Don't Count Out Zipcar

I admit it: I'm not impartial about my portfolio. I don't see it as a collection of stocks whose values rise and fall, but as a personal investment in companies that I already have a stake in as a customer. I know each stock personally, have read its annual report and quarterly earnings, checked out its executive staff, and on more than one occasion passed on a well-performing stock because something just didn't sit right with me.

So when one of my favorite stocks took a dive recently, I took it personally. But here's why, in a completely biased opinion, the race to the finish is far from over.

Training wheels for drivers
Zipcar
(Nasdaq: ZIP  ) shares plummeted this week on poor Q1 earnings. The showing prompted Forbes to publish a snarky piece titled "Hey, Zipcar, Suppose Car Rental -- by Hour, by Day -- Is Just a Crummy Business?" I can't really say much about snarky pieces, as I've been guiltyof them a time or two myself. And the points in the Forbes piece are valid: Zipcar has high expenses, and it hasn't quite turned a profit, well, ever.

And to that I would say, give it time.

Key partnerships
Last fall, Zipcar announced a partnership with Ford (NYSE: F  ) in which the former would put the latter's cars on its campus locations in the United States. This week, Zipcar announced that the partnership has spread into Canada. And while I was a little worried about possible exclusivity issues, Zipcar and Honda (NYSE: HMC  ) just announced the addition of the hybrid Insights, Fits, and plug-in Accords to the Zip fleet, as well as five Chevrolet Volts from GM (NYSE: GM  ) to the Chicago fleet, with up to 20 more in 2012.

The addition of so many fuel-efficient and alternative-fuel vehicles to the fleet addresses two of the key reasons people are using Zipcar in the first place: the high costs of fuel, and the environmental impact of driving.

Rent is the new own
For 2011, the latest figures available, AAA estimated that the average cost of car ownership is $9,000 a year, assuming you drive 15,000 miles annually. For some people living in non-urban areas or with an extended commute, car ownership is definitely the way to go. But for those for whom it's an option, car sharing is an attractive training-wheels approach to weaning off the costs of monthly payments, insurance, gas, and parking.

A study commissioned by Zipcar and released in December showed that 55% of people aged 18 to 34 are making an effort to drive less. If you're coming out of college or graduate school, or starting a first job, or living in an expensive city, then renting (yes, Forbes, even by the hour) just makes more sense.

The numbers aren't as bad as they seem
Sure, Zipcar's not exactly friends with profit. But that's only a matter of time. Subscriptions are increasing, with a 23% growth rate in the past year for a total of 709,000 Zipsters. The collegiate program expansion is a promising sign for long-term conversions. And small, focused expansion of fleets in key cities across the U.S. is a great way to test new markets before diving in fully.

We're going to need a bigger moat
Zipsters are a loyal bunch. They're encouraged to vote on fleet options, names for particular vehicles, and the services Zipcar offers. A look at the company's Twitter feed shows that its 12,000 subscribers are engaged and enthusiastic, and each of the company's location-specific handles average 2,000 subscribers. It's the sort of feedback that's priceless.

I've never seen anyone get that excited about cars outside of a commercial or a racetrack.

The Foolish bottom line
Yes, Zipcar has been having some problems turning a profit. But I consider it a sleeper stock in my portfolio, the kind you can buy and hold for the long term. You can only ever lose the full amount of your purchase price, but what you can make is unlimited -- and with the current stock price being so low, the possibilities are endless. I'm so confident in Zipcar's future, I've given it a thumbs-up in CAPS.

Want to know whether Zipcar made the Fool's list of favorite stocks? Check out our special free report, "5 Stocks The Motley Fool Owns -- and You Should Too." Enjoy a copy on us; it's completely free for Fool readers.

Molly McCluskey owns shares of Zipcar. Follow her on Twitter, where she goes by @MollyEMcCluskey. The Motley Fool owns shares of Ford and Zipcar. Motley Fool newsletter services have recommended buying shares of General Motors, Zipcar, and Ford and creating a synthetic long position in Ford. The Motley Fool has a disclosure policy. We Fools don't 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 (3) | Recommend This Article (8)

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  • Report this Comment On April 30, 2012, at 6:32 AM, dbtuner wrote:

    "You can only ever lose the full amount of your purchase price"

    HAHAHAHAHAHAHAHAHAHAHA!

    Maybe you should try another career. Competition is going to push ZIP into BK within 3 years

  • Report this Comment On April 30, 2012, at 2:27 PM, damonksoul wrote:

    I can see ZIP tanking and then being bought over by Avis or Hertz!

  • Report this Comment On April 30, 2012, at 2:44 PM, dbtuner wrote:

    Avis already has a better solution with their IDSY implementation. IDSY has all the car sharing patents. Hertz has their Eileo solution. Both Avis and Hertz are rolling out car sharing. Avis has 10,000 cars now and 30,000 by September and Hertz to have 350,000 cars by July 2013. Kind of leaves ZIP out in the cold.

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