Zipcar (NASDAQ:ZIP) is one of the most successful and technologically capable car sharing/ rental service to have emerged in the recent years. The company has a presence in over 250 college campuses and currently serves around 16 major metros in the U.S. with 900 cars.
We believe it has a lot of room left for expansion in its core U.S. market and the college campuses around the country, and it intends to initially focus on this market and add more members from the 10 million people currently living within a 10-minute distance of a Zipcar. This strategy seems to be working partially for Zipcar as its average revenue growth in the recent quarters has been offset by good growth in operating margins.
The company recently announced that its expansion strategy will focus on introducing offerings in international markets along with adding more U.S. cities to its network. Zipcar feels that currently their is no multi-city single operator outside the U.S. and it is a good opportunity to capture. The company fully integrated its U.K. operations by the end of last quarter, and it acquired a controlling stake in Barcelona-Based Avancar, which is the largest car sharing operation in Spain. Zipcar hopes to add at least one city in 2012.
We think that although these international markets may have good consumer demand, Zipcar’s model but might not be fully equipped to handle the operating challenges that occur in these markets. The international markets lack the university structure prevalent in the U.S., which is central to the company’s marketing and branding efforts.
Secondly, in some developing or less mature geographies, the company may face the risk of car theft. Although Zipcar’s technology is equipped to deal with such situations, these incidents can do quite a bit of damage to the company’s reputation in the minds of genuine customers. Also, in some European cities, where the company first intends to expend, public transport systems are highly efficient and customers might not be willing to pay extra for the car services.
Zipcar has a lot of room left in the U.S. for expansion. So, it seems odd that despite having a substantial market opportunity where the company has a good brand awareness, a well-established need and a large unsaturated customer base, it is seeking new markets for expansion. Nevertheless, if Zipcar is successful in its international ventures, this could help set a blueprint that Zipcar can follow to roll out its services in other geographies.