TrueCar shares rise 12% after IPO nets less than forecast
Photo credit: NASDAQ
Shares of TrueCar Inc. climbed 12 percent in their market debut today, after the online car-shopping site raised less than expected in its initial public offering.
The company, which sold all 7.8 million shares offered, raised about $70 million after the stock was priced at $9 per share, well below the expected range of $12-$14.
The shares rose to $10.06 at 4:00 p.m. in New York after reaching $10.75 in Nasdaq trading earlier.
General nervousness among equity traders prompted the offering price to drop to $9 per share, TrueCar President John Krafcik said. TrueCar had expected the IPO to yield as much as $125 million.
“We are launching into fairly choppy markets,” Krafcik said in a phone interview today.
The shares were priced at $9 and placed privately on Thursday ahead of their trading debut today.
In the two weeks leading up to today’s trading, Krafcik said TrueCar executives, including CEO Scott Painter, met with 60 groups of potential investors. He said management shared how TrueCar is helping to bring transparency to vehicle shopping to the benefit of dealers and consumers.
A recent TrueCar study showed that respondents were comfortable with dealerships earning a 10 percent profit on new-vehicle sales when the reality today is that they earn less than 4 percent. Those same consumers thought the margin was 20 percent, Krafcik said.
In an interview today on CNBC, Painter said that sites like TrueCar that can save consumers time and money would play an increasingly important role in the car-buying process. More than 90 percent of car buyers do some or all of their new-vehicle shopping online.
Painter rang the opening bell at the Nasdaq exchange this morning hours before the company’s stock began trading under the symbol TRUE. At New York’s Times Square, he was surrounded by Krafcik and other staff members, participating dealers and well-wishers.
Proceeds from the IPO will be used to fund growth and roll out new products such as TrueLoan, TrueLease and TrueTrade.
Painter, 45, started TrueCar in 2005. TrueCar allows consumers to shop for cars online from participating dealership franchises, which today number about 7,700.
At the start of trading, Painter is TrueCar’s fourth-largest shareholder with 10.3 million common shares, or 14 percent of the company, according to TrueCar’s IPO documents filed with the Securities and Exchange Commission.
In 2013, Painter received a salary of $313,186, a bonus of $231,918 and stock options valued at $5.2 million.
Painter: TrueCar's fourth-largest shareholder -- 14% -- at the start of trading.
TrueCar’s largest shareholder is USAA, the giant financial and insurance services company for military personnel and veterans. USAA owns 17.1 million common shares, or 26 percent, of TrueCar.
In 2013, USAA members bought 43 percent of vehicles sold through TrueCar, or 171,795 units. USAA is among several dozen TrueCar affinity partners that offer the service on their Web sites as a perk to members.
In the first quarter, TrueCar continued an aggressive TV advertising campaign and other marketing efforts to attract more individual shoppers to TrueCar.com. As a result, USAA buyers as a percentage of total vehicle sales fell to 37 percent, though the company remained on pace to exceed sales to USAA members in 2014.
In 2013, TrueCar’s revenue rose 68 percent from the previous year to $134 million, while net losses narrowed to $25.1 million from $74.5 million.
In early 2012 TrueCar nearly went out of business when regulators from multiple states questioned its advertising methods. Regulators also contended that the company’s method of charging dealers only after a vehicle was sold violated laws prohibiting brokering by unlicensed parties.
Dealers also complained that TrueCar’s bid system lowered transaction prices, hobbling profits.
At the time, Painter called the crisis, which happened during his wife’s pregnancy, “a near-death experience” for TrueCar.
Painter engineered a restructuring of the company’s business model that de-emphasized cutthroat pricing for consumers. He pitched instead a fair price that provided a profit for participating dealers.
The key change was eliminating the ability of competing dealers to see in real time what rivals were bidding to win customers. Instead, bidding was made blind to prevent dealers from racing to the bottom on price and losing money on new-car deals.
By mid-2012, TrueCar was back in compliance with all state regulations and gradually coaxing dealers to return. During the crisis, the number of participating franchises fell by nearly half to 3,200.
Since its founding, TrueCar users have bought more than 1 million vehicles from participating dealers. Many of those buyers are members of associations and groups, such as USAA and AAA.
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