For U.S. Auto Parts Network Inc., a long drive on the information superhighway has led to a dot-com payday.
The Carson-based company, which has sold auto parts online since its start-up in 1995, went public on Feb. 9 and saw its stock rise 19 percent to close at $11.90 during the first day of trading.
The public offering consisted of 8 million shares owned by the company and 2 million from stockholders. Most of the latter came from Chief Executive Officer Mehran Nia, who sold about 500,000 shares, and Chairman Sol Khazani, who sold nearly 1 million shares at an average price of $11.
According to the prospectus, the company plans to use its more than $80 million in proceeds to pay off $33 million in debt, with the remainder going to improve infrastructure and marketing as well as for possible acquisitions.
U.S. Auto Parts Network sells online through two sites, PartsTrain.com and AutoPartsWarehouse.com. Its selection consists of about 550,000 different products. A proprietary database “maps” these products to various vehicle makes and models.
The company, which did not return phone calls, said its competitive strategy relies on that database as well as the economics of buying parts directly from manufacturers.
“Our ability to ‘disintermediate’ the auto parts supply chain, combined with our efficient e-commerce platform, enables us to sell products at competitive prices,” the prospectus states.
But according to Jon Hedges of Hedges & Co., an Ohio-based aftermarket parts consultancy, the disintermediation strategy is common in the industry. As for the proprietary database, other companies have built similar ones, often using a standard format available from the industry’s trade group, the Automotive Aftermarket Industry Association (AAIA).
Even online, competitors are plentiful in the parts market. They range from giants, like the site of cataloguer J.C. Whitney, to individual mechanics hawking spare parts on eBay, said Hedges. In addition, established retailers like Pep Boys, Napa, AutoZone and Kragen’s have big Web presences. Low start-up costs and few barriers to entry make it simple for new competitors to join the market at any time.
“No question, the auto parts aftermarket is growing online,” said Hedges. “But one of the challenges is standing out from the crowd.”
In 2006, the online and mail order portion of aftermarket auto parts is estimated at $2.7 billion according to the AAIA, representing a mere 1 percent of the $204 billion parts market. U.S. Auto Parts Network expects the online sector to grow faster than the overall industry.
Financially, U.S. Auto Parts Network reported revenues of $59.7 million in 2005, and pro forma projections for 2006 came to $107 million. For 2005 the earnings before interest, taxes, depreciation and amortization totaled $8.8 million, a gross margin of 15 percent.
As an investment, the company remains thinly traded since the initial burst on Feb. 9. Oak Investment Partners, a Silicon Valley-based limited partnership, owns 22 percent of the shares. Nia and Khazani own 17 and 16 percent, respectively.
Shares of U.S. Auto Parts Network trade on the Nasdaq Stock Exchange under the symbol PRTS.
