Time to Zap Up Some Zipcar?
Patrick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Basics:
Buying and owning a car is an expensive decision. To provide another option, Zipcar (NASDAQ: ZIP) has developed a national car-sharing network that helps solve the situation where Americans pay huge sums for cars and only use them for a hour or so a day. Zipcar is now at half of their initial IPO price from last April and despite competitors they are still growing rapidly. The company has 650,000 members, which is 100,000 more than a year ago, and over 9,500 cars of over 50 different makes in major metropolitan areas and 250 college campuses. One fact that makes me excited is that management says 10 million drivers live within a 10-minute walk of their cars: talk about room for growth.
The ratios may not say much because the company hasn’t had positive earnings yet but look at the overall trends and you can begin to see the true story. First off, revenue per member is hovering around $400 and this stat has been on a decline since 2007 when it was close to $520. Zipcar attributes this to “the impact of economic conditions.” Despite this decline in per member revenue their total number of members has increased so rapidly that it makes the per member figure not nearly as significant in the short term but it is something to keep an eye on down the road. Revenue for the company has increased steadily the last five years and surprisingly not only have assets increased but debt decreased last year as the company used some of its IPO cash to strengthen the balance sheet.
The company will be releasing its quarterly earnings report on April 25th and as usual the stock may fluctuate wildly during that period. The average analyst estimate calls for an 11 cent per share loss for this quarter, but a positive $0.11 for the year compared to a $1.21 loss last year. Now the past three quarters estimates haven’t been dead-on so take this with a grain of salt. If the company meets its earnings estimates for 2013 then it will be priced at 35 times earnings. For the growth this company is going through this is not terribly expensive. Now estimates that far out are rarely right on target so if your research shows that earnings will be higher this stock could be very attractive right now.
Growth:
Zipcar has had a rapid period of growth and acquisitions the last few years. For a quick history they bought rival Flexcar in 2007 to bring the fleet from 3,500 to 5,000 and membership to 225,000. The company then acquired a 60% interest in Avancar which is a major car sharing company in Spain. In 2010 they bought Streetcar, the largest UK car sharing company bringing the total number of members to over 400,000. Through these acquisitions and their own growth the company now has over 650,000 members and is the world’s largest car sharing program.
More recently Zipcar has been expanding into more metropolitan areas with a focus this year on college campuses. Zipcar has partnered with Ford (NYSE: F) for this initiative and is including 11 large schools in Canada. Ford expects its vehicles to make up over a quarter of the Zipcar fleet by the end of 2012. Zipcar has also partnered with Honda (NYSE: HMC) to increase the number of fuel efficient models in their fleet. Having major auto companies partner rather than compete with Zipcar should be a huge relief for shareholders.
Nonetheless Zipcar has stiff competition from Hertz (NYSE: HTZ) and their On Demand service, Daimler’s car2go program, and more. They have done a pretty good job of buying the competition but with these larger names finally catching up they won’t be able to continue to follow that route. So what is the moat around Zipcar’s market share? Clearly they are the first-mover, Zipcar is the best known name in car sharing and they even have most of the best parking spots in their current cities. Yes, competition will bring down profit margins and make Zipcar’s life more difficult in general. But I think the company that comes out on top will be the one that is closest and most convenient for drivers. And right now for the majority of potential customers that company is Zipcar.
Last Word:
This is a capital intensive business both to buy the cars in the first place and then to keep them up. I worry what will happen to Zipcar as their fleet starts to age and their cars need more maintenance but this will not be pertinent for another few years. It will be critical that they continue to upgrade their technology as things progress or they can rapidly fall behind the competition. I would like to see an increase in services such as the addition of point to point options (whether through acquisitions or their own development) and of course a continuation of their growth both domestically and internationally.
So should you buy now? I am not 100% convinced. The stock price is nearly at the lowest point in its one year history on the public market but that isn’t at all a reason to buy. I think that it is worth keeping an eye on and after there is some proof of profitability you may want to review the story and consider buying.
Motley Fool newsletter services recommend Ford, and Zipcar. The Motley Fool owns shares of Ford, Hertz Global Holdings, and Zipcar. clifgray owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
