Even though Zipcar (NYSE:ZIP) posted a loss for the full year in 2011, we expect the company’s ability to serve its established markets for more than 6-7 years indicates that the car-sharing company’s business model could achieve impressive profitability as its newer markets mature and the penetration levels increase. During 2011, Zipcar grew its overall membership by 25%, leading to 30% higher revenues over the previous year. The high growth is attributable to not only newer markets, but also established markets that grew by 23%, indicating greater scope for penetration.
Aside from competing with traditional rental companies and car-sharing services like Connect by Hertz, Enterprise’s WeCar, UHaul’s UCarShare and City Car Share, it also faces competition from new low-cost, peer-to-peer (P2P) car sharing services like RelayRides and GetAround.
Deepens Penetration in Established Markets
In 2011, Zipcar’s established markets — Boston, New York, Washington D.C. and San Francisco — the first four cities that Zipcar entered during the period from 2000 to 2005 — grew by 23% as the car sharing company deepened its penetration into these markets, adding new members. Pre-tax income from these markets increased to 23% of revenue in 2011 from 21% in 2010.
The markets also saw an improvement in utilization levels, with usage revenue per vehicle per day increasing from $64 in 2010 to $69 in 2011. Revenue and pre-tax income trends in the established markets suggest that the newer markets could see similar trends once they achieve maturity and improve penetration levels.
Looking At Huge Market Opportunity
Frost and Sullivan estimates the North American car sharing market will reach $3.3 billion with 4.4 million members by 2016, presenting a huge market opportunity for car-sharing companies. Zipcar estimates that more than 10 million drivers live within a 10-minute distance of a Zipcar location. This indicates much greater scope of penetration as the popularity of car sharing rises. Zipcar currently serves more than half-a-million members in North America and could pass 2 million members by the end of this decade, by our analysis.
We have a price estimate of $22 for Zipcar, which is at a premium over the current market price.