Autobytel's Acquisition of Purchase Requests -- The Evidence (ABTL)

My article Autobytel Misleading Investors On Purchase Requests? stated that "80% of purchase requests sold by Autobytel to dealers are bought by Autobytel from third party companies." A number of Seeking Alpha readers asked for evidence for this. Here it is.

Following is a excerpt from the Autobytel 2005 10-K page 49 referencing the purchase of purchase requests:

Cost of revenues increased by $14.2 million or 39% to $50.7 million in 2004 compared to $36.5 million in 2003. This represents 42% and 41% of total revenues in 2004 and 2003, respectively. The increase was due to a $11.2 million increase in the costs of purchase and finance request acquired from third parties, a $2.3 million increase in printing, production, and postage costs for our customer loyalty and retention program, a $0.4 million increase in data content and license fees, a $0.2 million increase in personnel and related costs, a $0.2 million increase in hosting and internet connection charges and a $0.2 million increase in the amortization of acquired technology.

Why didn't I quote the 2005 10-K in the original article? The article referenced the 2006 Q1 10-Q where this information was not disclosed. The 2006 Q1 10-Q is a stand alone document and includes the Sarbanes Oxley certification.

Full disclosure: the author has no position in ABTL.

Comments

[MichaelBenavides]

The practice of arbitraging purchase requests ("leads") in the industry is commonplace and is actually used by some providers as a competitive advantage (when the leads come from reputable third party automotive research sites).

In fact, of the four major networks (AutoNation/AutoUSA, The Cobalt Group/Dealix, Internet Brands/CarsDirect.com and Autobytel.com), all of them source the majority of their leads from third parties.

The differentiating factor is who those third parties are. The major auto portals provide a good quality set of leads, but open affiliate networks (programs which pay third parties for traffic and/or leads) allow some junk through the door. Spammers have been virtually eliminated from the top networks' product mix and no longer materially impact overall quality.

The questions to ask are what percentage of the leads come from native traffic, from websites with at least 1MM uniques/mo, from sites with 200k-1MM u/mo and what percentage come from sites with under 200k u/mo.