Zipcar Earnings Preview: Solid Growth Expected, European Expansion Continues

by Trefis Team
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Zipcar (NYSE:ZIP) will announce its fourth quarter and full year 2011 results Tuesday. Having posted losses for several years, the car sharing company recorded its first ever quarterly profit last quarter, riding on healthy membership growth of 25%. With the completion of London’s Streetcar acquisition in Q3, Zipcar has focused its attention on the European market by purchasing a majority ownership interest in Barcelona’s Avancar in December and appointing its first president of Zipcar Europe.

Zipcar went public in April 2011 and has witnessed steep top-line growth with rising membership, now serving over 650K 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 now also faces competition from up and coming low-cost, peer-to-peer (P2P) car sharing services like RelayRides and GetAround.

See our complete analysis for Zipcar’s stock

Hope To See Continued Growth Momentum in Q4

Last quarter, Zipcar posted its first ever quarterly profit with 24% revenue growth boosted by 25% membership growth that propelled the total number of members to 650K. The company may post a successive profit this quarter, although it will still register losses for 2011 overall.

Over the past few months, Zipcar diversified its services to introduce a pilot van serivce called Zipvan in San Francisco and launched a new fleet sharing program called FleetHub in Boston. But the most important development was the expansion of its European leg after completing the Streetcar acquisition in the third quarter. In December, it purchased a majority ownership interest in Barcelona-based car sharing company, Avancar, and appointed Ferek-Malte Feller as the first president of Zipcar Europe early this year to implement and oversee the company’s planned growth strategy in Europe. The company estimates the European car sharing market could surpass 5.5 million members and 3 billion euros over the coming decade.

Improving Margins With Cheaper Fleet Financing

The surprise profit last quarter came with improvements in key cost performance metrics like usage revenue per vehicle per day that increased 8% to $65 from $60 (y/y) even though fleet operation costs remained high due to fleet expansion into new campuses.

Zipcar has significantly reduced its vehicle acquisition costs over the past year by shifting from leasing vehicles to purchasing vehicles through Asset Backed Securitization (ABS) facility that provides it access to low-cost vehicle financing. It recently issued a new series of variable funding notes of $50 million for its ABS facility, increasing the total availability of ABS funding lines to $100 million with conditions that also improve the terms of the existing ABS funds. The number of vehicles under operating leases fell from 90% in 2009 to 50% in 2011. This should reflect as improved cost performance in the upcoming results.

We have a Trefis price estimate of $25 for Zipcar.

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