TrueCar IPO Falls Short of Expectations -Then Rebounds

After dropping price, traders quickly drive shares back up.

by on May.16, 2014

John Krafcik, third from left, TrueCar president, and Scott Painter, founder and CEO of TrueCar, right of Krafcik, celebrate the its debut on the NASDAQ.

With some of the fizz going out of internet stock in recent weeks, the initial public offering of stock by auto buying service TrueCar fell short of its own, cautious expectations as it began its first day of trading — but then quickly rebounded.

Initially expected to command between $12 and $14 per share when shares began trading today, they actually wound up launching under the NASDAQ symbol “TRUE” at a much more modest $9.00. Considering the nearly 8 million shares of common stock TrueCar offered, it will have raised about $70 million, down from initial expectations of somewhere around $100 million.

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The firm expects to use the cash it did raise for expanding its business operations and possibly making additional acquisitions according to the company’s Securities and Exchange Commission filings. It purchased the influential ALG, the former Automotive Leasing Guide, two years ago.

In addition, TrueCar granted the IPO underwriters a 30-day option to purchase up to 1.17 million additional shares of common stock at the initial public offering price.

Scott Painter, TrueCar founder and CEO, center, was joined by several dealers to mark the company's debut on the NASDAQ today.

Despite the initial, cool reception, the market response to TrueCar’s debut might encourage that additional sale. By midday Friday, the firm’s shares had traded up about $1.50, or more than 16%.

Goldman, Sachs & Co. and J.P. Morgan Securities LLC handled the offering and Bloomberg calculates that the initial public offering was 7.78 million shares.

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TrueCar operates TrueCar.com, a research and online car-shopping site. It shows a range of good, bad and average prices others are paying for the vehicles users hope to purchase, the figures reflecting local trends. The service claims to have accounted for 3.2% of new-car sales in the U.S. last year and it is eager to expand.

It has been in recovery mode for the last 18 months after having to rethink its basic business strategy. TrueCar initially promised shoppers guaranteed prices from its affiliated dealers. But Honda told dealers in 2012 they couldn’t do that if it resulted in advertising cars for less than the invoice price. Meanwhile, a number of states called the arrangement illegal under their dealer-franchise laws.

The service has since adopted a less direct model that doesn’t focus on invoice pricing. According to founder and CEO Scott Painter, it has had to also tweak its system to cope with those various franchise laws, meaning that it presents slightly different information depending upon the state a user lives in.

The scuffle with state regulators saw TrueCar lose thousands of its early dealer partners, though painter said the company has since rebounded in most key markets to previous levels.

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The online service generated quite a bit of buzz when it announced that former Hyundai Motor America CEO John Krafcik would join TrueCar’s board of directors. He has since expanded his role as the company’s new president.

CEO Painter has been involved with a number of other online car-shopping and -buying companies, such as CarsDirect and Auto-By-Tel. Main rivals include Edmunds.com, Kelley Blue Book’s kbb.com and Cars.com. So far, none of those has gone public, though several, including Edmunds, have reportedly been considering that option.

(Paul A. Eisenstein contributed to this report.)

 

 

 

 

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