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Zipcar (Nasdaq: ZIP ) keeps driving in the right direction, but this doesn't mean that the leading car-sharing service isn't hitting a few potholes along the way.
Mixed fourth-quarter results and disappointing guidance are shifting the shares in reverse this morning, but let's kick the tires on today's numbers.
Revenue climbed 21% to $62.9 million during the quarter, fueled by a 25% increase in membership. There were 673,000 Zipsters at the end of 2011. It is problematic to see membership grow faster than revenue, though most -- but not all -- of that difference can be explained by Zipcar's European expansion, where usage isn't yet as up to speed as the company finds in its established stateside markets.
Earnings clocked in at $0.09 a share, but that includes a healthy gain on the sale of Zero Emission Vehicle credits during the quarter. Back that out and you still get net income of $0.03 a share, well ahead of the breakeven results that the market was expecting.
Usage revenue per vehicle is up 7% to $63 a day. In its four established markets -- Boston, Washington, D.C., San Francisco, and New York -- the average car in Zipcar's fleet is up to generating $70 in daily revenue.
Those four markets are very important for investors to keep an eye on. If there's any weakness in the model, it will show up there. We're just not seeing that now. Revenue in those four cities rose 22% to $35.6 million, or nearly 57% of total revenue. The four markets are very profitable, growing pre-tax profit margins to 28%.
If the report seems more positive than negative, stop looking at the rearview mirror. The road ahead is what's keeping the bulls in neutral.
Zipcar's guidance for the current quarter calls for $58 million to $60 million in revenue and a loss per share between $0.10 and $0.13. This is a seasonally slow period for the company, and expansion costs in Europe are weighing on the bottom line. The rub here is that the pros were banking on a deficit of just $0.07 a share on $60.3 million in revenue.
The guidance gets less disappointing when we look at all of 2012, but let's not sugarcoat it as encouraging. Zipcar's $290 million to $296 million in revenue is in line with the $293.2 million that Wall Street's targeting.
Things get uglier on the way down the income statement. Zipcar's eyeing a profit of $2 million to $6 million for all of 2012. Based on 41 million shares outstanding -- and another 3 million to 4 million share equivalents that get tacked onto the fully diluted share count when Zipcar is profitable -- this translates into net income between $0.04 a share and $0.13 a share. Analysts were parked at $0.13 a share.
Driving up to Zipcar's defense
Seeing Zipcar's stock open 10% lower this morning is disheartening, but Zipcar's model is still proving its viability.
Hertz (NYSE: HTZ ) turned heads last year by doing away with annual membership fees for its fledgling car-sharing operation, but how did that turn out? Zipcar didn't call out Hertz by name, but it did refer to the company as a competitor that recently tried to give away memberships to a 500-car fleet and now is scaling back.
Zipcar's been there. It gave away memberships years ago, and soon discovered that those members don't engage. Zipcar actually increased its annual membership a year ago -- from $50 to $60 -- and it hasn't noticed any slips in retention or loyalty.
Zipcar also addressed the peer-to-peer craze as upstarts get car owners to loan out their vehicles for money. It seems like a flawed model, but General Motors (NYSE: GM ) validated the craze last year when it teamed up with niche leader RelayRides to let all OnStar-equipped vehicles participate without additional hardware being installed.
This doesn't mean that Zipcar isn't striking deals with the same automakers that car-sharing seeks to replace. It landed a deal with Ford (NYSE: F ) last year that introduced shiny new Ford cars into Zipcar's campus car-sharing program.
Zipcar isn't standing still. It's carefully watching the peer-to-peer market and smaller car-sharing providers wooing members with one-way rentals. It's flexible enough that it can branch out into those areas either organically or through acquisitions if it's worth pursuing. In the meantime, Zipcar's growing well in its older markets as it seeks to roll out in at least three new markets this year.
Zipcar's in better shape than today's price action suggests.
Shifting into gear
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