How Carparts.com Could Disrupt the Auto Parts Industry | The Motley Fool
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How Carparts.com Could Disrupt the Auto Parts Industry
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NASDAQ: PRTS
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A mobile mechanic could be the latest innovation out of the e-commerce company.
Carparts.com ( PRTS 7.54% ) has come a long way in just a few years.
Since CEO Lev Peker and COO David Meniane took over the company's leadership in 2019, revenue at Carparts.com has soared -- more than doubling over the last two years to $582.4 million -- and gross margin has improved from 30% to 33.8%.
During that time, the company has consolidated 17 disjointed websites into one website: Carparts.com. It's updated its tech stock and expanded from two distribution centers to five, and it will soon have a sixth when its Jacksonville, Florida, distribution center opens in the second quarter, enabling it to ship items to 55% of the country in one day. Over the long term, its goal is to reach 80% to 90% in just one day.
Image source: Getty Images.
Carparts.com was a beneficiary of the pandemic -- sales in both e-commerce and auto parts soared during the early months of the outbreak. But the long-term picture for the company still looks appealing even as COVID-19 vaccinations continue, especially with the stock down close to two-thirds from its all-time high about a year ago.
In its earnings call, management said that revenue has grown by double-digit percentages through the first eight weeks of the year, even as it laps the benefit provided by stimulus checks from a year ago, and management expects double-digit revenue growth for 2022, with the opening of the Jacksonville distribution center and the expansion of its Texas facility adding a boost.
Over the long term, the company has a bigger plan to disrupt the auto parts market.
DIY versus DIFM
Most of Carparts.com sales are to do-it-yourself (DIY) customers. They order the parts they need for their own vehicles and do the work themselves. However, the much bigger market in auto parts is the do-it-for-me (DIFM) customers: those who take their cars to mechanics to have the work done. Though about 1-in-7 Carparts.com customers does order parts to take to a mechanic, Ryan Lockwood, the company's senior vice president of finance, estimates the company would increase its total addressable market by about five times since an estimated 1-in-5 Americans work on their cars themselves.
There would also be a number of advantages to offering a DIFM business. It expands the market considerably and is much more marketable because anybody can use it. So, it's likely to benefit from word-of-mouth in a way that the DIY market doesn't since only a minority of car owners are interested in working on their own cars.
The DIFM program is currently in pilot, and Lockwood said the company hoped to launch the program nationwide in the next 12 to 18 months, with the ultimate goal of delivering an Uber-like, white-glove experience, where you just click on an app a couple of times and get your car repaired. Essentially, the end goal is for customers to be able to have a mechanic come to their house and repair their car there -- an experience that would be much more convenient than the typical process of going to a mechanic.
Lockwood said, "We believe that this is a product that's applicable to everybody because nobody really likes going to the mechanic and watching tube TV and drinking bad coffee and then getting ripped off." By comparison, Carparts.com's DIFM service would offer transparent pricing and the convenience of sitting on your couch while your car is repaired.
Such a service would be a new offering in the industry -- and in an era of consumers who have been trained to value convenience above almost anything else, it's likely to find an audience.
In the meantime, Carparts.com has demonstrated its ability to execute and grow the business, and the company is targeting long-term revenue growth of 20% to 25% and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margins of 8% to 10%.
Even without the added potential of the DIFM business, the stock looks like a good deal at a price-to-sales ratio of just 0.8. If DIFM does take off, Carparts.com could easily be a multi-bagger from here.
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