Is Zipcar Getting Totaled?

This article is part of our real-money stock portfolios series.

Poor Zipcar (Nasdaq: ZIP  ) seems stuck in reverse. Its stock price has suffered repeated fender benders ever since I purchased shares for the real-money stock portfolio I'm managing for Fool.com. Zipcar's most recent collision was with TV stock pundit Jim Cramer's opinion. Ouch; that's kind of the equivalent of somebody smashing your car while it's parked in a lot, since Zipcar didn't actually do anything.

Of course, as my Fool colleague Isaac Pino pointed out, it's what everybody else is doing that's been dragging Zipcar down. Old-school car rental companies Hertz (NYSE: HTZ  ) and Enterprise are devising their own versions of short-term, hourly car-sharing services, and many investors believe that's going to wreck Zipcar's chances.

I have no intention of calling it quits on Zipcar yet. The major car rental companies can copy Zipcar's model, but when it comes to short-term car-sharing, Zipcar's brand is simply better, and it's a revolutionary company, not a copycat.

Car rental companies like Hertz, Enterprise, and Avis Budget (NYSE: CAR  ) are indeed formidable, and yet they're not the kind of companies that coax vast loyalty from consumers. Have you ever known anyone to feel a particular affinity to any of these companies after a car rental?

One might compare it to Blockbuster's grip on video rental for a long, long time, even though few customers were particularly jazzed about that relationship. At some point in long-ago history, the idea that an upstart like Netflix could actually put the hurts on Blockbuster probably seemed fairly far-fetched, too.

Research group Frost & Sullivan believes the North American market for car-sharing services could reach $3.3 billion by 2016. Even with the old-school competition getting in, we're nowhere near "game over" for Zipcar, which entered this space early and currently has about 500,000 members in the U.S. Zipcar also has already conveniently inserted itself into many major metropolitan markets ripe for car-sharing convenience.

Last but not least, Zipcar's built on changing old-fashioned mind-sets. Many of its customers are young urbanites who are easily convinced car ownership is more trouble than it's worth if given the right options. This is a forward-looking mind-set that's growing in traction with more environmentally conscious consumers.

The introduction of Zipcars into urban markets can apparently make a major difference in several key areas: Users often decide not to buy or lease new cars, take public transportation more, and bike and walk more.

As opposed to being akin to Hertz or Enterprise, Zipcar may more closely resemble revolutionary, disruptive Tesla Motors, which is taking on old-school Detroit with its Silicon Valley-born electronic vehicles.

Zipcar's one of the worst performers in my real-money stock portfolio; the stock's down about 33% since January. However, the company's moving toward profitability at an admirable clip and increasing margins. Investors have likely become too pessimistic on Zipcar now, and given a little help from the likes of Jim Cramer.

Zipcar's revolutionary element, and its drive to change consumers' relationships with and perception of cars, makes me want to see this one through.

Alyce Lomax does not own shares of Zipcar in her personal portfolio. The Motley Fool owns shares of Netflix, Hertz Global Holdings, Tesla Motors, and Zipcar. Motley Fool newsletter services have recommended buying shares of Tesla Motors, Zipcar, and Netflix. 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.


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  • Report this Comment On June 19, 2012, at 12:12 PM, dbtuner wrote:

    The conventional companies can hurt ZIP by driving ZIP's costs up. An example is parking spaces. Many cities gave ZIP the best spaces for free as they were the only ones asking for spaces. Now in Wash DC and other towns, the cities figured out they can raise money by putting the spots up for bid. ZIP's costs go up and they don't get the best spots anymore.

  • Report this Comment On June 19, 2012, at 2:28 PM, Carioca58 wrote:

    If Tesla is your counter-example, we are in trouble! Tesla still has to prove itself in the automobile manufacturing market, more than Zipcar has to do it in the car rental market.

  • Report this Comment On August 18, 2012, at 12:23 AM, anuvaka wrote:

    >i>Have you ever known anyone to feel a particular affinity to any of these companies after a car rental?</i>

    Yes, me.

    Enteprise offered Classic Cars to members. Since I was in field service and flew and rented a lot, it was 'cool' to show up in a 55 Chevy, 57 T-Bird or whatever.

    Would I rent a Tesla today? U-betcha. I might have to call in favors and wire an outlet to charge it but this is Todays Cool Car.

    OTOH Zip provides a green, cheap service. In large cities they will avail city dwellers a car when needed for transport. Zip will not do well outside of large cities, but triumph for one time use.

    Suppose you sold your big screen A/V computer system on Craig's list. Rent a Zip van, deliver it and take the bus home. And Profit.

    See?

    jC

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