TrueLease to provide users with a more convenient way to finance their cars at TrueCar Certified Dealers.

TRUE is also in the process of launching a number of new services for its dealers designed to enable them to make better informed inventory management and pricing decisions and to close transactions more efficiently.

Dividend Policy

No dividends are planned.

Intellectual Property

At March 31, 2014, TRUE had 12 U.S. issued patents, 31 pending U.S. patent applications, and 29 pending foreign patent applications.

The issued and allowed patents begin expiring in September 2029 through October 2031. TRUE intend to pursue additional patent protection to the extent TRUE believes it would be beneficial to its competitive position.

TRUE has a number of registered and unregistered trademarks. TRUE registered "TrueCar," the TrueCar logo, various TRUE marks and other marks as trademarks in the U.S. and several other jurisdictions.

TRUE also has filed trademark applications for ALG and others in the U.S. and other jurisdictions, and will pursue additional trademark registrations to the extent TRUE believes it would be beneficial to its competitive position.

Competition

Competition includes Internet search engines and online automotive sites such as Google, AutoTrader.com, eBay Motors, Edmunds.com, KBB.com, Autobytel.com, and Cars.com;

Sites operated by automobile manufacturers such as General Motors and Ford; 

Providers of offline, membership-based car-buying services such as the Costco Auto Program; and 
offline automotive classified listings, such as trade periodicals and local newspapers.

5% stockholders

Entities affiliated with United Services Automobile Association   25.65%

Entities affiliated with Capricorn Investment Group 15.94%

Entities affiliated with Upfront Ventures  15.15%

Entities affiliated with Anthem Ventures 9.26%

Vulcan Capital Growth Equity LLC         9.04%

Scott Painter     14.08%                       

Steven Dietz 15.21%    

Use of proceeds

TRUE expects to net $89 million from its IPO. Proceeds are allocated as follows.

for general corporate purposes, including working capital, operating expenses and capital expenditures.

TRUE may also use a portion of the net proceeds to acquire or invest in complementary technologies, solutions, products, services, businesses or other assets, although its has no present commitments or agreements to enter into any acquisitions or investments.

The amount and timing of TRUE’s actual expenditures will depend on numerous factors, including the cash used in or generated by its operations, the pace of its expansion plans, and its investments and acquisitions.