An Overreaction on Zipcar?

The following video is part of our "Motley Fool Conversations" series, in which industrials editor/analyst Isaac Pino and research analyst Austin Smith discuss topics around the investing world.

Today, Isaac and Austin discuss a wreck of an earnings report at Zipcar. The company's conference call revealed a growth trajectory that underwhelmed investors. Subsequently, seven Wall Street firms downgraded Zipcar's shares and the company lost 30% of its market capitalization. Was the sell-off justified? Perhaps, since a lot of investors expected car sharing to be a hot growth market for years to come. Instead, Zipcar outlined the hurdles that it still needs to overcome. Specifically, the company laid out four specific objectives:

  1. Encourage new memberships with fewer upfront fees.
  2. Look into potential new services like peer-to-peer car sharing and intra-city one-way trips.
  3. Retool its marketing approach, including a new referral program and a greater focus on partnerships.
  4. Upgrade existing technology though a better reservation system and mobile app.

Since the company's IPO, the stock's been anything but zippy, and with new competition from Avis and Hertz, investors are hoping these plans will kick Zipcar into a higher gear.

Zipcar's business model has yet to prove itself, but if you're looking for a company clicking on all cylinders, then look no further than our new free report, "The Motley Fool's Top Stock for 2012." In it, our chief investment officer identifies his favorite company for the year. To access the report before the rest of the market catches on, click here -- it's absolutely free.

Isaac Pino owns shares of Zipcar. The Motley Fool owns shares of Hertz Global Holdings and Zipcar. Motley Fool newsletter services recommend Zipcar. Try any of our Foolish newsletter services free for 30 days. 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 (2) | Recommend This Article (1)

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  • Report this Comment On August 10, 2012, at 8:32 AM, BFatConservative wrote:

    Isaac,

    As an expiring shareholder as of the 18th (thank goodness for protective puts), I am not impressed with the investor relations - as I have asked about 4-5 well thought out questions and they have not even once responded to me. That gives me a feel that investors are secondary in their ambitions to grow the company.

    This company has a long road to being attractive to shareholders. That is if competitors don't cut margins down to intolerable before that comes to fruition.

    MjH

  • Report this Comment On August 10, 2012, at 9:48 AM, mrbkush wrote:

    The video isn't currently working.

    It seems irresponsible of you to keep leaving out major competition.

    Mercedes has Car2Go a by the minute one-way with free parking service. Enterprise is competing in the college space directly with ZIP. Uhaul has an in the neighborhood service. Toyota and BMW are starting their own hourly systems.

    I see their only paths is to sell their assets, most likely to WeCar, or partner with someone like Ford. The major rental companies and car manufacturers can leverage the hourly rental business into other profit centers and have the resources to make enough cars available during peak hourly demand. ZIP has to make money on the hourly service and just doesn't have enough capital to expand while taking losses.

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