- Parts iD, Inc. (ticker: ID) recently merged with SPAC Legacy Acquisition Corp. to go public
- Leading digital commerce platform for automotive aftermarket
- Enterprise value is approximately 0.3x 2021 sales, 5.8x 2021 Ebitda, well below comps
- Stock trading 53{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} lower than November high, representing major upside for investors
- Vertical expansion into areas including boats, motorcycles boosts TAM by $100 billion
- CEO Nino Ciappina was previously Director of eCommerce & Digital Marketing at Foot Locker Retail, Inc.
Gearheads love to talk shop. And e-commerce company Parts iD, Inc. shares the same obsession. The company is doing for the automobile parts market what Chewy, Inc. has done for the pet food market.
Cranbury, NJ-based Parts iD, which went public through a merger with SPAC Legacy Acquisition Corp., focuses on creating custom infrastructure and unique user experiences within niche markets. Its long-term competitive differentiation is tied to the artificial intelligence (AI) running its marketplace platform and its obsessive customer service, which leads to steady return business from satisfied shoppers. And with shares trading at half of where they were a month ago, there is significant upside for investors.
In addition to auto-focused CariD.com, Parts iD is betting that its e-commerce platform will work for parts of other types of vehicles. It is leveraging its growing reputation as a “one-stop-shop” for enthusiast consumers to expand its parts offerings to verticals including boats, motorcycles, RVs, semi trucks, powersports, tools and recreation. It is already seeing higher returns from the expanded merchandise assortment and is now looking at repair/original equipment section of the market.
The magic of the Parts iD model is that it uses analytics to source parts quickly from multiple locations. There is no giant warehouse. When a consumer places an order on the platform, the system is identifying where those orders are going and will optimize based on the shipping location. It also allows the company to optimize pricing.
When a customer calls into order a part, the conversation is more than transactional. Parts iD’s call center average order values are higher than regular online orders due to extensive agent training and segmentation by category. And consumers can shop all eight of the iD websites and easily add items to one shared shopping cart in a seamless checkout.
The company has built out its online catalog so customers don’t need to shop elsewhere to find the products their cars might need, and to increase the amount they spend. The core costumer is male, 25 to 55 years old, blue collar, owns two cars and some other motor vehicle like an ATV or jet ski. He has a passion for accessorizing and is often a DIY user. Think: Jay Leno, without his millions.
U.S. e-commerce has grown 32 percent in 2020 on demand spurred by Covid-19, up from 15 percent in 2019, according to eMarketer. While larger e-commerce players such as Amazon, eBay and Wayfair may see margins decline next year amid a vaccine-led recovery in consumer spending on other sectors, niche businesses like Chewy and Parts iD are unlikely to see any drop-off. Indeed, Parts iD saw net revenue increase more than 40 percent to $307.8 million in the first three quarters this year, while gross margins improved to more than 20 percent.
While a company like Carparts.com says it has margins around 35 percent, what’s getting lost is the Carparts operating model treats the expenses like fulfillment costs and inventory differently. And when you factor those costs in, it starts to look much more comparable. Carparts has less than 1 million SKUs and operates in very narrow categories.
Parts iD is now in over 1,000 categories and its SKUs have tripled over past five years. It has 95 percent of all available interior and exterior SKU auto accessories. Another comparable like tirerack.com, only handles tires.
After building a loyal following under the name Car iD, Onyx Enterprises Intl Corp. and Legacy Acquisition Corp. merged to form Parts iD, listed on the NYSE as ID. Now that the company is public, it can potentially look for acquisitions of small manufacturers, and may even be acquired itself.
While new-vehicle sales in the U.S. peaked at 17.5 million in 2016, the pandemic has paused a decline in private automobile registrations as consumers opted for vehicle ownership and shunned cities and mass transit for a period. And though miles driven may be down this year, the desire to accessorize hasn’t waned as many people have opted to purchase a second or third vehicle because they’re afraid of public transportation.
The global automotive retail market is growing 2 percent a year, with the four largest players accounting for about $50 billion in sales in the past year. Increasing vehicle complexity supports the long-term trend of drivers seeking professional services, and 70 percent of the U.S. passenger-vehicle fleet is older than six years — the prime age for increased mechanical and cosmetic care.
The aftermarket auto parts dynamics sustaining retailers’ top-line and earnings growth shifted from the commercial business to DIY in 2020. And if DIY isn’t an option for a consumer, Parts iD has local professional installation suggestions through its marketplace platform and has partnered with a co-op of tire installers offering an installation package.
Sales to professional auto-repair shops are set to return as the sustainable driver of growth for parts retailers following the spike in DIY interest during the pandemic’s most severe period of isolation. A structural change in demand dynamics driven by commuting and vehicle ownership trends post-Covid-19 might hasten the $230 billion industry’s recovery.
Parts iD traded at a high of $10.49 in mid-November and is just under $5 now, representing major upside for investors who understand the business as a tech and data company first. And that data can unlock value: If a part is listed as fitting five automobile models, the AI can identify even more models that will fit. The company also says it can repurpose its data use for international expansion, starting in Canada. Europe and Asia could follow after that.
How should investors benchmark Parts iD? The stock, trading at a mere 0.3 times 2021 forecast sales and 5.8 times Ebitda, is far cheaper than any reasonable comp. CarParts.com, Inc. trades at 1.1 times 2021 consensus sales, according to Sentieo, an AI-enabled research platform. Carvana Co. trades at 6 times 2021 sales, Chewy, Inc. trades at 4.6 times and Wayfair Inc. trades at 1.7 times.
So, whether you’re a gearhead or an investor, you’ve got a green light here. It’s time to step on the gas.
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