The 1 Green Stock You Don't Want to Miss

If you live in or travel to one of the top 16 metropolitan areas in the country, then you may already be aware of this innovative enterprise. Zipcar (Nasdaq: ZIP  ) is providing a cheap and convenient alternative to car ownership or rental. Pair that with a socially responsible purpose, and you have a company that is well-positioned for explosive growth.

Gang green
Since joining the "Zipster" community, I've been fascinated by the car-sharing business model, which is monopolized by Massachusetts-based Zipcar. Like many disruptive companies, its model is simple and elegant, yet transformative:

Zipcar has procured about 9,500 vehicles as well as centrally located parking spaces in metropolitan areas and college campuses throughout the United States. It attracts and acquires members who pay for annual membership (12% of total revenue) and usage (remaining 88% of revenue) through partnerships with companies such as Ford, paid advertising, and brand awareness (the branded cars are hard to miss). And it's growing fast -- from 2005 to 2010, annual membership has had a compound annual growth rate of 66%. During the same period, revenue has seen an even higher CAGR of 68%.

Studies estimate that there are more than 10 million drivers living within a 10-minute walk of a Zipcar, which values out to about a $3 billion North American market. That's a substantial upside in my book. You tack onto that our nation's growing awareness and marketability of green living, and this company seems like the "gang green" I wish my New York Jets more closely resembled.

Speaking of green... backs
Zipcar saves its members money and time. Most cars sit idle for nearly 22 hours a day. Compared to car ownership, members pay only for the time they are using the car; not time in the garage, not for the parking space, not for the gas, not for the maintenance, not for the insurance. According to Frost & Sullivan, depending on total distance driven, car sharing can save up to 70% of the total transit costs for its members. They only pay simple usage fees when they need to use a vehicle. And unlike car rental companies, Zipcar charges by the hour, not by the day. What's more, members can reserve vehicles from the comfort of their favorite Internet devices and walk to a nearby space to take their ride -- avoiding all of the lines and hassles of renting a car.

Although Netflix has had its share of problems lately, it is possible that Zipcar could do to Hertz (NYSE: HTZ  ) and Avis (Nasdaq: CAR  ) what Netflix has done to Blockbuster. Blockbuster clearly didn't adapt to societal and market trends very well. The entrenched company wasn't forward-thinking, despite the fact that it began the battle with thick pockets. Netflix wasn't profitable from the get-go, either. It had to build its stock of content -- just as Zipcar had to build its stock of cars. The large car rental companies could see the same fate as Blockbuster because they aren't putting their money toward modern technology and the trend toward self-service and responsible living the way Zipcar is.

The grass isn't always greener
Many investors are concerned that although Zipcar has great potential, last quarter was the first time it has ever posted a profit. That's fair.

Furthermore, traditional rental car companies have the means to give this company a run for its money. Hertz currently has a small program called "Hertz On Demand," which has no membership fees and offers one-way service, both of which Zipcar does not offer. Enterprise Rent-A-Car and U-Haul also have limited offerings in the form of WeCar and U Car Share, respectively, but their Web- and phone-call-based systems would make any Zipster cringe.

And let's not forget that many Americans dream of owning a car one day. Zipcar CEO Scott Griffith has said that personal car ownership is challenging because it's been part of the "American dream" for decades.

Finally, as we saw in the business model above, investing in cars and parking spaces is a capital-intensive endeavor. If interest rates begin to soar, the company could have trouble paying for its large fleet of vehicles and expanding its reach.

Count me in
Clearly, Zipcar has to overcome some financial and competitive hurdles. But one of the things that really sets this company apart from its competitors is that it is extremely passionate about its purpose, "to enable simple and responsible urban living." It has rapid growth goals and a plan in place to get there. With society trending toward "greener" living, it's hard for me to imagine a future where Zipcar's business model does not thrive.

Annie Feldman does not own shares of any company mentioned here, yet. The Motley Fool owns shares of Ford Motor, Hertz Global Holdings, and Zipcar. Motley Fool newsletter services have recommended buying shares of Zipcar, Netflix, and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 10, 2012, at 4:39 PM, dbtuner wrote:

    You don't mention that Avis is now live with 10,000 of these cars with their Avis On Location powered by IDSY technology. They will have 30,000 by June, require no annual fee, and require no RFID card like ZIPcar needs. Avis has been piloting this technology for almost 10 years and took a 10% equity stake in IDSY who has over 30 patents in this area.

    A war with Avis or Hertz will force ZIP to drop their membership fee and with that, there go the profits.

    Short ZIP and go long IDSY for a nice pair trade. ZIP will go the way of Pets.com

  • Report this Comment On January 10, 2012, at 5:21 PM, midnightmoney wrote:

    zipcar aside, the tire graphic in the article is absolutely first rate.

  • Report this Comment On January 11, 2012, at 6:01 AM, obeniflah wrote:

    Zipcar is a wonderful company and having competition will push them to continue to provide an even better service.

    Society is trending towards greener living. In Europe, ride sharing is striving with more than 1 million people sharing rides on www.carpooling.com every month. Ride sharing and car sharing are smart mobilities that are bound to expand in 2012.

  • Report this Comment On January 11, 2012, at 11:00 AM, clutch410 wrote:

    ZIP has a great model and high customer loyalty. If Avis really thinks they can beat Zipcar they will soon realize they can't without hijacking Zipcar's loyal clients. ZIP won't fail but they could be a buyout target. Although I can't see Zipcar accepting a buyout with the way they're growing.

    Avis is an old company that no one really has any loyalties to. Zipcar has what AVIS wants which is a fresh new "green" company with brand loyalty. Remember, Starbucks wasn't the first coffee shop on the block. They established brand loyalty which separated them from the pack.

    Zipcar will not fail and it's to your benefit to really take a closr look at how they're changing the game.

  • Report this Comment On January 11, 2012, at 5:49 PM, pehenia wrote:

    I think what people are missing here is the power of emotional connection. It's not often people are emotionally connected to a business, so when it happens it can be a very strong thing. Zipcar is the kind of company that a customer can actually be loyal to for more than just good prices.

    Check out The Thank You Economy by Gary Vaynerchuck <http://garyvaynerchuk.com/> for some examples of this. I've seen it first hand - I can't get my friends to change what bar we go to on Wednesday nights despite horrible customer service, bad food, zero drink specials and general crappiness. Why??? Because we know the employees there. It doesn't get us any deals or better service, but for them it's enough. That's the power of an emotional connection.

    Will a Zipcar subscriber be willing to go with Avis because it could save them $100 over the course of a year? Probably not. Especially since they're already saving so much by not having a car. They'll go with the company trying to do something good for the planet and that has a friendly face. I know I would.

    Andy

    www.mygreengear.com

  • Report this Comment On January 13, 2012, at 2:56 AM, freecacheflow wrote:

    As I walked around the various cities I visited during my Christmas family tour (Boston, Seattle, San Francisco) I noticed lots of Zipcar signs in very convenient places. Some spots with cars some without. The first thing I think of is 'how convenient' What I didn't notice (or if I did, it simply didn't click) was Avis signs at parking locations. Where are they? Did I see them and simply think, 'oh, thats a full service rental car company'? Clearly Zipcar has done a good job at marketing who they are. I see a Zipcar parking space and I immediately think of a 'drive it and leave it' community car strategy. When I see Avis or Hertz, I think 'rent a car from a day to a week, worry about gas, and where am I going to park this think in the city' Just not the same. When you think of a big on line store you think Amazon. When you think of community car sharing, you think of Zipcar.

  • Report this Comment On January 13, 2012, at 11:51 AM, dbtuner wrote:

    How can ZipCar with 9000 cars have half the valuation of Avis and Hertz who have 300,000 cars? ZipCar may be cool and green and whatever makes you feel warm and fuzzy, but it is over valued pure and simple. There certainly is a business model here, but it's not worth $500M for 9000 cars ($55k/car)

    You should also google Yelp and zipcar and you will find hundreds of irate customers of zipcar

    Avis is marketing their car sharing at corporate locations, btw

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