From Jared Schramm at Roth Capital:
ABTL: 4Q12 Results
ABTL reported 4Q12 results in-line with expectations as the company continues to see improved traction in its retail dealer purchase request volumes; however, we expect near-term investments intended to drive lead volume growth will hamper margin expansion in 2013. Lowering price target to $5.00, maintain Buy rating.
Dealer lead revenue improves: ABTL expanded its dealer lead revenue by 18% y/y in 4Q12, with the segment improving 10% y/y in 2012. This represents the first y/y increase in the retail space since 2008, attributable to a 7.5% y/y increase in dealer count in 2012.
We expect the company will continue to see improvements in this space as its recent study with R.L. Polk validates its close rates as being three-times industry average at approximately 23% for its flagship Autobytel.com site. We believe ABTL’s recent efforts to educate its customers as to the quality of its product in comparison to its competitors is becoming evident via improved dealer lead volumes.
Light vehicle sales outlook stable: J.D. Power increased its Retail Light Vehicle sales outlook in February to 12.5mm, up from 12.4mm previously. Given the strong historical correlation between US light vehicle sales and ABTL’s purchase request volumes, we believe J.D. Power’s expectation of y/y growth through 2015 remains a positive tail-wind for the company.
4Q12 results: Revenue of $16.9mm, up 4.2% y/y, was in-line with our estimate of $16.8mm. 4Q12 gross margin of 37.8% declined 470bps y/y due to increased investment in the company’s search engine marketing team as the company looks to drive lead volume growth. 4Q12 GAAP diluted EPS of $0.04 was flat y/y and ahead of our estimate of $0.02. Adjusted EBITDA of $0.9mm was in-line with our estimate.
Maintain Buy rating but lowering price target to $5.00: We are lowering our price target to $5.00, from $6.00. While we believe ABTL remains poised to expand its market-share in an improving light vehicle sales landscape, we expect near-term investments will weigh on margins in FY13. Our $5.00 price target is based on an 8x multiple to our FY13 EV/EBITDA estimate. Maintain Buy rating.
