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Is ZipCar Zippy Enough?

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July 19, 2012 – Comments (1) | RELATED TICKERS: ZIP.DL2 , HTZ , CAR

Board: Value Hounds

Author: BFatConservative

After the exuberance of the IPO process falls away, I like to evaluate IPO stocks and take a small position if I believe that these companies have the ability to grow fast and have a business model that is both practical and necessary.

Facebook didn't exactly meet those definitions for me (mostly with growth prospects reservations), and I would rather stab myself with a fork that to take a bet on Yelp or any other bleeder.

One stock that has taken some beatings since the IPO is Zipcar (ZIP). ZIP has the ability to change the way we view car ownership as urbanites struggle pay for parking, insurance, and petrol in the city limits. The economics of the decision making behind ZIP is beautiful. As a city slicker can save thousands per year and have the benefits of jumping in a car for an hour or a whole day.

Last earnings, ZIP's rev growth hit the 20% mark, which was not nearly high enough for some investors and therefore beat the stock to the early 10's. The best case I can make for this stock (D: long ZIP) is the fact that it's margins in mature markets are extremely attractive, approaching the early 20s and probably eclipsing the mid 20's sometime soon. The fact is that there are so many potential clients that the downtime some of these vehicles experience is negligible. Not to mention the company has negotiated decent financing shifting away from leasing arrangements to outright ownership, which will lead to lower costs.

Now the headwinds: Everyone is talking about the bigs (Hertz / Avis / Etc.) are all about getting their piece of this pie. Not that this is something to worry about, but so far Hertz has made delicate steps in this direction and AVIS has jumped right in. The problem they are having is these companies aren't nearly as fashionable as the Zipcar model, in that they really haven't had significant success in gaining a subscriber base and keeping it. I'm not sure if that's the tired baggage that comes along with being in the daily rental business for so long, or if it's just they haven't had enough time to penetrate, but for now it really hasn't been a true source of concern at least for me. Something to monitor, but it appears to me that the market is not penetrated to the point of saturation, so there is more than enough growth to go around.

ZIP so far has more or less broke-even in that a lot of reinvestment is going into expansion. I bought in the 10's but think that the prospect is worthy of a small position. Here are my predictions for the upcoming earnings call on the 2nd:

http://boards.fool.com/anyone-care-to-cast-some-predictions-...

Also - some good reads if you are up for it:

http://files.shareholder.com/downloads/ABEA-48TM4M/197910464...

http://seekingalpha.com/article/686681-zipcar-s-emerging-com...

http://www.fool.com/investing/general/2012/07/16/will-zipcar...

There is so much more I could write about this, so if you have anything further to discuss - just drop a post.

MJH

1 Comments – Post Your Own

#1) On July 19, 2012 at 7:48 PM, Mega (99.98) wrote:

"As a city slicker can save thousands per year and have the benefits of jumping in a car for an hour or a whole day."

Considering the market is competitive, it's highly unlikely that Zipcar is saving people thousands of dollars versus their next best alternative.  People who use a car rarely enough to save thousands of dollars compared to ownership probably aren't saving much (if anything) compared to traditional car rental.

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