Zipcar Earnings Report: What to Watch For

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Zipcar's (UNKNOWN: ZIP.DL2) third-quarter earnings are expected to be released today after market close. The stock has lost half its value year-to-date, and shareholders are hoping the results won’t push the price down even further. What should investors be looking for in Zipcar's financial statements?

Member Loyalty

Zipcar is the most popular car-sharing service in America, but the market is becoming more and more competitive. San Franciscans have their choice of at least four hourly car rental services - Zipcar, RelayRides, Getaround, City CarShare - and traditional rental agencies like Hertz (NYSE: HTZ), Avis (NASDAQ: CAR), and Enterprise Rent-A-Car could modify their operations to grab some of the pie. Currently, Hertz and Avis do business primarily out of airports and rent cars out for the day, not for the hour. To adopt Zipcar's model, those companies would need to get closer to residential neighborhoods by finding convenient locations to hold their vehicles. Zipcar has phenomenal placement of its cars, and the company holds a significant first-mover advantage in the hourly-rental business.

Still, Sharon the Zipcar Shareholder needs some assurance that the company’s members aren’t being poached by the competition. Where can she find this information? The company's financial statements include a specific metric to assess member loyalty -- it's called the monthly retention rate. In prior quarters, the retention rate has been very high at over 97%. If Zipcar shows a similar trend in this next report, that’s something the company can brag about.

<table> <tbody> <tr> <td> <p> </p> </td> <td colspan="2"> <p><strong>For the three months<br />ended September 30,</strong></p> </td> </tr> <tr> <td> <p> </p> </td> <td> <p><strong>2011</strong></p> </td> <td> <p><strong>2010</strong></p> </td> </tr> <tr> <td> <p><span>Average monthly member retention</span></p> </td> <td> <p>97.3%</p> </td> <td> <p>97.8%</p> </td> </tr> </tbody> </table>

A Trend Toward Profitability

Zipcar is a capital-intensive business. A considerable amount of their expenses are fixed, so the best way to increase profitability is to maximize each dollar of income generated by each dollar of fixed cost. The figures to look at are revenue per member per period and usage revenue per vehicle per day.

<table> <tbody> <tr> <td> <p> </p> </td> <td colspan="2"> <p><strong>For the three months<br />ended September 30,</strong></p> </td> </tr> <tr> <td> <p> </p> </td> <td> <p><strong>2011</strong></p> </td> <td> <p><strong>2010</strong></p> </td> </tr> <tr> <td> <p>Usage revenue per vehicle per day</p> </td> <td> <p>$65</p> </td> <td> <p>$60</p> </td> </tr> <tr> <td> <p>Total revenue per member per period</p> </td> <td> <p>$108</p> </td> <td> <p>$1</p> </td> </tr> </tbody> </table>

Typically, Zipcar’s revenues haven’t been enough to exceed its expenses. The company has a history of losses, but its earnings-per-share have been steadily improving. A positive EPS might be revealed in this next report.

<table> <tbody> <tr> <td colspan="2"> <p> </p> </td> <td colspan="2"> <p><strong>Three Months Ended<br /> September 30,</strong></p> </td> <td colspan="3"> <p><strong>Nine Months Ended<br /> September 30,</strong></p> </td> </tr> <tr> <td colspan="2"> </td> <td> <p><strong>2011</strong></p> </td> <td> <p><strong>2010</strong></p> </td> <td> <p><strong>2011</strong></p> </td> <td colspan="2"> <p><strong>2010</strong></p> </td> </tr> <tr> <td colspan="2"> <p>Net loss attributable to common stockholders per share:</p> </td> <td> </td> <td> </td> <td> </td> <td colspan="2"> </td> </tr> <tr> <td colspan="2"> <p>Basic and Diluted</p> </td> <td> <p>$0.02</p> </td> <td> <p>$(0.39)</p> </td> <td> <p>$(0.42)</p> </td> <td colspan="2"> <p>$(2.77)</p> </td> </tr> </tbody> </table>

Continued Growth

While the stock’s value has been hemorrhaging, Zipcar’s growth has been tremendous. Revenue has risen year-over-year, memberships have been steadily increasing, and cash flows from operating expenses have jumped. If this earnings report reveals slowing sales or slowing memberships, Zipcar’s business could become extremely vulnerable. The company depends on rapid growth to squeeze revenue from its fixed costs, increase efficiency, and increase profits.

Sharon the Zipcar Shareholder has had a tough year and she's hoping the company has some good news. This earnings report could give investors something to like, or it could send the stock down another 50%.

Drive Home With More Analysis

Zipcar continues to carve its own niche despite losing nearly 40% of its stock price since its IPO. If this company interests you, make sure to take a look at the Motley Fool’s premium report for additional analysis on whether or not this stock is one to drive home with. Check it out.

robbyinvest has no positions in the stocks mentioned above. The Motley Fool owns shares of Hertz Global Holdings and Zipcar. Motley Fool newsletter services recommend Zipcar. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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