Zip Your Wallet Shut
Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Today, this analysis is going to be a bit different than usual. Rather than just cite the oft used metrics and economic terminology for analyzing the market, I'd like to bring anthropology into the equation. I studied cultural anthropology in college and that happens to be the field that I’m in. I'd like present a reason from my American culture study as to why I don't believe Zipcar (NASDAQ: ZIP) to be a long-term buy.
Every culture has a set of themes that make its culture tick. One such cultural theme that we have in America is that of freedom/independence. This theme is stitched into every fabric of our society. You may be surprised to find out that not every culture values independence like we do. Many cultures value interdependence. Many cultures value structure over freedom. I’m not saying one’s wrong. I’m not saying one’s right. What I am saying is that, because we inherently value freedom and independence at such a subconscious level, it effects the decisions that we make naturally.
A lot of good articles have been written on why Zipcar is a buy. I’ll agree with my fellow analysts on several counts, such as growing revenue and a good niche market. I also agree that they are a step ahead of competitors Amerco (NASDAQ: UHAL) and Hertz (NYSE: HTZ). Hertz undoubtedly sees Zipcar as the heavyweight champ of car sharing, since they were willing to give Zipsters $75 for switching to Hertz on Demand. The reason Zipcar is a step ahead of its competitors is because they have been about this business since inception in 2000. Amerco and Hertz are older businesses trying to adapt fairly recently to a new trend. Admittedly Amerco would be more apt for this transition, as it's not too far of a stretch from the U-Haul trailer business that they've been doing profitably for years. All being said, I respectfully disagree with the long-term growth prospects of this car-sharing industry and subsequently for Zipcar itself. For Zipcar to become much bigger than it already is, you would have to start convincing American’s to give up their deeply valued independence.
Maybe these examples resonate with you:
- When my wife and I were first married we had one car, and we complained like crazy about the inconvenience of both having to be at work by 8 with only one set of wheels.
- I chuckle at a friend of mine. They have three driving kids, making 5 drivers at home. They have 6 vehicles.
Both of these very common examples demonstrate to me that Americans don’t just want access to the family car, they want their own. Americans don’t want access to a Zipcar, they want their own.
Addressing the Scoffers
If what I am saying is true, then what of Zipcar’s gross income growth up to this point? As I have said, they have found their niche. They set up in college towns, but I wouldn’t say college students are their niche. I would like to define their niche as “people, who for whatever reason don’t have the luxury of owning a vehicle, and therefore they are ‘stuck’ using Zipcar until such a time that they can get their own.” I don’t see anyone saying “I’m never going back to car ownership.” We’ve seen a lot of people go in the front door of Zipcar, but I think you’ll see many people going out the back door just as soon as they are able. Zipcar absolutely cannot allow their growth to slow for a second. The stock may be down nearly 40% already this year, but they still tote a P/E ratio of over 400.
Ford (NYSE: F) knows that people will start leaving Zipcar eventually as well. That’s why they inked a deal with Zipcar. They want people driving their cars when they are with Zipcar, so that when they aren’t with Zipcar anymore they will hopefully buy a Ford. Many have simply concentrated on the brilliant advertising that Ford is doing by joining up with Zipcar, but I think that everyone has missed the obvious motivator: Ford is counting on people leaving Zipcar! So am I.
My recommendation: zip your wallet shut and don’t buy Zipcar. I believe their earnings will continue to be lower than expected leaving financial analysts to scratch their heads and cultural anthropologists to sip their sweet tea. Americans just enjoy the freedom of the open road, with the independence of our non-shared car too much.
thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford, Hertz Global Holdings, and Zipcar. Motley Fool newsletter services recommend Ford and 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.