Zipcar Hits Another Bump in the Road

Shares of car-sharing service Zipcar (Nasdaq: ZIP  ) were back in the repair shop this week after a disappointing earnings report. The stock dropped more than 10% Wednesday, and reached record lows under $12 Thursday.

Poor guidance appears to be the culprit, as the company actually beat earnings estimates, posting an $0.08 EPS loss on expectations of an $0.11 shortfall, but second-quarter projections of $71 million to $74 million in revenue and breakeven net income were behind analyst predictions. As a recent IPO with a growth rate of just 20%, Zipcar's push into positive numbers may be a little tepid for some investors who are used to seeing new stocks explode out of the gate. Still, I think the sell-off seems overdone.

Zipcar's a big-picture story. The bull argument comes with a belief in the power of car sharing as a disruptive innovation, even though that could take years to play out. Profits would be nice of course, but the winter months are Zipcar's slowest and management has still projected net income around $5 million for the year. Also, in its established markets -- Boston, New York, San Francisco, and Washington, D.C. -- profits continue to grow at a brisk pace and operating margins increased to 21% this quarter. More than half of its revenue comes from those markets, and the fat margins seem to indicate that growth initiatives are eating into profits rather than incompetence or a faulty business model.

In the last quarter, the company invested $8.7 million in Wheelz, a peer-to-peer car sharing service; expanded its Zipvan cargo fleet in Boston and Washington, D.C.; and formed a partnership with Honda (NYSE: HMC  ) as a preferred vehicle manufacturer, which will add some of the carmaker's hybrid and electric vehicles to Zipcar's fleet.

Some see increasing competition as a potential flat tire for Zipcar, but Hertz's (NYSE: HTZ  ) move into car sharing with its on-demand service feels a little like Blockbuster jumping into the DVD-by-mail business invented by Netflix. Sure, Hertz can offer car sharing, but Zipcar's model is built for that business and if the whole industry's moving in that direction, the innovator will win. Having 1,000 cars at the airport turns into an albatross rather than an advantage. Furthermore, Hertz is loaded with debt, as is fellow traditional player Avis Budget (Nasdaq: CAR  ) , which is looking into car sharing as well. Despite being around for generations, both companies still have negative retained earnings (they're still in the red after all these years). Shares of both companies have jumped more than 5% since Zipcar's report.

The threat from peer-to-peer service also looms, but I think GM-backed (NYSE: GM  ) RelayRides tripped itself up in an effort to expand nationally this year. Before, the service used Zipcar-like technology to enable members to borrow neighbors' cars, but now it often requires renters to get the keys from the owner. This takes much of the convenience and coolness out of the service, and makes it feel more like a glorified listserv. I'd like to see P2P succeed, but when I tried renting a car from RelayRides recently, the car owner never responded to my email and my reservation expired after eight hours leaving me scrambling to find a car for the next day. That doesn't seem like a formula for success.

For now, Zipcar's clearly got its work cut out, but I'm not too worried about any of the other car-sharing pretenders.               

As a first mover in the car-sharing industry, Zipcar is a classic Rule Breaker. These kinds of stocks, including breakthrough companies like and Netflix, have given some of our subscribers returns of 1,000% or more. Now our experts have found a new company poised for gravity-defying growth. It's medical service provider with a razor-and-blades model that will benefit from the aging baby-boom generation. Find out the name of this hot stock and learn all about it in our special free report: "Discover The Next Rule-Breaking Multibagger." You can get right now if you click here.

Fool contributor Jeremy Bowman holds no positions in the companies mentioned in this article. The Motley Fool owns shares of Zipcar, Hertz Global Holdings, and Motley Fool newsletter services have recommended buying shares of Netflix,, Zipcar, and General Motors. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that 
considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (1) | Recommend This Article (6)

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 April 27, 2012, at 3:38 PM, dbtuner wrote:

    Avis is the rule breaker on this as they actually have more cars available for car sharing (10,000 now 30,000 by September) than ZIP (9,300 now). Avis, partnered with IDSY, is moving cars to corporate campuses and hotels in addition to their exiting airport locations. They allow one way rentals and have no annual fee. They also have the best rental method with smartphone reservation and door unlock as opposed to a RFID card like ZIP.

    ZIP also has no approved patents and only 2 pending patents that infringe on IDSY approved patents.

    If you like car sharing, buy IDSY

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1873483, ~/Articles/ArticleHandler.aspx, 10/22/2016 1:26:56 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
ZIP.DL2 $0.00 Down +0.00 +0.00%
Zipcar CAPS Rating: ****
CAR $31.38 Down -0.35 -1.10%
Avis Budget Group CAPS Rating: **
GM $32.04 Up +0.29 +0.91%
General Motors CAPS Rating: ***
HMC $29.79 Up +0.12 +0.40%
Honda Motor CAPS Rating: ****
HTZ $32.94 Up +0.49 +1.51%
Hertz Global Holdi… CAPS Rating: ***