Zipcar’s Stock Can Get Out Of Reverse If Earnings Show Resilience

ZIP: Zipcar logo

Zipcar (NYSE:ZIP) is due to announce its Q2 results on August 2. Last quarter was challenging for the young car sharing company due to the quick entry of new competitors including rental giants and auto-makers in Zipcar’s biggest markets with their own car-sharing segments. The earnings results will reflect Zipcar’s ability to maintain growth momentum and membership growth in the face of stiff competition from these new entrants with their relaxed or no membership fee as well as one-way rental options. The earnings will also provide some insights into Zipcar’s success in penetrating its biggest markets deeper through monthly membership pilot in Chicago and Toronto.

Last quarter, Zipcar’s revenues increased 20% with 23% higher membership compared to the same period last year. Zipcar serves more than 709K members across North America and the U.K. While the car sharing company posted its first quarterly profits in the second half of 2011, it posted a loss in the first quarter of 2012 due to seasonal factors. Nonetheless, the company is expected to post its first annual profit this year.

See our complete analysis for Zipcar’s stock

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Results Will Reflect On Zipcar’s Ability To Take On Upcoming Competition

Until 2011, Zipcar grew facing little to no competition. However, the stock has been battered down this year due to growing investor pessimism over the niche player’s ability to grow in the face of the entry of big rental giants into its markets. This year, rental giants Hertz and Enterprise have turned aggressive in the hourly rental market. For example, Enterprise made several acquisitions along the East Coast markets like Mint Cars On Demand in New York and Boston increased its NY fleet by 50%.

Zipcar responded to the increased heat by launching flexible monthly membership pilot programs in a few markets like Chicago and Toronto to attract a wider membership base as well as aggressive marketing through Groupon deals. The upcoming results will provide an update on the impact of these developments on Zipcar’s membership and revenue growth momentum.

Other Major Developments Over The Quarter

Last quarter, Zipcar renewed its asset backed securitization (ABS) facility to support the funding of its 2012 fleet expansion in the U.S. The arrangement has helped it reduce vehicle acquisition costs. In North America, Zipcar expanded its services in White Plains (NY), San Jose and added Zipvans in Chicago and Toronto.

The company also recently expanded its European footprint with the acquisition of Austria-based Denzel Mobility car sharing service, operating as Denzel Mobility is the largest car sharing service in Austria and serves 10K members across Vienna, Innsbruck and Graz with a fleet of nearly 200 vehicles. The acquisition marks Zipcar’s entry into its third major European market, following its purchase of a majority interest in Barcelona-based Avancar in February 2012 and the completion of its integration of Streetcar operations in the U.K. last year.

We have a$18 Trefis price estimate for Zipcar.