Zipcar’s Membership Growth Shifts to Top Gear with Recent Promos
Zipcar (NASDAQ:ZIP) is seeing a healthy trend in annual membership from its North American market, and it also reported an impressive 30% membership increase last quarter. We estimate its annual membership in North America to have increased from 210,000 in 2008 to over 515,000 members currently led by rising penetration in existing markets and entry into newer regions as well as its widespread reach in universities and among student community. Zipcar competes with traditional car-rental companies like Hertz Global Holdings (NYSE:HTZ), Avis Budget Group (NYSE:CAR) and car sharing services like Connect by Hertz, Enterprise’s WeCar, UHaul’s UCarShare and City Car Share.
While we estimate Zipcar’s average number of members in North America will increase from 0.7 million in 2012 to 2 million by the end of our forecast period, Trefis members expect an increase from 0.8 million to 2.2 million during the same period. The member estimates imply an upside of 10% to the Trefis price estimate for Zipcar’s stock.
We currently have a Trefis price estimate of $27.04 for Zipcar’s stock, about 35% above the current market price.
Increasing Penetration of Existing Markets, Entry into Newer Markets
Zipcar currently estimates more than 10 million drivers within a 10 minutes distance of a Zipcar location, indicating the potential of much greater penetration levels as the popularity of car sharing rises. The company’s car sharing services are well established in markets of Boston, New York City, San Francisco and Washington. Market research firm Frost and Sullivan estimates the North American car sharing market to reach $3.3 billion by 2016, presenting a huge market opportunity for Zipcar with its leading position and first mover advantage.
New early stage markets are expected to witness rapid growth rates of over 25% leading to high membership growth. Zipcar is likely to launch into 2-3 new markets every year from 2012 with some tier-2 launches like Sacramento. It will also focus on “satellite cities” near existing markets such as Baltimore, which is near the District of Columbia.
Wide Presence in Universities
Zipcar currently offers services in over 230 college campuses. University campuses not only serve as significant markets but renting cars to students also constitutes a long term marketing strategy to build the network. Students using Zipcars while in college are more likely to subscribe to Zipcar car sharing against car ownership when they enter jobs. This service is also attractive to college students who face age restrictions with traditional car renting companies.
Zipcar recently entered into an alliance with Ford, wherein Zipcar will offer incentives to drivers from universities and colleges to join and use car sharing services on and around their campuses, including $1 off the hourly rate for the first 1 million hours of use on any of the new Ford vehicles at select colleges and universities. (See Zipcar and Ford Target Young Drivers with University Program). We believe this will help drive future growth.