Founded in 2000, Zipcar (NYSE: ZIP ) is now the world's largest car-sharing
service, with more than 560,000 members (called Zipsters). Here's how the
service works: A Zipster will use the Web, iPhone or traditional phone to
locate a car and use a Zipcard to unlock it. He or she will then be charged
only for the time it is used. It's an innovative model and would not be
possible but for the cutting-edge technologies that have emerged over the past
decade. As a testament to its success, the company has just pulled off an IPO,
Zipcar issuing 9.7 million shares late Wednesday at $18 each, which was above
the $14-$16 expected range. And so far in Thursday's trading, the stock
price is up a sizzling 61%. But perhaps the action is too frothy, or is there
still value for investors? Here's a look at the pros and cons: Pros
Value proposition. In large cities, owning a car can
be expensive and wasteful (surveys show that a typical car will remain idle 90%
of the time). But with Zipcar, a customer can save up to 70% of the total
transportation costs. After all, there is no need for lease payments,
insurance, registration, taxes and parking fees. Besides, the cars are located
in reserved parking lots, which are usually within 10 minute walks.
Infrastructure. Zipcar has the tech DNA of a Google
(Nasdaq: GOOG ) or a Facebook. For example, the company has spent about 10
years developing proprietary technology, which allows for transactions, map
tracking, member management, keyless vehicle access and reservations. As a
result, the platform captures a huge amount of valuable information. This
means that Zipcar can learn from patterns and customer behavior, which should
lower costs as well as improve loyalty and productivity.
A lifestyle brand. Zipsters are enthusiastic about the car-sharing concept.
Besides being convenient and cost-effective, it is also sustainable. For
example, there tends to be lower carbon dioxide emissions. In fact, according
to a study from Frost & Sullivan, each shared car replaces about 15 cars on the
road. Zipsters are also brand ambassadors. About 28% of
new members come from referrals. Cons Competition.
Seeing the growth opportunities, traditional rental car companies – like Hertz
(NYSE: HTZ ), Enterprise and UHaul (Nasdaq: UHAL ) – have launched their own
car sharing services. True, they are still small. But these rivals have the
resources to build strong platforms. At the same time,
there are a variety of nonprofit operators, such as iGo and City Car Share.
While they may not have the fancy technologies of Zipcar, they do engender
strong loyalty and have low prices. Global risks. Zipcar
believes that its approach is universal. To this end, the company has been
investing in foreign markets. For example, there was a recent acquisition of
Streetcar, which operates a car-sharing service in the U.K.
However, such moves are risky. It can be tough to
integrate different cultures especially since Zipcar has a very strong set of
core principles and values. Fleet costs. On average,
Zipcar holds a vehicle from two to three years. After this, it is disposed via
auction or direct sales to dealers. In other words, there are substantial
inventory costs. This could pose problems if there is a dropoff in business.
Verdict Zipcar is growing the top line at a rapid rate.
Over the past year, revenue increased by 42% to $186.1 million. However, the
company is still losing money, posting a loss of $14.1 million in 2010.
With a market cap of $1.1billion, the stock does look
pricey. But for aggressive growth investors, this is usually not much of a
consideration, as the momentum is likely to continue for some time. Thus, for
these kinds of investors – who can stomach volatility – the pros outweigh
the cons. Tom Taulli's latest book is " All About Short Selling " and his
Twitter account is @ttaulli . He does not own a position in any of the stocks
named here.
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