Zipcar (NYSE:ZIP) is due to announce its Q1 results this week. The car sharing company grew its membership by 25%, leading to 30% higher revenues in 2011 compared to the previous year. Last quarter, it posted its second consecutive quarterly profit, even though it still ended 2011 with a loss. Nonetheless, with improved mix of revenues and access to cheaper vehicle financing, the margins have been improving and Zipcar could post its first annual profit this year, even though it may see a loss in the first quarter of 2012.
Zipcar serves 673K members with a fleet of over 9K vehicles in North America and Europe. 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 serviceslike RelayRides and GetAround.
Major Developments Last Quarter
After collaborating with Ford (NYSE:F) in August 2011 to support its ‘University Program’, Zipcar is now trying to woo more drivers to its services by tying up with Honda (NYSE:HMC) to add its latest, most advanced and low-emission, eco-friendly cars to its fleet. It has also been diversifying its services to expand its market share. It launched its first large-scale electric vehicle (EV) program in Chicago last month, expanded its van rental services to Boston and Washington, D.C., and took its ‘University Program’ across Canadian college campuses.
It has also recently invested in the first peer-to-peer (P2P) car sharing company targeting college campus communities, Wheelz. Zipcar has vast experience in operating car-sharing programs in more than 250 college campuses across the U.S., which will be helpful for Wheelz in scaling its business and possibly help Zipcar diversify its offering to tap the growing popularity of P2P business model in the future.
Competition Turns Up The Heat
Zipcar is also facing heated competition with new players entering its new and established markets. Its leading market of Washington D.C. now has two new players, Hertz’s On Demand and Daimler’s Car2Go, that are challenging Zipcar’s monopoly with their flexible membership terms and one-way rental facilities, attractive pricing, as well as efforts to match up to Zipcar’s technology.
Growing Investments in New Markets
Car sharing is a highly capital intensive business and and being a young company Zipcar is yet to post a profit. Also, with its growing investments to expand to new markets, Zipcar’s margins are likely to stay under pressure in the near future. New markets take time to convert investments into profits. Zipcar’s four established markets like Boston, New York City, San Francisco and Washington D.C., where the company has been operating for 5+ years, demonstrate that despite present losses, Zipcar could become impressively profitable as the company reaches maturity in its markets and increases its penetration levels. Zipcar has also been trying to bring down its vehicle acquisition costs through ABS (Asset-Backed Security) facility and is replacing its U.S. fleet under operating lease with purchased vehicles.
We have a $22 Trefis price estimate for Zipcar, 60% ahead of the current market price.