Autobytel (ABTL) is trading higher today (+6%) after reporting Q4 results last night. In case you're not familiar, ABTL's flagship website Autobytel.com provides consumers with information and tools to aid them with their automotive purchase decisions and the ability to submit inquiries requesting Dealers to contact them. ABTL also has its AutoWeb pay-per-click advertising marketplace program which uses proprietary technology to refer in-market consumer traffic to Dealers and Manufacturer websites.
They primarily make money by providing leads to car dealers and from advertising. ABTL is the largest sales lead provider to the US auto industry. They get paid about $20-25 per lead. Of note, in December 2016, ABTL divested its specialty finance leads product in order to focus on its core business of vehicle leads and advertising click products.
ABTL is being helped by consumers having increasingly adopted the internet to make vehicle purchasing decisions. The internet is a primary tool for consumers to begin communicating with local Dealers regarding vehicle pricing, availability, options and financing.
Turning to the Q4 results, non-GAAP EPS rose 6% YoY to $0.35, which was actually a good bit better than expected. Analysts had been looking for an EPS decline. Revenue rose 10.9% year/year to $40.4 mln, which also was a good bit better than expected. For all of 2016, non-GAAP EPS came in at $1.30 while revenue rose 18% to a record $156.7 mln. In terms of 2017 guidance, ABTL expects non-GAAP EPS of $1.24-1.28, which is down slightly from 2016. Revenue in 2017 is expected to perhaps grow modestly at $156-160 mln.
Breaking down the numbers a bit more, revenue growth was primarily driven by an increase in advertising click revenue, as well as growth in wholesale lead revenue. Revenue generated from automotive leads and services were relatively flat at $30.8 mln, which was pretty decent considering that ABTL significantly (by thousands) reduced its volume of lower quality leads. These lower quality leads were eliminated over the course of 2016 and replaced primarily by higher quality, internally-generated leads. Advertising revenue jumped 119% YoY to $8.1 mln, mostly due to AutoWeb.
ABTL says that 2016 was a year of change as the company rolled out the new usedcars.com site and completed the integration of the Dealix and AutoWeb acquisitions from 2015. Each of these acquisitions brought important strategic assets, particularly AutoWeb, which dramatically strengthened ABTL's technology leadership in the automotive digital landscape. Also, as mentioned earlier, in December 2016, ABTL divested its specialty finance leads product, which enables the company to focus more on its core vehicle leads and fast-growing click products.
The company says that its advertising-related click product from AutoWeb continues to exceed expectations, with revenue growing more than 300% in 2016. ABTL is being methodical in its rollout of this product, having only introduced it to a small number of dealer and OEM customers thus far. It seems to be popular as ABTL experienced approximately 98% customer retention with the product in 2016 which is a sign of its high quality, high-intent consumer traffic.
In sum, investors appear to be pretty happy with the Q4 results and guidance. There was some nice revenue and EPS upside in Q4. And while the projected growth in 2017 seems pretty modest, you have to remember that a good portion of that is ABTL flushing out some of those lower quality leads from its system. This should benefit them in the long run. Also, from a broader perspective, industry-wide vehicle sales were robust in 2016 and the market expectation is that they should remain strong in 2017.